Investor meetings are usually boring, but not when the topic of discussion is Iron man 2, Thor and Wolverine. See what went on in the Marvel Q4 Investor call. That’s right, this is the full transcript. Why didn’t we just cherry pick the good parts for you? Well, there’s just too many. Don’t worry its a pretty fast read.

Q4 2008 Earnings Call

February 24, 2009 9:00 am ET

Executives

F. Peter Cuneo – Vice-Chairman of the Board

Kenneth West – Executive Vice President, Chief Financial Officer

David Maisel – Chairman, Marvel Studios

John Turitzin – Executive Vice President, Office of the Chief Executive

Matt Finick – Senior Vice President Marvel Studios

Analysts

Drew Crum – Stifel Nicolaus

James Marsh – Piper Jaffray

David Miller – Caris & Company

Jason Bazinet – Citigroup

Todd Schwartzman – Sidoti & Company

Ben Mogil – Thomas Weisel Partners

Doug Creutz – Cowen & Company

David Bank – RBC Capital Markets

Joseph Hovorka – Raymond James

Vasily Karasyov – J.P. Morgan

Mike Hickey – Janco Partners

Barton Crockett – Lazard Capital Markets

Jake Hindelong – Monness, Crespi, Hardt & Co.

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Marvel Entertainment fourth quarter results conference call. (Operator Instructions) I would now like to turn the conference over to Mr. Peter Cuneo, Vice Chairman at Marvel Entertainment. Please go ahead, sir

F. Peter Cuneo

Thank you, Operator, appreciate it. Good morning, everyone. Welcome to our fourth quarter conference call. We have in addition to myself five other participants today. Calling in from Marvel Studios’ new offices and facility in Manhattan Beach, California, we have David Maisel, the Chairman of Marvel Studios; and Matt Finick, who is Senior VP. In New York here we have John Turitzin, our Executive Vice President and Chief Legal Counsel; we have Ken West, our Chief Financial Officer; and Rob [Steffens], who is Senior Vice President Finance.

As usual, we will start with the reading of our Safe Harbor agreement. We will then have some prepared comments, first from Ken West, our CFO; and then from David Maisel, the Chairman of Marvel Studios; and then we will as usual open the line for questions. We will start with our Safe Harbor agreement.

John Turitzin

Some of the statements that the company will make on this conference call, such as statements of the company’s plans, expectations, and financial guidance, are forward-looking. While forward-looking statements reflect the company’s good faith beliefs, they are not guarantees of future performance and involve risks and uncertainties and the company’s actual results could differ materially from those discussed on this phone call.

Some of these risks and uncertainties are described in today’s news announcement and the company’s filings with the Securities and Exchange Commission, including the company’s reports on Form 8-K, 10-K, and 10-Q. Marvel assumes no obligation to publicly update or revise any forward-looking statements.

Kenneth West

Good morning, everyone. This is Ken West and thank you from joining today’s call to review Marvel’s record results for the full year 2008, which reflected the benefits of the launch of our Marvel Studios film slate. I will now provide a little extra color on a few aspects of our Q4 and full year 2008 results and our guidance for 2009.

In our licensing segment, Q4 2008 net sales reflect a total contribution of $8.5 million from Hasbro and for the full year, the contribution from Hasbro, included within both domestic and international licensing, amounted to $45 million. We anticipate generating overages under the initial Hasbro license beginning sometime in 2011 and I will update you later in my comments on the Hasbro license extension we announced last Tuesday.

For full year ’08, our publishing division continues to be a strong performer, with 41% of dollar share and 46% unit share in its primary market, the direct market. Our publishing margins are down slightly due to investment in digital media of approximately $2 million net during 2008.

Despite the negative comments we have heard regarding retail sales performance within the DVD market, we are very pleased to report that both The Incredible Hulk and Iron Man DVDs have been performing at or above our expectations. We remain very comfortable with our existing [estimates] given our performance to date — both profitable films.

2008 home video collection, as reported by our distributors on a worldwide basis were roughly $190 million for Iron Man and $14 million for Hulk. Since Hulk was still recouping its P&A costs, we have not yet recognized any income related to these collections and expect the majority of Hulk’s home video collections to be recorded in 2009. We did, however, record the DVD portion of the Hulk foreign presales during Q4 2008, as well as modest producer fees.

