What is Superman Really Worth?

Court holds contract price should reflect absence of reversion clause. 

Can someone who leaps tall buildings in a single bound lose value if sidelined?

It’s not often that courts are called upon to place a value on a superhero.  And not just any superhero, but Superman himself, the ultimate icon of the American superhero genre.


Why the need for a judicial valuation?  In or about 1938, Jerry Siegel and Joe Schuster, the superhero’s creators, sold Superman to a predecessor of DC Comics, which later came under common ownership with Warner Bros., the film studio.  During Siegel’s lifetime, he repeatedly tried to reclaim Superman.  In 2008, his heirs, in Siegel v. Warner Bros. Entertainment, Inc.[1] (the Siegel litigation), succeeded in recapturing certain ownership rights, under copyright termination laws designed to give authors a second chance at receiving fair market value (FMV) for their creations.

As a result of this recapture, the Siegel heirs are now entitled to an “equitable share” of Superman proceeds.  But whose proceeds?

In 2002, in contemplation of reviving the film franchise, Warner Bros. concluded a license of Superman rights from DC Comics, its corporate sibling.  In the Siegel litigation, the issue, as framed by the Federal District Court, is whether the license agreement with DC Comics is at FMV, or whether it’s a ‘sweetheart deal.’  If the license fee is at FMV, then the Siegel heirs are entitled to share in fees at the DC Comics level, but if the license is a ‘sweetheart deal,’ the heirs presumably would be entitled to share in Superman revenues at the Warner Bros. level, a much bigger pot.

In sorting through the arrangements between the affiliates, the Court reached a mixed and in some ways inconsistent result, characterizing the Warner/DC Comics license as essentially fair, yet materially flawed.  The DC Comics license gave Warner Bros. control of movie rights to Superman in consideration of:

  • an up-front payment to DC Comics of $1.5 million, and
  • additional annual payments to DC Comics of $500,000 per year for the first eleven years starting in 2002, escalating to $600,000 per year for the next ten years, and then escalating to $700,000 per year for the remaining ten years of the license.

These guaranteed payments amounted to $18.5 million, payable over thirty-one years, which, in 2002, was the remaining term of the original Superman copyright.

In addition, for each released Superman film, Warner Bros. agreed to pay DC Comics, as contingent compensation, 5% of the first dollar of worldwide distributor gross, or 7½% of the first dollar of domestic distributor gross, whichever is greater.  The guaranteed payments are treated as a non-refundable advance against the contingent compensation and, in mirror fashion, the contingent compensation is similarly treated as a non-refundable advance against future guaranteed payments.  Merchandising revenues are to be split on a 75/25 basis in favor of DC Comics.

The Problem

And the problem with this picture?  Since Warner Bros. is under no obligation to actually produce any Superman movies, the Court found:

a very real danger of the property’s value being substantially diminished by the action or inaction of Warner Bros. What on paper appears to be largely, albeit not entirely, a reasonable price for the Superman property may prove illusory.[2]

To date, under the license agreement, Warner Bros. has produced only one movie, the 2006 Superman Returns, from which, at the time of the Court’s decision, DC Comics had received $12.1 million in contingent compensation.  In their testimony, Warner Bros. executives were not confident that they would produce another Superman picture anytime soon.

The Solution

In other superhero license agreements reviewed by the Court, the rights holder is protected against this “no production” scenario by a so-called “reversion clause,” pursuant to which the movie company’s continued production rights are on a “use it or lose it” basis.  Under such licenses, the average time period within which a sequel had to commence, in order to avoid a reversion, was three to five years.  There is no such clause in the Warner Bros. / DC Comics license.

In valuing Superman, the Court, to make up for the absence of a customary reversion clause, proposed two changes to the license.  The Court’s view was that “the agreement should be ‘reformed’ to double or triple the price of the annual option extension payments required of Warner Bros.;” and second, that any payments made to DC Comics for the contingent compensation received from the release of Superman Returns or other film releases should not be applicable” against the annual payments.[3]  In sum, the Court concluded that minimum fees from Warner Bros. to DC Comics should increase from the current contractual level of essentially $20 million over the term of copyright, to at least $60 million over that term.

The Court based its adjustment formula on the heightened fees that film companies frequently pay rights holders for even short extensions of time beyond fixed reversion dates.  The agreements whose reversion provisions the Court cited included motion picture licenses for Tarzan, Conan and Iron Man, even though the Court characterized those properties as “not in the same league” as Superman.

In its overall comments on valuation, the Court wrote,

The entire economics, the valuation if you will, of the Superman property . . . is keyed to the ongoing development and theatrical release of the property at the box office. Simply put, the continued development and exploitation of the property in the marketplace is the economic lifeblood for the film rights to a literary property such as Superman.

In effect, the Court held that to achieve equitable FMV value under a character license, lost opportunity is a factor.  In other words, Superman needs to keep flying.

Ezra Doner is an entertainment and copyright lawyer who has represented clients in the filmed entertainment sector, both as an in-house business and legal executive and as a lawyer in private practice, for more than 25 years.. Before entering private practice, he worked at film companies in LA and NY, including Gladden Entertainment, Cinema Group and Miramax Films.

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[1] Siegel v. Warner Bros. Ent. Inc., No. 04-840  (USDC, CD Cal) 2009 WL 3526576.

[2] Id. (Findings Of Fact And Conclusions Of Law Following Trial, July 8, 2009) [unpublished].

[3] Id. (Findings Of Fact And Conclusions Of Law Following Trial, July 8, 2009) [unpublished].