By Ronald Grover and Malathi Nayak
LOS ANGELES/SAN FRANCISCO, March 6 (Reuters) - Walt Disney overhauled its struggling interactive division in a sweeping reorganization that will reduce the number of video games it develops and alter its advertising strategy to focus more on the fast-changing mobile market.
As part of the revamp, Disney will lay off 700 employees, roughly one-quarter of the interactive division, according to a person with knowledge of the layoffs. A Disney spokeswoman would not confirm the number.
Disney's games and online division has for years been a persistent money loser and a small but significant drag on a corporate empire that spans movie-making and television to cable network ESPN, theme parks and cruise lines.
As with other major game publishing houses, Disney has been trying to keep up with rapidly shifting consumer preferences and an explosion in mobile gaming worldwide. In 2010, it bought mobile game developer Playdom for over $500 million, an acquisition that has yet to bear significant fruit.
"We are trying to consolidate things and focus largely on the mobile platform," the president of Disney Interactive, Jimmy Pitaro, said in an interview with Reuters. "The industry is moving very quickly in that direction and we're making that transition."
Last year, Disney Interactive lost $87 million as revenues rose 26 percent from 2012; the division has lost a total in recent years of more than $1 billion.
In Disney's fiscal first quarter that ended on Dec. 28, the unit reported $55 million in operating income.
Disney now plans to license most of its games to earn additional revenue, Pitaro said.
It will continue to develop games and content for its "Infinity" platform, a combination video game and toy line; it has sold more than 3 million copies of the platform globally since its August release.
That line, which echoes Activision Blizzard Inc's "Skylanders" product, is viewed as a pivotal element in Disney's effort to revive the interactive division.
Disney will continue to make kid-friendly mobile games and short videos for YouTube, Disney.com and elsewhere, Pitaro said.
The company also intends to adjust its online strategy and streamline its diverse websites.
It will close two smaller sites, Spoonful.com and BabyZone.com, and revamp Disney.com to use its primary website more as a promotional site for its retail, parks and other businesses.
Disney will continue to generate advertising revenues from Disney.com and will increase the amount of content it produces in conjunction with sponsors, Pitaro said.
For instance, Disney produced a 38-minute video with Google called "Blank: A Vinylmation Love Story." In December, it announced it would make a series of animated shorts with Rosetta Stone that Pitaro said would be the model for future joint efforts.