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Six month losses hit $128m for Disney games division

Investors question Disney's need for social, mobile and console business

Disney's Interactive Media division, which includes Playdom social games and console studios such as Black Rock and Junction Point, recorded an operating loss of $115 million for the second quarter ended April.

The loss included a $33 million accounting charge related to the acquistion of Playdom, along with higher mobile and virtual worlds development costs, said the company.

Six month losses are now at $128 million, almost double the $65 million loss for the same period last year.

Disney hopes to see the games segment breakeven in 2013 and is focused on increasing the quality of its social games. 2011 will see a few new releases, but it's 2012 when the business hopes to roll out significant titles.

People are shocked at the size of the Interactive Media losses, why did Disney need to be in this business versus just licensing its content?

Richard Greenfield, BTIG

"We took a five month hiatus which has not been planned from releasing games, to build a higher quality game, and then also, to restack our technical capabilities to deal with volume, or to deal with scale, which we are hoping to achieve," said CEO Robert Igor in a call to investors.

Playdom's most recent release Gardens of Time is the first fruit of this new attitude and is a top ten game on Facebook.

But Interactive Media was the only division to make a loss across the entire Disney business in the last quarter, with the company recording overall sales of $9.07 billion and operating profit of $1.7 billion.

This has prompted investors to question Disney's need to be in the games business when it's incurring such heavy losses.

"I think there's a lot of concern about the interactive side and why you're bothering with this piece of the business at all," Richard Greenfield of trading and funding firm BTIG said to Igor during the call.

"Looking at people's reaction, people are just kind of shocked at the size of the Interactive Media losses, and so there's a lot of questions like why did Disney need to be in this business versus just licensing its content. Why is this so important to you?"

Igor reiterated that the console business was "risky", but it sees real opportunities in social and mobile with the Playdom platform.

"We're looking at the social media space today, particularly games and believe that there's an opportunity to leverage current IP or create new IP in a space that we think is still in its infancy, still going through a bit of a shakedown but we still thought that it would be a wise bet on new technology platform earlier than maybe when we were betting our resources on the console space," he said.

"So the opportunity for growth on the social games side, at least at this point of our entry, is probably greater than it had been when we entered the space on the console side. I guess the same would be true on the mobile side. We just feel that controlling our destiny and making some smart bets that have potentially greater upside, albeit bearing some more risks would be the right thing for us to do."

New social products from Playdom will be based on new IP and ESPN, Marvel and Disney brands, added Igor.

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Latest comments (12)

Andrew Goodchild Studying development, Train2Game5 years ago
There arch rival Warner Bros seems to be making great use of it's IP, especially Batman, but also Lego Harry potter, and the Lego deal in general. Unfortunately all the most important Marvel IPs seem tied up in licencing deals made before the Marvel aquesition by Disney. If Disney do want to continue in games, the really should make sure they take back these IPs when current contracts expire, and stop letting Sega near them for a start. And focus on quality projects rather than quick turnaround film tie ins. It shouldn't be hard to make money on decent titles made with the more famous Marvel IPs, especially Spider-man.
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I think if DIS want to make any inroads into producing games they need to

1/ less management top heavy. In this instance, there are probably too many executives watching the manager manage the executive managing the game company managaing the numbers and titles to be shipped

2/ less dabbling. This means, allow studios to run their projects creatively whether it be a existing disney IP or extablishing their own IP

3/ Room to grow: Why spend precious money establishing an IP, and allowing it to go to waste. Example in point - split second. Any type of franchised sequel or related franchise would have been good for the series. Good creative management would have been to allow sufficient leash, to allow the creative teams invested in to make good and expand on their franchises. One hires the specialist, let the specialist do their job their good at.

4/ DONT PANIC!

Until the answer to life hits 42, I think the original premise of developing a solid AAA set of games was correct, but not enough investment/direction was allowed for it to come to fruition. Jumping strategy totally admistship to social and casual may seem to be the current strategy, although perhaps it is a little behind by 1-2 years in doing so. I believe, burning bridges, and destroying such great AAA pedigree represents wasted opportunity when the next circle of next gen portables and consoles comes around.


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Personally I think they should keep licensing out their core brands, and produce new ones through gaming, as it now has potential for new IPs. Let the profitable, established IPs of the business focus on profits and use gaming to expand the IP development horizontally.
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Show all comments (12)
Andrew Clayton QA Weapons Tester, Electronic Arts5 years ago
@Dr. Wong: But that's what Disney has been all about for years now. Back when I interned at JetixUK one of the upper management guys came over and told us how we needed to have our version of High School Musical. It was a completely unrealistic expectation considering the type of media we had to work with.

Disney is a company that expects $100m profit, and if something doesn't see that profit it's a failure. They've had far too many products that make absurd profits to believe that anything below $100m is allowable. It's not about creativity or making something the consumer wants. It's about making something and then telling the consumer that they want it.

I was extremely surprised that Disney even allowed something like Split/Second because it was such a huge deviation from their normal mantra. Look at "Epic" Mickey. If anyone reading this article would have come up with ideas for Epic Mickey, it would have been much better than the pos that was released. But that's the kind of "creativity" that Disney creates and markets.
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Well, someone tell DIS there is a pink elephant in the room.

Otherwise, some poor suits are going to have a lovely bruising in terms of lack of profit, realistic achievement, and egos (and still think its someone elese's fault).
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Yannick Boucher Project Manager, Crytek5 years ago
Chee Ming hit it RIGHT on the nail. Did you work with them in any capacity, by chance? ;)
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Zidaya Zenovka Blogger, Writer, freelance artist. 5 years ago
Epic Mickey needed to go with the dystopian future pictured in the original concept art, instead of the watered down mediocre platformer it ended up being. They need to take risks.
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@ Yannick - We did not have the pleasure of doing so, however analysis, observation and closely following the way games were produced, and staff layoffs helped to form my conclusion. When you analyse the timeline of avalanche studios, propoganda, and blackrock, check each studios procurement, and development strategy, followed by change of strategy in 2009-2010 and the resultant products, the cookie trail is a bit obvious mfraid.

Whereas if we did have first hand information, we would be honour bound to say naught.

@ Zidders - the dystopian future would have been totaly awesome. However a mature Disney was sadly not something the suits conspired to produce I guess.

In any regard, there is always Hanna Montana to buck up the sales :)

Edited 1 times. Last edit by Dr. Chee Ming Wong on 11th May 2011 6:14pm

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Gfxengine 2D/3D Digital artist 5 years ago
They especially lack the charm that they bring in their movies . . . Hope they do a quick turnaround and analyze their mistakes, if they want to survive in this very competitive market.
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Tim Carter Designer - Writer - Producer 5 years ago
Too much quant thinking.
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Nicholas Lovell Founder, Gamesbrief5 years ago
Or they should get out of console and focus on social/online/browser-based gaming
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Daniel Padilla Senior Artist, Treyarch5 years ago

Disney is an amazing company with a deep catalog of exciting legacy content. There really should be no need to come up with new IPs.
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