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Disney Steadily Building Video Gaming Business

The strategy of the Walt Disney Co. to build its video gaming business has begun to pay off at its Buena Vista Games division. Steadily over the past year and a half, the Burbank-based media and entertainment giant has acquired or started game development studios, the newest being Fall Line based in Salt Lake City. In the coming year, the company intends to pump additional money into the division to meet the goal of Chief Executive Officer and President Robert Iger to create a significant games business. As Buena Vista Games grows and Disney executives see the success generated by games for personal computers, Sony and Nintendo game systems, more investment will be put behind it. “What you are seeing is the continued evolution of our business to becoming a full fledged publisher across current and next generation platforms and with a stronger in-house creative capability,” said Graham Hopper, vice president and general manager of Buena Vista Games. In a conference call in November to report Disney financial figures for the completed 2006 fiscal year, Iger and Chief Financial Officer Tom Staggs said the company would invest up to $30 million more in 2007 in the video gaming business, an increase of 30 percent over 2006. In the next five to seven years, the company looks to spend $350 million, the pair said. Disney’s strategy has been to grow its games business “organically,” Iger said in the conference call, through low-cost acquisitions rather than buying a large existing games publisher. Action by the company bears out that strategy. In September, Disney acquired Climax Racing, a London-based creator of racing games. Buena Vista also operates Propaganda Games, a studio it launched in Vancouver; and Avalanche Software, another Salt Lake City studio purchased in 2005. A half dozen staff members from Avalanche will provide the nucleus of the Fall Line team, which will be headed by Scott Novis, a former general manager with Rainbow Studios. The two Utah studios will share back-office operations, Hopper said. “The two of them have their distinct personalities and their own distinct focus,” Hopper said. Avalanche Software develops games for the PlayStation3 and Xbox360 game systems. Games developed by Fall Line will be exclusively for Nintendo systems and be based on Disney characters and situations from its films and television shows. The move to form another in-house development studio shows that Buena Vista Games is being aggressive and building its creative staff in a reasonable manner, said P.J. McNealy, an analyst on the video gaming industry in the Boston office of American Technology Research. On paper, the new studio looks good because of the talent it can attract, McNealy said. Opening a separate studio flies in the face of steps other game publishers have taken. “We are seeing a movement to consolidate studios into big mega-studios, along the lines of what (Electronic Arts) is doing and Buena Vista isn’t necessarily following that plan,” McNealy said. Fall Line general manager Novis will be familiar with putting Disney characters into the video game world as his former studio was responsible for the “Cars” game based on the Disney/Pixar film. Rainbow Studios is a division of Agoura Hills-based video game publisher THQ Inc. THQ is contracted to produce games based on the next four Disney/Pixar films and the formation of Fall Line will not change the relationship between the two companies, Hopper said. Disney and THQ have had a longstanding partnership and the new Fall Line Studio will produce games taking advantage of the vast catalogue of Disney-created content, McNealy said. “That’s a different mandate than trying to up end the existing Disney and THQ relationship,” said McNealy, who follows THQ as an analyst.

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