Spider-Man Product Licensing Update

Overview

  • In September 2011, Sony Pictures and Marvel simplified their relationship around the Spider-Man franchise
  • Sony will focus on producing, marketing and distributing Spider-Man films. Marvel will focus on the licensing and retail support for consumer products

oSony will continue to have the right to conduct co-promotions relating to Spider-Man films during specified time windows around the release of each film. (The window for consumer electronics products is 12 months prior to the release until 28 months after release of each film.) If Sony wishes to incorporate Spider-Man IP into advertising or promotion or packaging, it can do so as part of a co-promotion with SPE and no additional rights are required from Marvel.

  • Sony will continue to have the right to conduct co-promotions relating to Spider-Man films during specified time windows around the release of each film. (The window for consumer electronics products is 12 months prior to the release until 28 months after release of each film.) If Sony wishes to incorporate film-related Spider-Man IP into advertising or promotion or packaging (and not incorporate in the product itself), it can do so as part of a co-promotion with SPE and no additional rights are required from Marvel.
  • If Sony wants to incorporate Spider-Man IP into a product (and not merely use Spider-Man on packaging or advertising as part of a co-promotion), Sony must license that right from Marvel on a case by case basis.
  • There continues to be a prohibition on Marvel entering in to licenses for CE categories, except for a new and narrow exception that allows Marvel to seek third party licenses subject to numerous restrictions designed to protect Sony

A change in the agreement allows Marvel to seek third party licenses in Consumer Electronics subject to numerous restrictions designed to protect Sony.

Restrictions on Spider-Man CE Licensing By Marvel [Nagata-san to elaborate based on previously provided summary]

Note: The restrictions apply only to third parties. If Sony obtains a license to incorporate Spider-Man IP into its products through negotiation with Marvel or through exercise of Sony's last refusal right, Sony is not subject to any of these restrictions.

  • Licensee Restriction. Marvel can only license Spider-Man CE rights to companies that have total worldwide CE sales of less than $1 billion500 million per year.
  • Product Restrictions. All CE products that include Spider-Man IP must comply with the following:
  • Entire product must be covered with character-based design elements (except where it would interfere with function of product)
  • Designed for children 10 and under, with less sophistication than top of line products
  • Marketed to children 10 and under
  • Low price point, significantly less than top of line products
  • No branding except as required by law
  • No licensing of products in prohibited categories (TV over 20 inches, game consoles, tablets)
  • Sony First Negotiation Right. Marvel must provided Sony with 30 calendar day right of first negotiation, on a product by product basis, before Marvel can discuss licensing to any third party
  • Sony Last Refusal Right. If Sony and Marvel do not reach agreement during the 30 day negotiation period, Marvel can negotiate with third parties. Any deal negotiated by Marvel must comply with the Licensee Restriction and Product Restrictions described above. If Marvel obtains an offer from a third party that Marvel wishes to accept, Marvel must notify Sony of all of the business terms of the offer (and the identity of the party that made the offer) and provide Sony with a 10 business day option to acquire the rights by matching the third party offer – except that may obtain the rights for the same economic terms without agreeing to any Product Restrictions.

Typical components of a product license

  • Term – duration of the license
  • Minimum Guarantee – non-contingent payment from licensee to Marvel. The bulk of the Minimum Guarantee is usually paid on signature of the license.
  • Royalty – percentage of revenues from sale of the licensed product paid to Marvel. The Minimum Guarantee is usually treated as a pre-payment of the royalty and no further royalty payments will be due until they exceed the amount of the Minimum Guarantee.
  • Territory in which the licensee is allowed to sell licensed products
  • Products covered by the license. Spider-Man elements of product will generally have to conform to Marvel's style guide and Marvel will generally have approval over product design.
  • Exclusive or non-exclusive
  • Other standard terms and conditions relating to, amongst other things:
  • Process for licensee to receive assets
  • Process for licensee to submit products to Marvel for approval

Licensing Discussions will Follow Two Paths

Two Potential Approaches to Licensing Discussions for Sony

1. Responsive

  • Regardless of Sony’s potential interest in licensing Spider-Man for use in our product, Sony will need to respond to requests by Marvel under the right of first negotiation for permission to seek licensees in various CE categories and territories
  • Under this approach
  • Right of first negotiation can be viewed as a catalyst for Sony to evaluate products for which it may seek to license Spider-Man IP
  • Right of last refusal can be viewed as a protection in product categories we did not initially seek to license but for which we prefer that specific licenses not be executed

2. Proactive

  • Independent of Marvel’s submissions, Sony may enter licensing negotiations with Marvel for any product category (CE or otherwise) at any time
  • If Sony expects to enter into such negotiations, it may wish to create a list of relevant product categories and territories and commence discussions now

Process for Right of First Negotiation and Right of Lat Refusal

[See attached diagram]

An Exception to the Process: Marvel Partner Discussions that began before September 15, 2011 [Nagata-san to elaborate based on previously provided term proposal from Marvel]

  • Prior to restructuring our relationship, Marvel had the right to enter Spider-Man CE licensing discussions with third parties but was only able to enter such licenses with Sony’s approval. Sony has approved a number of such licenses in the past.
  • At the time the restructuring of the Sony/Marvel relationship was finalized, Marvel was already in the advanced stages of discussions with Sakar and KIDdesign for certain Spider-Man CE licenses in the U.S. and Canada. The licensing of these rights is subject to Sony's right of first negotiation and last refusal under the restructured deal.

A potential approach that Marvel has said they support:

  • In this specific circumstance, Sony has the benefit of conducting its negotiations for these rights under its right of first negotiation with the benefit of seeing terms that had previously been discussed between Marvel and each of Sakar and KIDdesign
  • Sony has expressed some interest in licensing in a subset of these categories. Marvel is prepared to discuss these categories. Sony can propose any terms it wants, including a possible license of rights for additional territories (rather than just the U.S. and Canada).
  • Once Sony and Marvel complete their negotiation (or the 30 day negotiation period expires), Marvel would be able to negotiate with Sakar and KIDdesign for all categories not licensed to Sony. Sony would still have its right of last refusal with respect to any proposed license by Marvel to Sakar or KIDesign.

What’s Needed from Sony Corporation

  1. A point person for receiving and monitoring notices from Marvel with respect to Sony's rights of first negotiation and last refusal.
  1. Preparation for a response to inbound requests by Marvel, which are anticipated late this week or early next week
  1. Sony can approach Marvel to license in any category at any time (whether CE products or other products). If Sony wishes to enter licensing discussions proactively generally in certain categories, Sony should provideIf Sony wishes to enter licensing discussions generally in certain categories:
  2. A list of those categories and territories
  3. A point person for discussions with Marvel
  1. Sony has expressed interest in licensing a subset of the products incorporated in the Sakar & KIDdesign requests
  2. A point person is needed to begin discussions with Marvel around these products