Disney’s acquisition of Marvel for $4 billion took the entertainment world by storm yesterday, with speculation centered around whether Disney had paid too much, and how they will integrate Marvel’s characters into the Disney brand.

From a purely financial perspective, I think the deal is risky, particularly because Marvel’s characters aren’t a good match for Disney’s core value as “the happiest place on Earth.”  But, even if the move proves to be bad from a cash-in-the-bank perspective, it might still make business sense… and here’s why…

The industry is entering a transition period, with online distribution starting to grow into a significant business and the rental market changing, thanks to the growth of Netflix and RedBox.

Netflix’ streaming service and Redbox rentals both operate without revenue-sharing agreements with the studios.  This contrasts with virtually all the major studios’ other revenue streams: when you buy a movie ticket, the studio gets about 50% of the ticket price; when you rent from Blockbuster, the studio gets about 40% of the rental (a share that also applies to Netflix’ traditional DVD rental business), and the studios, of course, get a healthy slice of the purchase price of a DVD.  Deals with network and cable TV also provide a healthy, and re-occurring, revenue stream.

But when you rent a movie from a RedBox kiosk, RedBox gets the whole dollar, because it bought the DVD outright.  Similarly, the movies Netflix streams are all fully licensed.  In both cases, the studios get an up front payment, but nothing for each view.

This presents a threat to the studios on the distribution side, which is why we’re seeing a seemingly endless succession of lawsuits around RedBox at the moment, and Netflix is finding it an uphill struggle to get good content onto their streaming service.

So the challenge for RedBox and Netflix is getting good content.  The studios own the rights to virtually all the really popular movies that people want to rent or view online, which gives them an in-built advantage in negotiations.  While RedBox might be able to get around this, because the so-called “First Sale Doctrine” allows them to buy DVDs from whoever they like and rent them to consumers, they would much rather have a simple process for acquiring thousands of DVDs and getting them to kiosks.  Netflix really has no choice but to negotiate direct with the studios for streaming rights, although it did find a way around that partially by striking a deal with Starz for some content.

But then… enter Marvel Studios.

After seeing Sony enjoying huge profits from the Spider-Man franchise, Marvel decided it wanted a bigger slice of the pie and started producing movies themselves.  They cut a deal with Paramount for “service deal” distribution of the movies to theaters (where Paramount doesn’t acquire the rights to the movie, but takes a fixed percentage for booking it in theaters, providing the advertising, and so on), and a similar deal for DVD distribution.  Marvel keeps the underlying rights to the movies, which puts them in a position to negotiate on their own behalf as new markets (e.g., online distribution and rental kiosks) open up.

So, as an independent company, Marvel would be in a good position to negotiate directly with Netflix and RedBox (and other new-era distributors like YouTube, say) and use the studios only for legacy theatrical and DVD distribution.  There’s really no incentive for Marvel to put a studio in the middle of such a deal, and the new-era distributors are hungry for content, and might offer very favorable terms to lock down a big franchise.

The studios’ big fear, I believe, is that once someone like Marvel started cutting them out of online distribution, other producers would look to do the same thing.  Steven Spielberg’s new DreamWorks would be an obvious candidate for utilizing service deals for theatrical distribution and direct deals for online distribution (Indiana Jones was already distributed via a service deal last year).  DreamWorks Animation could do the same thing, as could the new United Artists.  And once the floodgates open, the producers who currently operate within the studios would have established business models to follow if they wanted to go it alone.

So, from the studios’ perspective, Marvel could have been the tip of a very big, and very dangerous, iceberg.  Worse yet, Marvel has emerged as a serious player at a time when the studios are badly strapped for cash.  Well, all the studios, except one…

Disney was the only studio with the resources to put together an offer that Marvel couldn’t refuse.  In doing so, it might have taken a risk financially, but it might prove to be a very smart move if they keep the studio model intact.  Better to make a slightly bad deal for Marvel than hand over the industry’s biggest source of new revenue and profits to independent producers, Netflix, RedBox (and maybe Google, Yahoo and Microsoft) over the next five years.

The rest of the majors owe them one.