June 5 (Bloomberg) -- Walt Disney Co. is increasing spending on video-game development, part of a strategy to profit from the industry’s growth by publishing more titles based on its movies rather than hiring outsiders.

Disney, owner of the Pixar animation studio, has increased its game-production budget by more than 10 percent this year, game-unit chief Graham Hopper said yesterday in Los Angeles. The Burbank, California-based company is hiring developers and is “always actively looking” for acquisitions, he said.

“We’re investing in titles that have high potential to deliver returns given the current economic environment,” Hopper said in an interview at the Electronic Entertainment Expo show.

Disney and other Hollywood studios are investing in video- game software, tapping into an industry that now generates more sales than the U.S. box office. The company will make the game for 2010’s “Toy Story 3” after using outside publishers such as THQ Inc. for earlier games based on Pixar films.

Disney fell 19 cents to $24.95 at 4 p.m. in New York Stock Exchange composite trading. The shares have gained 10 percent this year.

Profit margins are bigger when companies produce, publish and release game internally, said Hopper, senior vice president and general manager of Disney’s interactive unit. About 90 percent of Disney’s games are now published internally.

THQ, based in Agoura Hills, California, made titles based on earlier Pixar movies, including “Toy Story,” “Finding Nemo” and “Cars,” as well as this year’s “Up.”

Games Growth

U.S. video-game software sales increased 26 percent to $11 billion in 2008, according to Port Washington, New York-based researcher NPD Group Inc. That compares with U.S. and Canadian box office revenue of $9.63 billion, little changed from 2007, according to Sherman Oaks, California-based Box Office Mojo LLC.

Disney’s digital operation, which includes its Web site and video games, will lose 13 cents a share in fiscal 2009, Douglas Mitchelson, an analyst with Deutsche Bank Securities, said at an investor conference in March.

The company is putting more resources toward games for Nintendo Co.’s top-selling Wii console and DS handheld player. Games for those systems sell better than on Microsoft Corp.’s Xbox 360 and Sony Corp.’s PlayStation 3, Chief Executive Robert Iger said at the Deutsche Bank conference.

“Our investment was a little out of whack in terms of where we were putting our development,” Iger said then.

The recession also is presenting acquisition opportunities, Hopper said. The company is looking for takeover targets that demonstrate “cultural alignment” with Disney.

“We’re always actively looking,” Hopper said. He didn’t mention any specific target.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.netAndy Fixmer in Los Angeles at afixmer@bloomberg.net

Last Updated: June 5, 2009 16:12 EDT