Disney's Infinity Could Give New Life To Its Interactive Media Business

| About: The Walt (DIS)
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Disney (NYSE:DIS) has maintained somewhat strict boundaries among its different franchises, but that is set to change with the launch of Infinity video game platform. Characters from different franchises will be seen intermixing in the same world within the game, and that’s something that might appeal to Disney fans.

The company displayed Infinity at E3 (Electronic Entertainment Expo) 2013 to give a final pre-launch look of the game. Infinity has been in the limelight for quite some time now, and it will be interesting to see if the game can turn around Disney’s interactive media business, which has been running in losses for the past several quarters.

What Is Infinity?

Disney Infinity is an upcoming video game from Disney Studios scheduled for release on August 18, 2013. The game uses collectible figurines that are blended within the game allowing characters from Disney and Pixar to interact and go on adventures. The game consists of many famous and notorious faces from Disney including Captain Jack Sparrow, Barbossa, Davy Jones, Sulley, Mike, Randy, Mr. and Mrs. Incredible, Violet, Dash, Syndrome, Lightening McQueen, Francesco, Holley and Mater [Disney Infinity]. The game features fighting, role-playing, world building and more in two worlds — the world of toys, in which the player can enter the world and play the story of it; and the Toy Box, which allows gamers to build their worlds and use all other entities from the levels unlocked [Disney’s ‘Infinity’ Is a Toy Box Like No Other, Mashable, June 18, 2013]. Play sets include Pirates Of The Caribbean, Monsters University, The Incredibles and Cars.

Can Infinity Turn Around Its Interactive Media Business?

In 2010, the loss in the interactive media segment was $234 million followed by losses of $308 million and $216 million in 2011 and 2012 respectively [Disney’s SEC filings]. Can Disney turn around its interactive segment with Infinity? Maybe yes. The game seems appropriate for all age groups. While the game is similar to Activision Blizzard’s (NASDAQ:ATVI) Skylanders, it is the gameplay that people will be excited about.

Intermixing toys is something that many kids do and Disney is taking this practice to a whole new level. The idea behind Infinity is to incorporate real-world toys into a virtual environment. Users can combine any of these characters they own into a single world. For example, The Incredibles family can live in the same world as characters from Pirates Of The Caribbean. It lets the user create what they can imagine. Disney expects Infinity to be a huge hit. The starter pack of the game is priced at $74.99, which includes three figurines. One will need to purchase additional figurines, play sets and power disc bundles. The complete set can cost as much as $300 [Disney launches Infinity video game that costs more than an iPad Mini, Mail Online, Jan 16, 2013]. We estimate revenue of close to $1 billion for Disney’s interactive media segment this year.

Infinity is similar to Skylanders Spyro’s Adventure and Skylanders Giants, which have generated over $1 billion in global retail sales, inclusive of toys and accessories. The milestone was reached in 15 months [Skylanders Franchise Reaches More Than $1 Billion in Worldwide Retail Sales, Activision]. Given the much-loved characters of Disney, Infinity should be able to cross the $1 billion mark in less time. If Disney is able to sustain the success with the launch of additional games with differing themes, it will not only lead to higher revenue growth but also make its gaming business profitable.

Our price estimate for Disney stands at $66, which is roughly in line with the market price.

Disclosure: No positions