Disney flexes its muscle over Star Wars and Marvel

The IP powerhouse values protecting that IP over any business relationship - as firms working on those properties would do well to remember

By Rob Fahey.Published Friday 24th November 2017, 7:55am GMT

A decade or two ago, a common topic of speculation in the games business was which of its giant publishers would be the one to topple Disney from its position as the world's most important warehouse of intellectual property. EA, then the industry's big beast, was comfortably the favourite, especially as it seemed set on weaning itself off its reliance on licensed sports titles in favour of building new IP. Activision was on the radar for some; Nintendo, though the industry's most obviously 'Disney-like' company, seemed slow to produce and capitalise on new IP at the time.

History didn't play out that way. EA became embroiled in a decade long turnaround and restructuring effort; Activision, though boosted massively by its merger with Blizzard and the success of games like Call of Duty and Destiny, has fumbled in its management of properties outside the high-spending core. Nintendo's library of IP has grown and thrived, of course - but none of these companies can come close to matching what's happened at Disney. Since the time when we speculated over when EA might overtake them, Disney has absorbed first Pixar, then Marvel, then Lucasfilm, placing itself beyond any reasonable challenge. It is the world's most valuable IP holder, and will be for years to come.

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"Disney has gone from being a second- or third-tier publisher to being arguably the most powerful company in the games business"

Along the way, Disney has largely given up its ambitions of being a game developer or publisher - at least for now. It shuttered studios. It shut down internal projects in favour of licensing its properties to other developers and publishers. There is a slight twist of irony to the fact that, in the process, Disney has gone from being a second- or third-tier publisher to being arguably the most powerful company in the games business; a licensor absolutely aware of the value of its IP, and willing to protect that IP and its development regardless of the cost to any partner company.

This month we've seen two examples of Disney flexing that muscle. The company severed ties with Gazillion Entertainment, developer of licensed Diablo-esque RPG Marvel Heroes; what happened behind the scenes to precipitate this is unclear as yet, but there were signs that Disney was dissatisfied with the developer or with its relationship for some time, and the company ultimately pulled the plug on the game. Just a few weeks later, a much bigger firm, Electronic Arts, also got a taste of Disney's willingness to exercise its power; the controversy over pay-to-win loot box mechanics in Star Wars Battlefront 2 took an abrupt turn when pressure from Disney forced EA to remove premium currency from the game before its launch, pending a re-engineering of the game's monetisation systems.

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For Gazillion, the consequences are stark; the firm has shut down, with staff claiming on social media that they are not receiving severance pay or PTO. The chances of refunds for players who bought expensive items in the free-to-play game seem slim. EA, of course, won't face anything remotely that drastic as a consequence of the changes to Battlefront, but that's more to do with the scale of EA and its capacity to absorb losses than anything else.

"This change could even leave EA struggling to stay in the black on what should have been one of its most profitable titles of the quarter"

The company's financial projections for Star Wars Battlefront 2 were based on the assumption of a premium currency and loot box system that worked in a certain way and attracted a certain amount of revenue. It set its development budget based on those projections, spent money on marketing based on those projections; Disney has now unceremoniously dumped those projections in the bin.

Entirely independent of the conversation over whether EA's monetisation model was ill-conceived or not, there can be little doubt that the company's bottom line for this project will be hit by the removal of premium currency, even temporarily. Without seeing the company's internal figures it's hard to say, but it's not beyond the realms of possibility that, given high enough costs for licensing, development and marketing, this change could even leave EA struggling to stay in the black on what should have been one of its most profitable titles of the quarter.

For Disney, these decisions no doubt make absolute sense. To a large extent, Disney's choices about games are based on the same rationale as Nintendo's have been; an understanding that preservation of the value of the IP needs to come ahead of short-term profitability of any one product based on that IP. Just as Nintendo will severely delay games and leave its release schedule looking anaemic at times in order to ensure quality of its finished products and preserve the value of the IP, Disney will shut down, delay or change games that look like they pose a threat to that value - even at risk of damaging business relationships and thoroughly screwing over partners.

"Even the biggest of companies would do well to think about whether their intentions actually align with what Disney will permit"

Disney has a dual objective with every licensing deal it signs for a major property, such as a game or a TV show. It wants to make money, of course, but it also wants to support the IP it's licensing; keeping it relevant and in the public eye, preferably boosting its appeal, and whatever else, no matter what, absolutely not damaging or devaluing it.

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This makes working with Disney - even for a company as big and powerful in its own right as EA - into something of a risky and challenging business. It's natural that any developer or publisher would jump at the chance to work on Star Wars, a property tied in to the Marvel Cinematic Universe, or something related to a major Pixar movie, but these deals are not the license to print money they may look like at first glance.

Disney's willingness to aggressively protect its IP and flex its muscle in these arrangements makes it vital to bear in mind that Disney and the companies that license its IP to make games have different objectives; of course both parties want to make money, but for Disney that comes with a powerful and often overruling caveat. It will sacrifice profit for long-term health, and a developer or publisher, with no financial interest in that long-term health, may be hung out to dry as decisions made in service of profitability are reversed.

In a sense, Disney's position in the games industry has become similar to Apple's in the hardware business. Apple makes some of the best-selling high-end products in the world, but for a manufacturing firm to join that supply chain is actually a double-edged sword, because the company is famous for micro-managing the processes of its suppliers and shaving their margins down to the knuckle. Working with Apple can mean enormous contracts to supply high-end parts for globally famous products; it can also mean paper-thin margins, constant supervision and tough contract terms from a company whose business objectives do not always align neatly with those of its suppliers.

Of course, the lure of working on Disney IP will not diminish. These are among the world's most valuable brands, and for game creators they're a treasure chest. But before diving into those waters, even the biggest of companies would do well to think about whether their intentions actually align with what Disney will permit. This is a company at the peak of its power; the rewards for working with it may be great, but no publisher should fool itself that Disney will ever put a business relationship ahead of its own central interest in the protection of its IP.

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