We have been told that many other DVD titles are generating sales that are below expectations anywhere from 10% to 30% or more. We believe that our strong performance is related to the quality of the films that we produce, the strength of the Marvel brand, the built-in fan base for Marvel projects, and the excellent marketing job done by our distribution partners.

Cash flow continued to be positive also. At year-end 2008, cash and equivalents, restricted cash, and short-term investments amounted to $182 million, up from $145 million as of September 30, 2008, with no borrowings under our corporate credit line. Marvel’s film related borrowings increased to $213 million at year-end 2008, up from 182 at September 30, as we borrowed $30.7 million to fund our film slate’s liquidity reserve and for anticipated interest costs in Q1 2009. Such funds are classified as restricted cash at year-end.

Cash receipts related to Iron Man DVD revenues accrued at year-end were collected earlier this month. Accordingly, you will note an approximately $111 million increase in accounts receivable at year-end versus the balance sheet at the end of the third quarter. These proceeds were as collected applied to reduce film borrowings and as a result, film borrowings will drop significantly in Q109, only to start ramping up as we proceed into principal photography on Iron Man 2 and Thor later this year.

Having detailed our share repurchase activity, I did want to add that since inception of Marvel share repurchase programs in 2004 through year-end 2008, the company has repurchased approximately $45 million shares for a total cost of $872 million, or approximately $19.43 per share.

During Q1 2009, we have repurchased approximately 275,000 additional shares for a cost of approximately $6.5 million. The board continues to view opportunistic share repurchases as an attractive use of excess cash; however, we have also embarked on a strategy to make selected investments in entertainment projects.

In addition to funding on an interim basis the up-front development costs of our feature films prior to their being greenlit, we have also committed to funding one-third of our feature film production budget and we are funding the cost of two animated TV series. Additionally, we are making investments in our online initiative.

Turning now to guidance, this morning we reiterated our full year 2009 financial guidance as first provided on November 4th, when we reported Q3 2008 results. For 2009, we continue to anticipate revenues of $415 million to $460 million; net income of $80 million to $105 million; and earnings per share of $1.00 to $1.35.

However, we have slightly modified our segment expectations versus prior guidance, specifically to reflect the strength of Iron Man, we raised our film production segment revenue by $5 million. We also reduced our publishing expectations by $5 million to $10 million at the top line to a range of $115 million to $125 million, and reduced our margin expectation to 31% to 35% from a range of 34% to 37%.

The decreases in publishing revenue and margin primarily reflects expected headwinds in the book marketplace, as well as our plans to proactively reduce titles distributed via [news van]. These adjustments net out, leaving our overall guidance unchanged for the full year.

We recognize the weakness in the macro global economy and factored that weakness into our guidance when we initially provided it last November. Based on our experience to date and dialog with a range of partners, we continued to believe our current guidance range remains appropriate at this time.

As for our cash needs during 2009, we will fund one-third of the production budget of the Iron Man 2 and Thor feature films up-front, as well as fund the pre-production costs of both Captain America and the Avengers, and the cost of two animated series being produced by Marvel. These obligations will aggregate approximately $175 million during 2009. We will be able to borrow from the film financing to reimburse ourselves to pre-production costs upon greenlight of each film and we are also entitled to recoup up to 100% of our one-third funding for our feature films from the net receipts from the international territories previously presold.

Given expected cash to be generated across all our businesses, the $50 million up-front guaranteed paid to us by Hasbro in conjunction with last week’s extension of the master toy license, and without giving effect to any further stock repurchases, we expect to end 2009 with cash in excess of $130 million and still no borrowings under our corporate credit facility. We also estimate net interest expense to approximate $12 million during the year 2009.

Finally as you know, last week we announced the extension of our master toy license with Hasbro through 2017. Our relationship with Hasbro, the leading manufacturer of boys toys, has formed a very solid foundation for years to come. This extension provides a $100 million non-refundable minimum guarantee to Marvel, $50 million of which was paid on signing and the remainder to be paid upon [inaudible] of the renewal term.

The $140 million in additional guarantees relates to the release of various features films based on certain character film franchises during the license period. The advances range from $10 million to $30 million depending on the respective property. To be clear, these payments represent up front minimum guarantees which once recouped will position Marvel to earn additional royalty overages.

The terms of the relationship are largely similar in scope, though the overall royalty structure is somewhat lower than our current agreement and we have provided Hasbro with some additional areas of product exclusivity.

