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The Incredible Information Valuation!

When is a comic book worth $3,600,000 more than its face value? Answer: When Walt Disney wants to buy it.

Today, Disney announced it had agreed to acquire Marvel Entertainment, Inc. for $4 billion. Marvel, which only a few years ago was mired in bankruptcy, owns the rights to a range of intellectual property including Spider-Man, The Fantastic Four, Iron Man, the X-Men and the Hulk. It is surely a valuable company. But $4 billion? According to the company's 2008 financial statements, the company ended the year with only $400 million in assets.

Why would Disney pay ten times that amount?

The answer is that financial accounting standards fail to assign any value to intangible information assets like copyrights and trademarks, which in this case represents the vast majority of the company's true worth. You will look in vain on Marvel's balance sheet to find anything assigned to the on-going value of over 5,000 trademarked characters that the company has in its vaults and which in recent years have made largely successful leaps into motion pictures. As Marvel CEO Ike Perlmutter said today, Marvel is "the most profitable print publishing business in the world."

Not exactly. The profits appear to be assigned to the print business, but only because the accounting industry steadfastly refuses to figure out how to price the information assets and assign value to them.

Why not? The answer, apparently, is that doing so is too hard. To add insult to information injury, once the acquisition is complete Disney will be able to report the $3.6 billion excess as an asset, "excess paid for Marvel," which is to say, all the IP. And even though that property is and will continue to appreciate in value, for tax purposes Disney will be allowed to depreciate it!

But plenty of physical assets are hard to value, too, and that hasn't stopped the industry from coming up with formula for doing so. The real reason seems to be that accountants just don't want to--or, more to the point, don't want to bring their profession into the 21st century. As the economy continues to move toward one in which most value is derived from information assets, that failing is making financial statements increasingly useless to investors as a source of information.

We know that information assets can be valued. Someone at Disney figured out a way, for one thing.