Disney ramping up push into games market: CFO

LONDON Fri Jun 8, 2007 3:26pm EDT

A screenshot from the video game 'Pirates of the Caribbean: At World's End' in an image courtesy of Disney Interactive. Walt Disney will triple the amount of money it spends developing video games to benefit from strong growth prospects in the global market, the entertainment company's chief financial officer said on Friday. REUTERS/Handout

A screenshot from the video game 'Pirates of the Caribbean: At World's End' in an image courtesy of Disney Interactive. Walt Disney will triple the amount of money it spends developing video games to benefit from strong growth prospects in the global market, the entertainment company's chief financial officer said on Friday.

Credit: Reuters/Handout

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LONDON (Reuters) - Walt Disney Co. (DIS.N) will triple the amount of money it spends developing video games to benefit from strong growth prospects in the global market, the entertainment company's chief financial officer said on Friday.

"We are ramping up our investment in video games ... It is a market where there is real opportunity," Disney's CFO Tom Staggs told journalists during a briefing in London.

Part of the entertainment company's strategy centers on making sure hit products sell strongly across the business, irrespective of whether they start as a film, product or game.

Disney spent around $100 million on gaming development last year and will spend $130 million this year.

"Over the next five years or so we are ramping up to about a pace of $350 million per year in video game investment, principally consoles and handhelds," Staggs said.

Market researcher Screen Digest forecasts the particularly cyclical global gaming software market will be worth $21.3 billion in 2009, compared with $20.2 billion last year.

However, a particularly fast-growing area is so-called massively multiple player online gaming (MMOG), which is expected to see subscription revenues jump from $875 million last year to $1.4 billion in 2009.

"The potential to make profits in that space if you have a hit game is significant," said Screen Digest gaming analyst Piers Harding-Rolls.

Staggs said Disney created a "Pirates of the Caribbean" game to coincide with the release of the latest film, which became a hit across gaming platforms in the UK, France and Germany.

Later this year, Disney plans to launch a multi-player online Pirates game in the U.S., then in the UK.

"We are early on in the process of developing a video gaming capability," Staggs said.

Three months ago, Disney launched "Spectrobes", a role-playing game for Nintendo's 7974.OS hand-held DS player produced by the company's Interactive Studios arm that has shipped about 700,000 units, Staggs said.

The galactic action adventure game was developed for Disney by Japan-based Jupiter Corp.

"I am comfortable that it warrants a sequel in the games business. We would like to see video games become a vibrant creative venture," Staggs said.

Disney has been positioning itself more aggressively in the gaming market over the past year, and late last year launched a games studio to focus on creating new and Disney-inspired titles for Nintendo's DS player and Wii console.

Staggs said around 70 percent of development spend in video games in the near future would be on established content franchises, with the rest in areas where Disney hopes to create intellectual property it can exploit across the business.

Mobile gaming applications were part of this, though this area was primarily being pursued "quite aggressively" within the company's Internet business, he said.

Staggs said 90 percent of Disney's development efforts across gaming, including mobile, fall under the Disney brand.

However, this is traditionally done on a license basis.

"It is not that we have no position in the market, it is that as a developer and publisher our activities have been very limited. But to the extent that we are successful in creating games as a publisher ... there is substantially more economic upside to the company," Staggs said.

The CFO said Disney's gaming aspirations did not imply the company wanted to "go flying into the teeth" of competitors.

Leading players in this area include Electronic Arts ERTS.O, the world's largest video game publisher, and Ubisoft (UBIP.PA), Europe's second-largest video games publisher.

"What we are doing is trying very deliberately to develop our core capabilities in video games content development, leveraging what already exists in the Disney brand," said Staggs.

Disney already has a licensing partnership in its ESPN sports network with Electronic Arts to create video gaming sports titles.

"In the Disney-branded titles we thought we could maximize our success going it alone," Staggs said.

Staggs said Disney was also exploring opportunities for gaming initiatives in virtual worlds such as Second Life.

"We can serve a real consumer desire to delve deeper into the worlds we create," he said, adding that such segments can play an important role in keeping users engaged in particular franchises over a sustained period of time.

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