As for the timing of the agreement, all parties believe that the greatest potential for this license relationship can only be realized by developing and working together on cohesive long range global plans. Hasbro can now be certain of a strong pipeline of Marvel projects for the next nine years and Marvel can focus on its entertainment slate, knowing we have a powerful global toy partner to fully exploit the opportunities our projects will provide. We don’t think we can find a stronger partner to manage this key license category.

Let me now turn the call over to David Maisel to provide an update on our studio activities.

David Maisel

Thanks, Ken. First, we continue to be very pleased with the performance of our first two films, Iron Man and The Incredible Hulk. Both films ended up the year in the top 15 U.S. performers for 2008, with Iron Man the second-biggest film of the year at $318.4 million, and now the 21st biggest film of all time, and The Incredible Hulk at number 15 for the year at roughly $135 million. As Ken mentioned, we are also very pleased with the film’s performance in the home entertainment marketplace to date.

However, most importantly, we are pleased with the strong foundation for our future activities that these films’ success and strong word-of-mouth have provided. We are hard at work in preparing for the April start of production on Iron Man 2, with Jon Favreau directing and Robert Downey Jr., Gwyneth Paltrow, Don Cheadle, and the summer target for Thor. Since our last call, Kenneth Branaugh has been officially brought on as our Thor director and stay tuned for casting announcements on both films.

In addition, we have taken further steps to strengthen our feature film slate — the most major step is the recent move of our studio offices to Manhattan Beach, California, and lease of an adjacent five sound stages and pre- and post- production facilities. This complex will be the center of Marvel’s movie-making going forward and we believe will provide both cost efficiencies as well as quality enhancements.

In addition, we continue to take steps to strengthen the foundation of the studio, like the start of a writer’s program, bringing talented script writers on salary to work continually with the Marvel creative team, hopefully to enhance our developments and our production abilities going forward.

Lastly, we have also made many exciting studio developments outside of the feature films. Later today will be the official announcements of the opening date of our Spider-man musical for next February. Our director, Julie Taymore, and songwriters Bono and The Edge, have created a very unique and wonderful theatrical experience and we can’t wait to unveil it to the world.

In addition, our TV animation activities continue to expand, as shown in our press release. Most of these shows center on our theatrical brands; however, it’s notable to point out a new brand, Superhero Squad, and the significant broadcast support it will receive from Cartoon Network.

With that, I will turn it back over to Peter.

F. Peter Cuneo

David, thank you very much. Thanks, Ken. Operator, we’d now like to open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Drew Crum of Stifel Nicolaus.

Drew Crum – Stifel Nicolaus

Great, thanks. Good morning, everyone. I just wanted to get some commentary on what you are seeing in terms of from your licensing partners with respect to minimum guarantees, terms, et cetera, ahead of Wolverine. Secondly, it sounds like you are holding up in the home video market but given the deterioration we’ve seen over the course of the last several months, any revisions to the film model going forward?

And then finally with the Spider-man musical coming in February of next year, how will that impact the P&L in 2009? Thanks.

F. Peter Cuneo

David, do you want to talk about the home video market?

Matt Finick

Yes, this is Matt. As Ken mentioned in his opening comments, for us the home video results have been in line or exceeding what we’ve had in our ultimates, and I think that probably had to do with a couple of things. We released our DVD, especially on Iron Man, we released our DVD a little bit earlier just before the market started to fall. I think we also have an installed base of Marvel fans that helped us, and thirdly, we spent a lot of time on the special features so I think our content was very strong.

When looking forward, I think right now we are happy with all of the assumptions that are in our ultimates, so while we are seeing the overall DVD market is challenging right now, I think our numbers are — we’re comfortable with our numbers.

Kenneth West

Regarding the Spider-man musical, for 2009 there’s no material financial effects. Just to reiterate, we are not investing any capital into the Spider-man musical and we do have a very significant first dollar gross participation in all the revenues. So for 2009, there should be no financial effects; 2010, again no cost effects, only whatever revenues we get as our gross participation in the show, including merchandise revenues, by the way, which some of these shows do significant business in.

F. Peter Cuneo

Thank you. Drew, your question regarding licensing, we continue not to see any major weaknesses in our licensing programs based on conversations with our licensee partners. That doesn’t mean that something can’t develop later this year and as we’ve mentioned several times in our guidance, we think we’ve been appropriately reserved when it comes to some of our forecasts.

