Disney's Iger Opts for Buy-Don't-Build Approach in Drive for Digital Heft
Walt Disney Co chief executive officer Robert Iger. Photographer: Matthew Staver/Bloomberg
July 28 (Bloomberg) -- David Bank, an analyst at RBC Capital Markets, discusses Walt Disney Co.'s purchase of Playdom Inc., the second-biggest maker of games played on Facebook and MySpace, and the status of the company's efforts to sell its Miramax film division. Bank speaks with Jon Erlichman on Bloomberg Television's "InsideTrack.” (Source: Bloomberg)
Four years ago, Bob Iger, the chief executive officer of Walt Disney Co., tried to build a cell- phone business. Disney created a family-oriented service that included global positioning so parents could track their kids.
Too few consumers signed up, and the company killed the operation after 15 months. Disney Interactive, the division that ran the ill-fated cell service, is still unprofitable. It lost $55 million last quarter.
Iger retains his enthusiasm for digital business and has switched strategies to buying rather than building. He wants to acquire social games and other online services that come with customers and talented creators and that will help sell Disney’s famous brands.
“You don’t get the kind of growth we want by building from the inside,” he said in an interview in Bloomberg Businessweek’s Aug. 2 edition.
Since paying $350 million for the kids’ social network Club Penguin three years ago, Disney has purchased Wideload Games, whose founder helped create Microsoft’s hit “Halo” franchise. Early this month, the entertainment giant acquired Tapulous, a publisher of music-related games for Apple’s iPhone.
Disney made its biggest video game bet yet on July 27, agreeing to pay $563 million for closely held Playdom, the Mountain View, California-based maker of “Sorority Life” and “Mobsters,” which are played on Facebook, MySpace and mobile phones. If Playdom meets performance targets over time, its founders and investors may receive an additional $200 million.
Fast-Growing Venue
Playdom specializes in games that sell virtual goods. In “Mobsters,” players try to build crime syndicates by buying with real money digital machine guns and henchmen. In “Sorority Life,” players purchase clothing and accessories as they climb a social ladder. Some 42 million people regularly play Playdom’s games each month, according to Disney.
Michael Pachter, an analyst at Wedbush Morgan Securities in Los Angeles, said Playdom will give Disney a potentially fast- growing venue to sell Disney characters and media brands from Mickey Mouse to Spider-Man to ESPN. When the Pixar movie “Cars 2” is released next June, promotions might include the soundtrack in a Tapulous-made music game for mobile phones and the characters woven into Playdom games on Facebook.
Disney said it plans to launch a virtual world based on “Cars” next month. That would be in addition to more traditional product tie-ins such as plush-toy merchandise, games for Nintendo Co.’s Wii console, coverage on ABC and the Disney Channel, and theme-park rides.
Looking for Knowhow
“I don’t think they’re looking for Playdom’s revenue as much as they’re looking for Playdom’s knowhow” in working social games into the Disney mix, Pachter said.
Playdom CEO John Pleasants is moving to Disney, where he will continue to oversee social-game development and become an executive vice-president. He will work with Iger’s point-man for digital strategy, Steve Wadsworth, who has run Disney’s Internet unit since 1999 and assumed video-game oversight in 2008.
Iger said the buy-don’t-build approach is what drove some earlier acquisitions. His $8.1 billion purchase of Pixar in 2006 buttressed Disney’s flagging animation division. The $4.2 billion acquisition of Marvel Entertainment last year gave the company, better known for cartoon princesses than superheroes, iconic comic-book characters that appeal to boys.
Club Penguin was its first acquisition of a virtual world. The site’s founders run online worlds with monthly subscription fees and sales of virtual goods. They built the “Cars” site that will launch next month and are overseeing older ones such as “Pirates of the Caribbean.”
Talent on Board
Iger has some Internet talent on his board to lean on as he makes digital deals. Apple CEO Steve Jobs joined as a result of the Pixar acquisition and is Disney’s largest shareholder. Disney was the first to sell TV programs and films on Apple’s iTunes online media store.
Facebook Chief Operating Officer Sheryl Sandberg was tapped in March to become a director. Disney has since increased its presence on the social network and experimented with using it to sell tickets to the Pixar movie “Toy Story 3.”
Big media companies typically lose money online. News Corp.’s digital media unit lost $150 million in the quarter ended in March. CBS Corp. stopped breaking out results for interactive after that unit lost $41.3 million in the first nine months of 2009.
“It’s the right strategy for Disney to buy,” says Gina Bianchini, a venture capitalist who co-founded the social network Ning.com with Marc Andreessen. “And they are looking at some very savvy acquisitions.”
To contact the reporters on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net; Ronald Grover in Los Angeles at Rgrover5@bloomberg.net.
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