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
  • Sony will continue to have the right to conduct co-promotions relating to Spider-Man
  • As in the past, Sony has the opportunity to negotiate arms-length agreements with Marvel to license Spider-Man IP for use in our CE and any other products
  • Product licenses are distinct from co-promotions
  • Co-promotions generally promote the purchase of the product and the film simultaneously (e.g., through the inclusion of include Spider-Man Film imagery in packaging and/or advertising)
  • Licensed product generally incorporates Spider-Man imagery and/or branding directly into a product
  • There continues to be a prohibition on Marvel entering in to licenses for CE categories, except for a new and narrow exception A change in the agreement that allows Marvel to seek third party licenses in certain types of kid-focused Consumer Electronics subject to certain restrictions, including a right of first and last for Sony

Restrictions on Marvel’s CE Licensing Activity [Nagata-san to elaborate based on previously provided summary]

Note: The restrictions below apply only to third parties. If Sony wishes to license Spider-Man IP for incorporation in it’s products, it is not subject to these restrictions

  • Size limitations on licensees
  • Product Qualifications
  • Character-based molding
  • Designed for Children 10 and Under
  • Marketed to Children 10 and Under
  • Low Price Point
  • No branding
  • Prohibited categories (TV over 20 inches, game consoles, tablets)
  • Right of first negotiation for Sony
  • Right of last refusal for Sony

Typical components of a product license

  • Term – duration of the license
  • Minimum Guarantee – up-front payment from licensee to Marvel
  • Royalty rate – percentage of revenues paid to Marvel once royalty rate has been fully earned
  • Territory in which the licensee is allowed to sell it’s products
  • Products covered by the license
  • 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

Two Potential Approaches to Licensing Discussions for SonyLicensing Discussions will Follow Two Paths

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 for permission to seek licensees in various CE categories and territories
  • Under this approach
  • Right of first can be viewed as a catalyst for Sony to evaluate products for which it may seek to license Spider-Man IP
  • Right of last 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 CE licensing discussions but was only able to enter such licenses with Sony’s prior approval
  • Such discussions were in advanced stages with Sakar and KIDdesign for licenses in the U.S. and Canada
  • These discussions are still subject to the right of first negotiation and last refusal

A potential approach that Marvel has said they support:

  • In this specific circumstance, Sony has the benefit of conducting its negotiations under the “right of first” 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 this interest
  • Once Sony’s interest is resolved, Marvel would negotiate with Sakar and KIDdesign for all other categories and submit deals under the right of last

What’s Needed from Sony Corporation

  1. A point person for receiving and monitoring requests by Marvel under the right of first and last
  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 categoriesSony should provide:
  2. A list of those categories and territories
  3. A point person for discussions with Marvel these discussions
  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