Disney Shutters Infinity Unit in Retreat From Video Games

Anousha Sakoui anoushasakoui   &  Christopher Palmeri chrispalmeri

May 11, 2016 — 1:56 AM BSTUpdated on May 11, 2016 — 4:49 PM BST


$147 million write off covers job cuts, unsold toy inventory

  • Skylanders outlast Skywalkers as Activision seen benefiting

Walt Disney Co. pulled the plug on its Infinity video-game business, which combines onscreen play with collectible toys, catching analysts by surprise and casting doubt on the health of that segment of the industry.

Disney announced the decision Tuesday in a footnote to its second-quarter earnings, saying it incurred a $147 million charge for severance costs and to write off its investment in the business. The company will close its Salt Lake City game studio and cut about 300 jobs.

For a story on Disney’s earnings report, click here.

With the action, Disney is ending efforts to develop games on its own and will instead rely on licensees like Electronic Arts Inc., which makes “Star Wars” titles. Disney launched Infinity with great fanfare in 2013. The decision is a big win for Activision Blizzard Inc., which pioneered so-called “toys to life” games with its Skylanders franchise.

“I’m really surprised that Disney couldn’t make a big profit at this level,” said Michael Pachter, a long-time video-game analyst at Wedbush Securities. “It’s great news for Activision, as they are the last man standing in a market with more than $1 billion of annual demand.”

Infinity allowed characters from many Disney classics to interact onscreen together, letting kids create adventures that put “Star Wars” or “Toy Story” characters like Buzz Lightyear on a mission in Cinderella’s coach. Much like Skylanders, customer bought a base unit that connected to a console. Collectibles placed on the base showed up in the onscreen story.

Activision had forecast Skylanders sales to drop this year, despite plans to introduce a new game in the fourth quarter, because of more competition. The demise of Infinity may ease that pressure, said Matthew Kanterman, an analyst at Bloomberg Intelligence. Activision shares rose 1.8 percent to $37.06, while Disney dropped 4.3 percent to $102.03 after a disappointing earnings report.

At First

Infinity did well at first, Disney Chief Executive Officer Bob Iger said on a conference call Tuesday. The game helped lift Disney’s interactive unit to its first annual profit of $116 million in 2014. But making and distributing toys and video-game equipment proved costly, Iger said, and the risk of getting stuck with unsold inventory is high.

“We did quite well with the first iteration of it, and we did OK with the second
iteration,” Iger said. “But that business is a changing business, and we did not have enough confidence in the business in terms of it being stable enough to stay in it from a self-publishing perspective.”

Disney used to only license its characters for games before it began acquiring studios such as Salt Lake City-based Avalanche Software in the mid-2000s. After a string of disappointing games and soaring losses at its interactive division, the company began shuttering those studios, including Junction Point, maker of the “Epic Mickey” game in 2013. Disney also cut staff at the video game unit of Lucasfilm after that company’s 2012 acquisition, choosing instead to license “Star Wars” characters to Electronic Arts.

That move has paid dividends for both parties. In EA’s fiscal fourth quarter, which ended in March, mobile gaming revenue climbed 15 percent from a year earlier, fueled in part by “Star Wars: Galaxy of Heroes.” The game developer plans to have at least one “Star Wars” release a year for the next three to four years.

Other gaming companies like Activision, Ubisoft Entertainment SA or Take-Two Interactive Software Inc. may seek licenses with Disney now that Infinity is ending, Kanterman said. In the long run, Disney may be better off getting out of game publishing, said Andy McNamara, editor-in-chief of Game Informer magazine.

“Larger traditional media companies have generally had trouble understanding the business and how to support and execute games,” McNamara said. “Falling back to licensing is ultimately a good move.”

The shutdown will be a blow to Utah’s tech industry, which has earned the nickname “silicon slopes,” said Matt Lusty, a spokesman for the Salt Lake Chamber, the state’s biggest business association.

Disappointed Fans

“Tech in Utah has been growing at a tremendous pace,” Lusty said, adding he’s “never excited” to hear that a business was closing.

It’s also a disappointment to fans, as some said on Twitter. “Shame on who ever made this decision,” LongChase wrote on Twitter. “I’ll think twice b4 buying anything like this from Disney again!” “My daughter is so disappointed,” Colleen Vanderlinden also wrote on social media. “Infinity is her favorite thing in the world right now. :(”

Activision’s success with Skylanders, which began with the first game in 2011, attracted other competitors, with mixed results. Nintendo Co. introduced its Amiibo games and characters in 2014 and is introducing new characters this year. Warner Bros. Interactive, which produces Lego Dimensions, will have a new products out later this year.

