M+E Connections

By Jeff Berman

Disney’s decision to cancel its “Infinity” video game series and exit the video game publishing business completely was a wise one, analysts said May 12.

But it will be a painful decision — especially for the approximately 300 employees who will be losing their jobs as a result of Disney shutting down its Avalanche Software internal studio in Salt Lake City that developed the game. The number of job cuts will include members of Disney Interactive’s Glendale, Calif.-based production and publishing teams that supported “Infinity,” the company said.

The game franchise “clearly wasn’t making money” and Disney is “better at licensing than making games,” said Benjamin Mogil, an analyst at Stifel Equity Research Group. Disney “can’t seem to make a go out of publishing,” said Michael Pachter, an analyst at Wedbush Securities, who covers the videogame industry.

Pachter praised the job that Disney did with “Infinity,” which he called a “first-rate game.” But he said the franchise’s “cost structure was out of whack and they weren’t sufficiently profitable (at a $500 million or higher sales level) to justify the continued investment.”

The “Infinity” shutdown leaves a gaping hole in the toys-to-life video game genre that combines traditional interactive gaming with physical action figures and other traditional toy components that players use to interact with the games. Still standing is Activision Blizzard’s hit “Skylanders” game franchise. But even that series has seen a slowdown in sales. In announcing results for Activision Blizzard’s first quarter (ended March 31), it said “Skylanders” revenue had weakened.

“It’s too bad” that Disney had to kill off “Infinity” because toys-to-life is a “great genre for the rich characters in the Disney universe,” said Pachter. But he predicted the game “will get picked up somewhere” — probably by Electronic Arts (EA), the videogame publishing giant that already has the license to make games based on the Disney-owned “Star Wars” property, he said. If that happens, Pachter predicted Disney “will make plenty of money without spending anything.”

EA didn’t immediately respond to a request for comment on its plans. Disney didn’t say whether it was looking for an “Infinity” buyer or in talks with any companies about the property.

As it stands, the final “Infinity” products will be three new characters from the Disney movie Alice Through the Looking Glass later this month and the Finding Dory Play Set in June based on the coming Disney Pixar animated movie, John Blackburn, SVP and GM at Avalanche, said in a blog post May 10.

In Disney’s May 10 earnings call, CFO Christine McCarthy said the company took a second-quarter charge of $147 million related to the “Infinity” console games business shutdown. “Going forward, our console games strategy will focus solely on licensing our great portfolio of content,” she said.

Disney “did quite well with the first iteration” of “Infinity,” CEO Bob Iger said on the call. The company also did “okay with the second iteration, 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,” he said. Disney was taking on “substantially more risk, particularly when it comes to manufacturing and managing” the toy inventory for “Infinity,” he said. A “good part” of Disney’s $147 million write-off was related to that inventory, he said. “The risk that we cited at the beginning when we went into this caught up with us,” he said, adding: “We’re just better off at managing the risk that that business delivers by licensing instead of publishing. It’s just that simple.”

(Image Credit: Disney)