With regard — I think you asked a question also about Wolverine. Our expectations for Wolverine are modest, and this is based on the fact that the licensing programs for the X-Men in general in the past coupled with the movies have been modest, so we don’t expect a particularly big reaction to Wolverine at this point.

Drew Crum – Stifel Nicolaus

Peter, are the licensing programs in ’09 similar to what you’ve done in previously film cycles with the X-Men franchise?

F. Peter Cuneo

Yes, they are.

Drew Crum – Stifel Nicolaus

Okay. Okay, thanks, guys.

Operator

Our next question will come from the line of Mr. James Marsh of Piper Jaffray.

James Marsh – Piper Jaffray

Two quick questions here; one, I was hoping you could flesh out a little bit the economics of the self-produced TV animation business. And then secondly, if you could just follow-up and maybe provide a little bit of color on Blu-Ray versus standard DVD sales for Iron Man — just a little color there. Does it give you more confidence in the Blu-Ray format or less?

Kenneth West

With respect to the self-produced animation, the economics of those are such that clearly we view the fact that the actual exploitation revenue to be generated will not necessarily match the actual production costs but the licensing surrounding the animation is really where we get the overall economic model to make sense for Marvel.

As far as Blu-Ray, although we are not going to talk about the number of units and such, the Blu-Ray exploitation for both The Incredible Hulk and Iron Man were really phenomenal in comparison to the industry statistics and our expectations. We’re very happy with it and we’re just very pleased that Blu-Ray has been exploited to the extent it has and we believe there’s a greater number of units that have been put into households throughout this holiday season, so we look forward to the future for that.

F. Peter Cuneo

I would also point out with regard to the self-produced TV series, we still consider television to be the best media form for us reaching our fans worldwide on a global basis on a regular basis, and so then part of this spend is really viewed by us as promotional. We think that by keeping those characters in front of very large audiences around the world, it aids all of our business segments.

James Marsh – Piper Jaffray

Thank you, gentlemen.

Operator

Our next question will come from the line of Mr. David Miller from Caris. Please go ahead.

David Miller – Caris & Company

Good morning. Just given all the challenges out there in the overall home video market and of course the argument raises as to whether these are cyclical or secular challenges, Ken or anyone else, have you guys looked into the possibility, along with your partner, Paramount, in perhaps lowering the cost of producing a DVD unit? So for example, maybe producing less extras for Iron Man 2 or Thor? You know, finding a way to lower the replication cost, et cetera, et cetera? Thanks very much.

David Maisel

Frankly, even independent of what might be going on with the trends in the DVD market, as most of you all are aware, we are very focused on the profitability of our businesses and the profitability of our films, and we take a lot of pride in that. So obviously we are proud of the revenue results for the two films but we are equally proud on our management of costs and on the profitability maximization. So the short answer to your question is yes, we are looking at everything we can across all of our businesses here in the studio, all of our different revenue streams, all of our different cost items repeatedly to see what we can do to minimize costs where we don’t think it will have any kind of material effect on the revenue side, and also to look at new ways and approaches of doing our businesses and maximizing the expected profitability of each of these films. So we are looking at everything we can from our current films and films coming up to maximize the profitability.

David Miller – Caris & Company

Thank you.

Operator

Our next question will come from Jason Bazinet from Citigroup.

Jason Bazinet – Citigroup

Thanks so much. I think in your opening remarks, you referred to the accounts receivable balance, and I was just wondering if you could give us any color in terms of the reserves, because I think that the net number that you’ve put in place for returns. And then any specificity in terms of the amount of cash that you’ve received — I think you said you received a lot of that cash subsequent to the Q4 results? Thanks.

Kenneth West

The way we build our ultimates, they are implicit in both the sell-through and implicit reserves associated with elements that will be returned in essence not sold through for DVD units. So the cash that we’ve accrued for at year-end that was subsequently collected, as I stated before in February, as we stated, is related to those units that have been sold through, collected, and reserves have nothing to do associated with the cash collection — just elements of the ultimates and the margin applied to all revenues to be recorded.

Jason Bazinet – Citigroup

Okay. All right, thank you.

Operator

Our next question will come from Todd Schwartzman of Sidoti & Company.

