For studios, cheap ads are a Marvel(ous) thing

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The media industry's slump has become Hollywood's unexpected boon.

In a soft economy that has otherwise gutted the advertising business, the movie industry is taking advantage of cheaper commercial time to build hype for several big-budget films - and ultimately sell more toys.

A number of movie studios have moved aggressively this summer to buy up more commercial slots on television and in print to promote films such as Transformers: Revenge of the Fallen and the forthcoming G.I. Joe: the Rise of Cobra .

In a business where marketing dollars are usually spent to generate ticket sales at the box office, the ad slump is seeing studios buy commercial time to generate more buzz, in hopes of converting it to higher sales of DVDs and action figures. In perhaps the boldest sign so far, Marvel Entertainment Inc. and toy maker Hasbro Inc. have increased the number of toys being made to coincide with the release of the Iron Man sequel next spring, at a time when other industries are scaling back.

"We're very happy to see a result of what's going on in the economy, which is a reduction in advertising costs," said David Maisel, chairman of Marvel Studios. "And we expect and hope to take advantage of that for Iron Man 2 next spring."

He noted that other studios are following the same strategy, looking to saturate the ad market with commercials for select, big-budget movies.

Though Iron Man is still 10 months from being released, and parts of it have yet to be shot, many of the toys for the movie are already made. They will be ready to hit shelves early, coinciding with an advertising strategy aimed at generating more buzz.

"We've seen [Hasbro's]line," said Rob Steffens, Marvel's senior vice-president of finance, referring to the manufacturing schedule for the toys. "And we look forward to it being a much larger line than it was on [the first Iron Man ]"

With marketing dollars stretching farther this year, the movie industry is one of the few sectors that's remained somewhat bullish about ad spending. From auto makers to consumer product manufacturers, many businesses have slashed ad budgets or are looking for bulk discounts.

The box office has remained relatively strong this year, with increases in attendance in Canada and only slight drops in the U.S.

Similar trends have been seen in merchandising sales, helped in part by Hasbro's announcement this year that it would keep price increases to a minimum. The toy maker feared cost-conscious families may cut such luxuries from their household spending.

The importance of movies such as Iron Man cannot be ignored in a slow economy. Iron Man made $585-million (U.S.) worldwide at the box office last year, which allowed Marvel to pay down debt and build up a cash reserve that helps weather a lighter production slate in 2009. In the first half of this year, Marvel has largely relied on the continued DVD and toy sales from Iron Man and other big-budget toy-driven movies, including The Incredible Hulk . A significant amount of Marvel's financial performance for the rest of 2009 will depend the various ways the company continues to sell Iron Man , including video-on-demand, the company said Tuesday.

Though net sales were $157-million in the second quarter of last year, when Iron Man was in theatres, the $90-million that Marvel reported Tuesday for the same quarter this year was better than analysts expected. Analyst Ben Mogil of Thomas Weisel Partners pointed out in a research note to clients yesterday that the firm also increased its earnings guidance for the remainder of this year, suggesting the outlook for 2009 is optimistic, despite having fewer titles in theatres.

Even with movies studios taking advantage of the advertising markets, Marvel executives expect an easier time marketing the Iron Man sequel given the success of the first movie at the box office and on toy store shelves. "The hard work of creating an initial splash for the brand has been done," Mr. Maisel said. "We are fortunate to have great word of mouth."