The decision to close Infinity raises doubts about the health of the toys to life category, said Jon Erensen, research director at Gartner.

“That has been one of the areas of the video-games market that vendors have been counting on to grow sales,” Erensen said. The question is if “this is just related to Disney or if we may see other vendors that have invested in those platforms have issues, if sales are slowing down.”

Disney plans to two final game releases, including three new characters from “Alice Through the Looking Glass” later this month and the “Finding Dory Play Set” in June, John Blackburn, senior vice president and general manager of Infinity, said on the company’s website.

‘Captain America’ Conquers Box Office in Weekend Debut

By Anousha Sakoui


May 8, 2016 — 4:52 PM BSTUpdated on May 8, 2016 — 5:51 PM BST


  • Opening positions Disney for biggest year in studio profit

  • Film doesn't threaten records as some analysts expected

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“Captain America: Civil War,” the latest box-office juggernaut from Walt Disney Co.’s Marvel studios, scored with film fans in U.S. and Canadian theaters, kicking off the summer film season.

The third “Captain America” feature, and the eighth Marvel movie from Disney since it acquired the filmmaker in 2009, collected $181.8 million in its debut in North American theaters, researcher ComScore Inc. said in an e-mailed statement Sunday. The movie came in below what turned out to be optimistic estimates for at least $185 million, and didn’t challenge the opening record for a superhero movie as some thought it might.

The opening positions Disney for its biggest year yet in box-office sales and studio profit, according to analysts. In a first, all of its five movie units, including Marvel, Pixar and Lucasfilm, will have new releases in a single year. “Captain America” doused concerns that fans might be tiring of the superhero genre, which will be part of Disney’s and other studios’ slates for years to come.

The film, which cost about $250 million to produce and tens of millions more to market, was estimated to open with domestic weekend sales of $214 million by analysts at BoxOfficePro.com. That was one of the higher forecasts. Box Office Guru analyst Gitesh Pandya predicted about $185 million, while Hollywood Stock Exchange was projecting $203 million.

“‘Civil War’ opened right where it should have,” Pandya said in an e-mail. “It’s not a full Avengers movie.”

The film had generated $291.2 million internationally prior to its U.S. debut and the simultaneous opening in China, soon to be the world’s largest movie market. Disney and Marvel already hold the opening record for a superhero genre: The $207.4 million brought in by “The Avengers” in 2012 was also the biggest debut for any Marvel picture.

In “Civil War,” the Avengers split over how to combat the world’s evils. Chris Evans reprises his role as Steve Rogers, Captain America’s alter-ego. After a series of Avengers incidents caused collateral damage, pressure mounts on the group to develop a system of accountability.

That divides the heroes into two camps -- one led by Rogers and others who want to defend humanity without government interference, and some behind Iron Man Tony Stark’s decision to back government oversight. Robert Downey Jr. returns as Stark. Scarlett Johansson, Don Cheadle, Jeremy Renner, Chadwick Boseman and Paul Rudd also co-star.

The film was the only new wide release of the weekend. Analysts are predicting that movies like “Civil War” will help push box-office sales to a new high this summer.


Disney’s Buying Spree Will Reshape Hollywood for Years to Come

By Anousha Sakoui

May 5, 2016 — 1:00 PM BST


“They seem to have a finger on the pulse of what the public wants at a level that I haven’t seen.”

When Captain America bursts back onto the big screen on May 6, audiences will likely be thrilled by his much anticipated fight with Iron Man. The outcome of the battle, however, is a foregone conclusion: Walt Disney will emerge victorious. Box-office analysts say Captain America: Civil War—the eighth Marvel film from Disney since it bought the company in 2009 and the third Captain America film—could rival the biggest hits in the franchise. The reviews are overwhelmingly positive, and advanced ticket sales have eclipsed those of other superhero movies, confounding naysayers who were warning that moviegoers might be tiring of the genre.

The likely blockbuster kicks off a potentially record-breaking summer for ticket sales and what analysts say could be Disney’s best year at the movies in its history. Disney, with a 25 percent market share this year, is dominating the film business to an unprecedented degree. In the first half, Disney will have the No. 1 movie for 13 of those 26 weeks, predicts Barton Crockett, an analyst at FBR Capital Markets. “They will have the highest share in a generation, or maybe of all time,” he says.

The studio also is scoring points with a mix of nostalgia flicks such as its Star Warssequel and technology-driven hits like The Jungle Book, Crockett says. “They seem to have a finger on the pulse of what the public wants at a level that I haven’t seen before.”