Todd Schwartzman – Sidoti & Company

Good morning, folks. First, a couple of things on Thor — any sense of when we might expect to hear casting announcements? And regarding production, you had mentioned the summer — do you have a more concrete date as yet?

David Maisel

Casting announcements, like I mentioned earlier on, stay tuned. We make those when it’s the appropriate time and as most of you are aware, there will be some more on the Iron Man film as well, which is starting production in just six or seven weeks. So you’ll see casting developments on both films coming up in the future.

And regarding the target date right now, summer is the best point in time to say that as we plan out all the specifics of the use of our space here and the pre- and post-production schedules.

Todd Schwartzman – Sidoti & Company

Okay. On the licensing business, do you have a sense for the fourth quarter as to how revenue by your partners’ retail price points broke out, either maybe delineated, under 30, over $30 or some sort — some such metric to get a sense of how the mix has been impacted and what the effect of the recession has been on this business?

Kenneth West

Well Todd, as you know we have hundreds of license partners — probably in excess of 600 or 700 different license partners, each of which sell and exploit potentially 50 to 200 different SKUs. So in general, I could say that most of the suggested retail prices associated with licensed products are within that $30 below — $30 and below price range. I’m not aware of any specific discounting that’s been taken into play by major retailers but we will potentially see some indications in the future.

Todd Schwartzman – Sidoti & Company

Have you gotten any feedback from Hasbro, for example, as to what sold particularly well?

Matt Finick

We know that Iron Man performed extremely well. Hulk was somewhat less modest but we do not have details to share on a SKU by SKU level that are meaningful to anyone.

Todd Schwartzman – Sidoti & Company

Fair enough. Thanks a lot.

Operator

Our next question will come from Ben Mogil of Thomas Weisel Partners.

Ben Mogil – Thomas Weisel Partners

Good morning. So Ken, the first one I think is for you — on the guidance that you guys have given, does the Hasbro license fee or the Hasbro addition of $50 million, is that included in the guidance or is that incremental to the guidance?

Kenneth West

Ben, with respect to Hasbro, the accounting for the Hasbro license is [consistent] with that which we’ve discussed in the past two or three years since we’ve been involved with them, and that is irrespective of the cash collections from these minimum guarantees, the revenue is triggered by actual reported sales and royalties from Hasbro to Marvel, so the cash advances are just those advances and earnings are based upon sales.

David Maisel

So Ben, there is nothing in the 2009 forecast in terms of profitability, revenues and profitability that’s generated by this new extension.

Ben Mogil – Thomas Weisel Partners

Okay, thanks. And this is just a cash collection item, a balance sheet or cash flow item, not an income statement item, effectively?

Kenneth West

Right, and as a result, you’ll see an increase in our deferred revenue associated with the [company].

Ben Mogil – Thomas Weisel Partners

Okay, great. That makes sense. In some of the channel checks that I’ve done, there’s been a lot of commentary from some of the mass merchants, particularly Walmart, that the direct-to-DVD market is exceptionally weak. When you look at some of the animated direct-to-DVD animated products that you are doing with Lionsgate, have you seen that weakness so far?

David Maisel

At this point in time, we haven’t seen anything that we would attribute to specific situation with the direct-to-DVD marketplace. It’s been more a function of the market reaction to our individual titles. We’ve been experimenting in that deal with different brands to see how they would respond in the marketplace. We have a very attractive deal with Lionsgate, our partner, where they are up-fronting the cost and are allowing us to try different brands over the course of our relationship. So nothing specific to the overall market — it’s just been varying sales dependent upon which brand we are putting out there.

Ben Mogil – Thomas Weisel Partners

Okay. And then maybe this is sort of more of a general, broad question but there’s obviously a lot of debate right now if the DVD sell-through slow-down is that secular or is it just cyclical because you get less foot traffic at the mass merchants because of the economy? Can you guys chime in on just sort of what your view is?

Kenneth West

You know, it’s obviously a question that we are focused on very much, along with our other colleagues in the studio business out here. I wouldn’t say that we are able to put out a view of anything at this point that we would want to put out as Marvel’s view. We are trying to learn as much as everybody else what is going on. As you all know, our next major film release is in May 2010, so we do have some time here to really learn what is happening in the marketplace and as we said in one of the other answers, to try and fine-tune our strategy and our product that we put out there to hopefully maximize sales, given what the environment is in 2010.

