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.