Disney’s advantages lie in its storytelling ability and the strength—and number—of its brands. Time Warner’s Warner Bros. has DC Comics, and Comcast’s Universal Pictures has a strong animation arm, but Disney has unparalleled scale. This is largely because of an acquisition spree by Chief Executive Officer Bob Iger, which included Lucasfilm, Marvel, and Pixar. That built the studio into five potent film brands while competitors weren’t investing in the risky business.

Playing catch-up, rival studios are digging into their archives to remake films with new twists, such as Sony Pictures’ all-female Ghostbusters. Or they’re having to find franchise properties, such as Paramount Pictures’ venture with Hasbro to bring to the screen a universe constructed around action figure G.I. Joe. The pressure to compete will probably encourage acquisitions. “Smaller firms with unique content will continue to be takeover targets,” says Christopher Marangi, a portfolio manager at Gabelli Funds, an investor in media stocks. But some analysts worry that industry pressure could lead to expensive acquisitions that destroy value as movie companies chase—and overpay for—targets like Lions Gate Entertainment, creator ofTwilight and The Hunger Games.

Disney’s multibillion-dollar investment in production companies since 2006 has come to fruition in 2016. The five film units could this year release a record number of movies that break $1 billion in ticket sales. “We have talked for 25 years about the big six global entertainment companies, [but] maybe we are starting to see the stratification among them,” says Jonathan Kuntz, a film historian and professor at the UCLA School of Theater, Film & Television. “ ‘Supermajors’ might be a good term for what Disney, and maybe Comcast and Time Warner, aspire to be.”

For much of the 20th century, Disney, Paramount, Sony Pictures, Warner Bros., Universal Pictures, and 20th Century Fox dominated film production and distribution globally. But Disney’s three acquisitions, along with its two other labels, Walt Disney Animation and Walt Disney Pictures, has left it with some of the best franchises in Hollywood. That’s allowed the studio to map out a combined film slate into 2020.

“That is the future for the next decade,” with Disney and Warner Bros. having laid out superhero movies and other sequels, spinoffs, and reboots for years to come, says Jeff Bock, a box-office analyst at Exhibitor Relations. Bock figures that Disney alone will have six or seven of the top 10 grossing films this year and potentially four movies each generating $1 billion worldwide: Captain America: Civil WarThe Jungle BookRogue One: A Star Wars Story; and Finding Dory, a sequel to Finding Nemo.

“The Pixar acquisition saved Disney Animation,” says Bank of America Merrill Lynch analyst Jessica Reif Cohen. “That was the beginning.” Disney is “the only company right now that has a branded film strategy,” she says, with each of its sub-brands churning out its own string of reliable, predictable fare. “Consumers know what they are going to get, which makes marketing easy and efficient.”

John Lasseter, one of the original Pixar animators and director of the megahit Toy Story, is the creative leader of Pixar and Walt Disney Animation. That’s allowed him to help reinvigorate the animation unit and produce more modern hits, such as Frozen and this year’s Zootopia.

Universal is aping that approach with Chris Meledandri, creator of the hugely successful Despicable Me films, who will oversee his Illumination Entertainment, Universal’s animation partner, and the DreamWorks Animation studio Comcast agreed to acquire in April. The buyout is seen as Comcast’s attempt to lock in intellectual property—including the characters from DreamWorks’ Shrek and Kung Fu Panda—that Universal can exploit in its theme parks, the way Disney does. “The industry looks at Disney with envy,” Reif Cohen says. “It is a highly successful and unique strategy, well-executed and hard to duplicate.”

Summer is the most lucrative time of year for studios, and analysts predict this season could beat 2013’s record. A slew of highly anticipated releases including Finding Doryand Warner Bros.’ Suicide Squad could, along with Captain America, push the summer season to about $5 billion in ticket sales in North America, estimates Geetha Ranganathan, an analyst at Bloomberg Intelligence.

With breakout hits such as Fox’s offbeat antihero Deadpool and the unexpectedly strong turnout for Disney’s The Jungle Book, 2016 could see recently set annual box-office records broken again—especially because Disney’s second Star Wars-related release will hit theaters in December. Crockett estimates 2016 will outstrip the $11.1 billion annual record generated at the domestic box office in 2015 and Disney’s studios will generate more than $3 billion in profit, its largest ever. For now, at least, Hollywood’s biggest star is Disney itself.
With Christopher Palmeri

The bottom line: Disney’s acquisition spree under CEO Iger has positioned the company to dominate the movie business—and give rivals headaches.