Ben Mogil – Thomas Weisel Partners

Okay, great. That’s very helpful. Thanks, guys.

Operator

Our next question will come from Doug Creutz of Cowen & Company.

Doug Creutz – Cowen & Company

Thanks. Can you give some color on what you expect the shape of EPS to look like in ’09? Is it front-half loaded, back-half loaded, et cetera? Thanks.

Kenneth West

Doug, based upon our view, we believe the year can be pretty much balanced between the first and the second half, so it’s about equal weighting versus second.

Doug Creutz – Cowen & Company

Great, thanks.

Operator

Our next question will come from David Bank of RBC Capital Markets.

David Bank – RBC Capital Markets

Thanks. Good morning. Two questions — the first one is you really seem to have exceeded very nicely on the licensing line and my question is as you sort of blew away the number in the fourth quarter, while guidance was tweaked up a little bit for 2009, it wasn’t tweaked up kind of anywhere near the blowout in fourth quarter, so what’s the thought process there? Was there any particular deal that drove the beat in fourth quarter? Was it more toy related or more licensing related? If you give a little more color — and why not increased optimism about 2009, is the first question. And the second question — not that 2009 doesn’t look great, and the second question is can you clarify a little on the impact of you having to finance a third of the production costs that you weren’t doing before? Can you just review what triggered that, and is there any impact to the P&L in the studio model? What is the overall impact to the P&L, if any?

F. Peter Cuneo

Well, let me take the first question and I think David or Matt can respond to your second question regarding the financing of our films. As far as optimism for ’09, as I think we’ve previously mentioned, we are being hopefully guarded in our projections. We’ve said during the last conference call and during this conference call that there is some sense of modesty built into our forecast for ’09. We don’t think you can necessarily relate the licensing in the fourth quarter of ’08 to generally to ’09 at all. We simply have to wait and see what the overall effect of a worldwide economy is going to be on our business. We certainly like to think that in difficult times, entertainment businesses are not nearly as affected as other businesses but we have never been through this kind of situation before, never before on such a global basis. So this will have an impact not only on us but on all of our business partners. And again at this point, we think it’s appropriate to be somewhat guarded.

David Maisel

And regarding the question about one-third of the budgets, as you all know we approached the business and entered the business in a very fiscally conservative manner, which we felt was appropriate as we entered an entirely new business for Marvel in producing these movies. Given the success of the first two films, as we analyzed the economics and the best use of our capital and the best way to maximize our profits on these movies. We realize that putting up a third of the budget was appropriate. It allowed us to have the chance to maximize the profits, for example, not having to pre-sell five foreign territories before the production of a movie. Matt can comment on any P&L changes that that might have.

Matt Finick

Yeah, so we are going to be able to control the release in those territories which we think we’ll be able to maximize revenues as well as profits. We are going to be able to recoup our one-third investment out of all revenue windows in those territories, so we do not think there will really be an impact on the P&L.

David Bank – RBC Capital Markets

Okay, and can I just clarify, Peter — thank you for the explanation but just to clarify, were there any sort of big one-time deals or anything that drove the out-performance, or was it just kind of solid sales — you know, better than you had expected thanks to the conservatism?

F. Peter Cuneo

Just solid sales — there was no major deal that impacted the revenues in the fourth quarter.

David Bank – RBC Capital Markets

Okay. Thanks for all the questions, guys.

Operator

Our next question will come from Joseph Hovorka of Raymond James.

Joseph Hovorka – Raymond James

Thanks, guys. Early on in your commentary, you mentioned $190 million in revenue for Iron Man DVDs and $14 million for Hulk, I believe?

Kenneth West

Correct.

Joseph Hovorka – Raymond James

Were those the — what were those and of what date was that by? Is that 12/31?

Kenneth West

Those are amounts in the fourth quarter — those are amounts actually collected by our distribution partners and then after the recoupment of various different P&A elements and spends on the DVD marketplace, the net has been remitted to us. We record as revenue and as I stated before, we collected in February.

Joseph Hovorka – Raymond James

Okay, and what does that represent for each of those? In Iron Man, is that primarily domestic at this point?

Kenneth West

No, that is a worldwide number and is associated with collections for both the domestic and international. The domestic is a little sooner than the international so there are more monies to come in 2009.

Joseph Hovorka – Raymond James

From the — okay, and could you give us a unit number that would correlate to those revenue numbers?

