Will Disney Crush Activision?

Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

 It is said that imitation is the sincerest form of flattery, and it seems competitors just keep tripping over themselves to compliment Activision Blizzard (NASDAQ: ATVI), year after year. This time it's media giant Disney (NYSE: DIS) making an attempt to copy their way to a major win.

Last year we all witnessed Electronic Arts (NASDAQ: EA) on the attack, bringing the much ballyhooed Star Wars The Old Republic to the world in an attempt to steal away market share from Activision's World of Warcraft. It was an utterly failed attempt. However, it must be acknowledged that the MMORPG (massive multiplayer online role playing game) world that World of Warcraft has owned for over 7 years now wasn't Blizzard's original brainchild either. Everquest Online was already established when Blizzard came in and blew their doors off it with WoW. So it's not unprecedented that a copycat could step into an established gaming realm and steal the show, as Blizzard itself has proven.  

Interestingly, over the past year some have speculated that Disney stepping in and helping Vivendi unload its ATVI shares would make for a nice fit in Disney's media empire. It seems Disney had plans of its own that it felt it didn't need Activision for and voila, they introduced the upcoming Disney Infinity to compete directly with Activision's Skylanders! Using the same Near Field technology that helped Activision take children's video gaming by storm, incorporating toys that come to life onscreen, Disney will now bring their own wonderful world of many beloved characters to life.

An Infinite Target On ATVI's Back

Star Wars licensing wasn't enough for EA to even dent World of Warcraft with their offering. Luckily for Disney, it doesn't need to pay outlandish fees to license characters that children the world over know and love, since they already own those. While Electronic Arts had acquired Bioware, a successful Canadian game designer, to bring SWTOR to market, Disney has their own acquisition in Avalanche Software to realize Disney Infinity. In the case of Bioware, while they did indeed have tremendous successes in publishing role playing games, they had not before tackled MMORPG. Consequently they lacked experience in developing such a game format and their product suffered for much of the misunderstanding of such gaming communities.  While the Skylanders series lacks the online social engagement that truly binds subscribers to World of Warcraft creating an impossible hurdle for any game not clearly superior, there is another dynamic at work that I believe will prove once again, the true value of a moat around a good business application, or in this case, game. A couple of serious considerations will be in play when stacking up Disney Infinity versus Skylanders.

What Fends Off This Media Juggernaut?

Of primary consideration is that Activision, being first mover to this new genre for kids as well, have already gained tremendous comittment from children and parents' wallets the world over with their wonderful creation, Skylanders. To equip children around the world to play this dazzling game, parents have had to fork over approximately $140 for the two games so far, the original and now Giants. The toys add up to quite a chunk of change on top of the games themselves. Assuming the average child has had mom, dad, uncles, aunts and grandparents fork over an additional couple hundred dollars for characters that sell between $10 and $15 we're looking at an easy $300 plus for this gaming experience. These children that love their Skylanders have as many as 45 toys to collect, so even at the above estimate, there's certainly room to spend another $200 - $300 to round out collections. The children playing these games are provided constant animated movie reminders in-game of all the characters they still need to collect as well, so Activision is constantly marketing to them, and they are constantly asking mom and dad for more. How quick will parents be to entertain going down that road with yet another such franchise, Disney or not? I'm scoring a big advantage to Activision's Skylanders going forward on this account.

Activision also has the benefit of employing the tremendous, proven talent that they were able to pool to create Skylanders in the first place. It's this greatly experienced talent that helped fend off the likes of SWTOR and countless would be challengers across genres over the years. As great a studio as it may be, Bioware was no match in a field it lacked experience in, how does Avalanche stack up now? Thanks to Wikipedia for the following list.

Avalanche As Disney subsidiary

Avalanche As independent company

 

 Not exactly a what's what of video game blockbusters, but certainly some successes. More relevant are sales figures of their two most recent Disney offerings.

2010 Toy Story 3 - 5.08 million

2011 Cars 2 - 2.3 million

Granted, Cars wasn't as beloved and was released a year later, yet still the drop off is noteworthy. Some of the credit could go to the poor game play of the higher selling Toy Story 3 game. As with movie sequels, previous enjoyment of a title often leads to greater performance of following offerings. This did not bear out in the case of these two games. I'm inclined to score another big advantage to Skylanders going forward on this account as well.

Bottom Line

Analysts covering the subject are inclined to believe that adding split screen play (a very poor idea in such a game format), or a sandbox concept where 5 - 10 year olds will create worthwhile content (naive at best) to share in online play that Skylanders doesn't offer (for good reason as that too is beyond necessary or worthwhile with children this young), means that Activison needs to go 'back to the drawing board'. None of these features are unfamiliar territory for Activision, but instead were far more likely features left out to make room for well directed, brilliantly crafted game play that works bug free and delights endlessly in an immense world that children grow to love. These choices are the end result of invaluable experience and while Disney may indeed meet with a good measure of success, Activision owns the drawing board.


Robert Kralj owns shares of Activision Blizzard and Walt Disney. The Motley Fool recommends Activision Blizzard and Walt Disney. The Motley Fool owns shares of Activision Blizzard and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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