Disney’s recent second quarter financial releases showed that while the company itself is doing well, Disney Interactive Media Group, the company’s game making arm, took a beating, announcing six month losses of $128m, almost double the losses they incurred ($65m) for the same period of time last year. The news had investors questioning the direction of the division, with some wondering why Disney even had to have an arm in the interactive media business.
Disney CEO Bob Iger stated that a five month hiatus while the company shut down releases while they improved the quality of them was unexpected and contributed to the loss, but that one release post-hiatus – Gardens of Time on Facebook – was “monetizing very well”. Yet there were critics who seemed tired by the losses at DIMG. Richard Greenfield of trading firm BTIG pressed Mr. Iger on the losses and the issues with buying Playdom, and wanted to know why Disney was insisting on making their own games, and not just licensing their properties to companies like competitor Dreamworks. Mr Iger confirmed that while he believed that console gaming was “risky”, there was still growth to be had on the social side of the games industry, and “controlling (their) destiny” by making some smart bets is “the right thing to do.”
Disney Interactive Media Group is the only division within Disney to lose money. Disney made a six month operating profit of $1.7bn on sales of $9.07bn. Mr. Iger stated that he hoped DIMG hit the break even point by 2013.
Disney Interactive has been transitioning from a console publisher that makes AAA games to a company that focuses on social and mobile gaming, and the transition has been painful for those involved. The company laid off about 100 employees last week from Split/Second developer Black Rock Studios. They also laid off a “significant” amount of people from the division back in January. In November, General Manager Graham Hopper resigned, which happened soon after former Playdom CEO John Pleasants was promoted to President of the group.
Analysis: If Disney had a fully-formed plan for how to make money on the interactive side of the house, I would nod my head to this. But everything about this seems tone-deaf. Disney is going with social gaming because that’s where the money is, and they want to control their output, which is why they’re not licensing. In a year, if something else becomes the Next Big Thing™, Disney will try to integrate to whatever that is.
To me, the big problem is that they overpaid for Playdom. I think their entire line of thinking in that regard could boil down to “they’re in the Next Big Thing™, and this company is a big name. BUY THAT.” A more recent parallel is why Microsoft bought Skype for $8.5bn. Will it work? Depends on whether investors allow it to; DIMG is the only group within this massive company that isn’t making money, and Disney has a corporate reputation of not greenlighting anything if they can’t make $100m in profits on them; not just make money, but make obscene money. The beancounters at a company of the size and scope of Disney usually win arguments, so I have doubts they’ll let the company lose money for another two years.