Kenneth West

No, I —

Joseph Hovorka – Raymond James

Like a unit number for DVDs?

Kenneth West

No, in fact, we’re not going to go into details associated with units or pricing. We’re just very comfortable with the numbers, with the results we have so far and our expectations for 2009, continued sell-through.

Joseph Hovorka – Raymond James

Okay, and just one more clarification — the $14 million on Hulk that is actual — that was not the presale you were talking about, that was actual sales of DVD that were recorded in the fourth quarter?

Kenneth West

That represents what Universal has collected associated with the Hulk. There were P&A costs offset against that and there was a similar value of $14 million that was the amount that was recognized on the presold foreign territories associated with the Hulk DVD, so there’s a —

Joseph Hovorka – Raymond James

So $14 million was the number that was recognized in the fourth quarter?

Kenneth West

Correct.

Joseph Hovorka – Raymond James

By you as well?

Kenneth West

Yes.

Joseph Hovorka – Raymond James

Okay, great. Thank you very much.

Operator

Our next question will come from Vasily Karasyov of J.P. Morgan.

Vasily Karasyov – J.P. Morgan

Good morning. Thank you for taking my question. I was wondering if you could comment on what you are seeing in international markets, given that international theatrical markets have been such an important driver over the past couple of years — do you think that will be hit disproportionate to the United States, given that in some emerging markets, the ticket prices have probably put it in a more luxury category than it is in the United States? Thank you.

David Maisel

We are very focused on the international marketplace for these films and you are right that the international marketplace is growing in importance overall relative to all the different revenue streams. To that end, we work with Paramount in really analyzing not just international but country by country, what the dynamics are and what’s the best way we can maximize the profitability of our films in each of those countries through all the different revenue streams in those countries, whether it be theatrical or DVD or TV.

We are also very focused on constantly looking at ways to improve the reception to our films overseas. We look forward, especially with the sequel to a movie like Iron Man, and normally look at the performance of our other movies — they seem to improve their percentage of revenues internationally versus domestic as we get into the second and third move of those franchises because the brand becomes more and more well-known from the first film’s marketing as well as from the buzz and the DVD viewership off of that first movie.

So we are very focused on international and we are very focused specifically on seeing how we can maximize Iron Man 2’s international performance as well.

Vasily Karasyov – J.P. Morgan

Thank you.

Operator

Our next question will come from Mike Hickey of Janco Partners.

Mike Hickey – Janco Partners

Hey, guys, congrats on a phenomenal 2008. Curious on your Hasbro deal — I think you said you recognized $50 million up-front, so I’m assuming that would be in Q1. Was that baked into your original provided in November?

F. Peter Cuneo

As I said earlier, Mike, maybe we weren’t clear — the $50 million that we received up front has no profit impact, no revenue impact on our ’09 numbers. As Ken pointed out, we don’t recognize — that will go into deferred income. So basically we don’t recognize any revenue or resulting profitability until there are actual sales by Hasbro to earn out those numbers.

Mike Hickey – Janco Partners

Thanks, Peter, and then could you reflect a little bit on the videogame side of your business for 2008, if you are happy with the game tie-ins with Iron Man and Hulk? And I know your pipeline that you provided us doesn’t have any of the videogame releases but maybe some expectations for 2009? And I have one quick follow-up.

F. Peter Cuneo

I would just say briefly, we are pretty happy with the results from ’08 and we are very excited about the line-up of games coming out for ’09 — games are clearly a very important part of our licensing business.

Mike Hickey – Janco Partners

Okay, and then when we model out 2010 and we think about Iron Man 2 and Thor and the collection the economics from those films’ releases, should we be thinking that it will be similar to how it rolled out in 2008?

Matt Finick

The only major change is that for Iron Man and Hulk we had the five territories that were presold that generated some up-front revenues. We’re not going to have that on Iron Man 2 and Thor but outside of that, it’s sort of business as usual, watching the theatrical and then once they recoup the P&A, we record revenues.

Mike Hickey – Janco Partners

Okay, thanks, guys.

Operator

Our next question will come from Barton Crockett of Lazard Capital Markets.

