Disney May Turnaround Its Interactive Media Losses Over Infinity

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Disney 's ( DIS ) interactive media division, which is involved in developing and distributing video games and content for branded online services, has been struggling in the past few years due to poor performance of its releases. However, its latest game Infinity, has been a success and has sold more than 3 million units worldwide in a span of seven months. It appears that Infinity's positive trend might help Disney to turnaround the loss-making unit. Given the arrival of new consoles such as Xbox One and PlayStation 4 , Disney has more potential of selling Infinity, if it decides to launch the game for the new consoles.

Last week, Disney decided to revamp the interactive division, which will lead to reduced number of video games it develops and alter its advertising strategy to focus more on the fast-changing mobile market. The company will lay off 700 employees, roughly one-quarter of the interactive division.

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How Is Infinity Trending?

Disney's Infinity is similar to Activision Blizzard's ( ATVI ) Skylanders and uses collectible figurines that are blended within the game, allowing characters from Disney and Pixar to interact and go on adventures. Skylanders has generated more than $2 billion in revenues since its launch in October 2011, with 175 million toy units sold. It was also the number one kids' game for the third year running in both North America and Europe. Disney's Infinity is a new game and so far the sales figures look encouraging. Disney is able to leverage the company's strong intellectual property portfolio, including The Incredibles, Pirates of the Caribbean and Toy Story to boost popularity. NPD Group has listed Disney Infinity as one of the top ten highest selling game of 2013.

Disney's troubled Interactive Media unit has seen considerable losses in the past few years. However, during the December 2013 quarter, the division witnessed a profit of $55 million as compared to $9 million in the prior year period. In 2013, the division's revenues jumped 37% to $1.18 billion. During Disney's fiscal year 2013, the segment reported a loss of $87 million as compared to a loss of $216 million in the prior year period. We estimate interactive media's revenues to be northward of $2 billion by the end of our forecast period in 2020, primarily due to the continued strength of Infinity.

Favorable Industry Trends

While the video game industry has been struggling over the past few years, there are signs of revival lately with the advancement of hardware. Sony and Microsoft ( MSFT ) late last year released new video game consoles, the PlayStation 4 and Xbox One , respectively. The new consoles can help lift video game spending in the U.S. Currently, the size of the global video game market is $66 billion and is expected to grow to $78 billion by 2017.

Geoff Keighley, at Spike TV said, "2014 will be a monumental year for the gaming industry. Both the Xbox One and PS4 will continue to grow their installed base, and we will begin to see more games built specifically to take advantage of the next generation hardware. Already, fans are anticipating the birth of new franchises like 'Titanfall' and 'Destiny.' There are rumors that Disney will launch Infinity for both of the new platforms, but there hasn't been any official confirmation. We are eager to learn how the market will receive  Disney Infinity in 2014, given this strong start and the success and market share Skylander 's has already achieved. We will also be looking for any update on the company's plan to launch the game for the new consoles.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Symbols: DIS , ATVI , MSFT

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