Barton Crockett – Lazard Capital Markets

Okay, great, thanks for taking the question. I wanted to ask a question about the license sales that you were talking about for Iron Man and Hulk. You said that Iron Man was strong and I think Hulk was less so, and I was wondering if you could be a little bit more specific and tell us if Hulk, this time the license sales were lower than the last movie. And in absolute terms, was Iron Man bigger than Hulk and can you give us some sense of the magnitude of the difference there?

Kenneth West

With respect to the Hulk licensing program, it was less successful than Iron Man for sure. The Iron Man licensing program was very popular and we are very thankful for that and look forward to that coming out again in 2010, although we are not going to give any indication of guidance for years beyond 2009 — again, very happy for Iron Man licensing and Hulk was moderately successful.

Barton Crockett – Lazard Capital Markets

Okay. Was Hulk licensing this time less than the licensing for the last Hulk movie?

David Maisel

The results are still coming in, given how royalties are reported, so we do not yet have a final number tally.

Barton Crockett – Lazard Capital Markets

Okay. Any sense of whether it will be better or less or just too early to tell?

David Maisel

It’s definitely too early to tell at this juncture.

Barton Crockett – Lazard Capital Markets

Okay. All right, and then in terms of the production budget for Iron Man 2, can you just remind us how much more you are going to spend on that movie this time than the first time, given it is a sequel and success payments to actors?

David Maisel

Not surprisingly, we’re not going to comment on the budgets for our films going forward but I will reiterate what I said earlier, is that we are focused very much on the profitability of our movies and we take the approach of looking at every expense item and looking at what we can put on the screen and challenging all the held beliefs that might be in the industry and re-looking at them as we did in entering this business, so that we can try and maximize both the market performance but most importantly the profitability of these movies going forward.

Barton Crockett – Lazard Capital Markets

Okay and then just one final question about license sales, which is great to see how they have been holding up but I was wondering if you could provide a little bit more color on unit sales, because obviously your license revenues are a mix of up-front minimums and then overages, and within that you can kind of obscure what is happening with unit sales. Did unit sales in the fourth quarter, were they on track with what you would have hoped overall and even better than what you would have hoped?

F. Peter Cuneo

It’s very hard for us to track unit sales. As we previously mentioned, we have 600 or 700 or 800 active licensees on a global basis. Perhaps the average licensee puts out 50 to 200 individual SKUs, so if you do the math, you can see that there are tens of thousands of Marvel products out there spread around the world, all at varying price points. As Ken mentioned, most of them are certainly below $30 but we have no way to really check/track the unit trends, given the tremendous diversity of the product that’s out there.

Barton Crockett – Lazard Capital Markets

Okay. All right, that’s understandable. Thanks for taking the questions. I really appreciate it.

Operator

Our next question will come from Jake Hindelong of Monness, Crespi, Hardt & Company.

Jake Hindelong – Monness, Crespi, Hardt & Co.

Good morning — I just want to focus a bit more on the profitability of the 2010 films. As you think about home entertainment and home entertainment revenue, we’ve got a shift from DVD purchase to an extent to more rental and more digital download. How would you suggest thinking about that and possibly modeling the new revenue streams to offset some downturn in DVD?

David Maisel

We really can’t, as I mentioned earlier, give any kind of specific suggestions on what is going to happen in the marketplace, especially a year-and-a-half from now. We are focused on these films with the things that we can control, which is trying to make the best movies we can and market them in the best way possible. We are very excited about the launch of these first two movies but one of the reasons is, as we’ve mentioned, they help in terms of setting the marketing and the foundation for the next movies. We are doing everything we can in trying to make the best movies. We are making movies that all exist in the same universe and to some degree all connect together as different chapters in different — in our Marvel Universe saga. All those things are the things that we can do for our fans to try and maximize attendance at the movie as well as purchase whether it be DVDs or other different revenue streams. Exactly what is going to happen to the industry and what mix of revenues are going to be for DVD versus video-on-demand versus digital downloads, a lot will be written about I’m sure over the course of the next year but we can’t specifically on this call guide you in one way or the other.

Jake Hindelong – Monness, Crespi, Hardt & Co.

Thank you.

Operator

Thank you very much. At this point, I would like to turn the conference back to Mr. Cuneo. Please go ahead, sir.

F. Peter Cuneo

Thank you, Operator, very much. I appreciate everybody’s time this morning and look forward to chatting with all of you again in the near future. Thank you.

Operator

Thank you very much. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you disconnect your lines. Have a good day, everyone.

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