How Disney conquered the game industry by giving up on video games

On May 10, 2016, the Walt Disney Company decided it would saw off the youngest, thinnest branch on its corporate tree: Disney Interactive.

The video game publisher, which had been founded in 1988, was duly ordered to shut its doors. Disney-owned Avalanche Software met a similar fate, as did the dozen or so other game developers that the company had fought to acquire during the previous decade.

The announcement came as a shock to gamers and game makers alike. Upwards of a 1000 employees were placed on the streets — a mean, careless and seemingly illogical decision considering that Disney’s flagship title, the Skylanders-inspired, bring-your-toys-to-life series Disney Infinity, had been doing pretty well.

Fatefully, Disney CEO Bob Iger begged to differ. While Disney Infinity was indeed profitable, earning the company more than half a billion dollars in revenue per year, the franchise was not performing as well as his advisors had promised it would. Profits were rolling back, and trade publications awaited the hoaky toys-to-life market’s collapse.

The downfall of Disney Interactive meant many things to many people. To Iger, it meant that gaming was a part of the entertainment industry his company would not be able to conquer. At least, not without outside help. “We’re good at making movies and television shows and theme parks and cruise ships and the like,” the CEO said in an earnings call, “we’ve just never managed to demonstrate much skill on the publishing side of games.”

The same could not be said for licensing, a tactic Disney mastered decades ago, and which would henceforth determine the company’s approach to video games as well. Starting 2016, Disney would cease developing games in-house in favor of licensing its properties to outside developers and publishers instead. A bold call. But would it pay off?

“We’re good at making movies and television shows and theme parks and cruise ships and the like, we’ve just never managed to demonstrate much skill on the publishing side of games.”

At first, it did not seem like it. The company had tried to enter the gaming business through a variety of different routes, but so far each attempt had ended in failure. During the time of the "Disney Renaissance," Disney Interactive Studios — then operating as Buena Vista Software — produced game adaptations of the company’s greatest hits, from Aladdin to The Lion King.

Most of these games got decent reviews and sold well enough, but they never came close to rivaling Super Mario in terms of popularity or cultural significance. Perhaps this was because they played it safe, slapping Disney skins on genres that had already proven to be popular with younger audiences rather than pushing the medium’s boundaries like the company had previously done with animation.

At one point, Disney tried launching its own brand of arcades. DisneyQuest, which opened in Orlando in 1998, was the size of a small amusement park, containing dozens upon dozens of custom-made arcade and VR video games, all based on Disney properties. The complex had a futuristic design, promising to transport visitors to a '90s version of the metaverse. Disney quickly opened a second location in Chicago and planned locations around the world, with particular sights set on New York City, but the Chicago outing quickly closed down and future expansion was nixed due to high maintenance costs and poor attendance.

On paper, DisneyQuest must have sounded like a pretty good idea, allowing Disney to approach video games by way of something they’d already mastered: themed entertainment. In practice, however, DisneyQuest was a misguided business venture born not of inspiration but jealousy: Iger’s predecessor, Michael Eisner, started the project when he discovered his former colleague and rival Jeffrey Katzenberg was nurturing a partnership between DreamWorks and Sega.

A whole decade passed before Disney altered its approach to video games once more. The decisive year was 2009, and while single-player games like Assassin’s Creed II and Batman: Arkham Asylum were selling like hotcakes, Call of Duty: Modern Warfare 2 was everyone’s main course, and a sure sign of where the industry would be headed.

“It’s about better connectivity,” Disney Interactive president Graham Hopper mentioned in an interview with Gamasutra from that year. In the past, Disney relied on enhanced graphics as their major selling point. Today’s games, though, were all about the ability to play alongside others. This way of thinking sparked the creation of co-op games like Toy Story Mania! and Disney Infinity. However, we already know how that turned out.

It is no coincidence that Disney’s latest strategy, the aforementioned licensing-only model, fit Iger's management style like a glass slipper. Rather than building their game development infrastructure from the ground up, earning reputability by risking failure, Disney would simply rely on outside developers that had already earned their stripes.

Best of all, Iger had a good reason to believe his licensing-only model would work: Kingdom Hearts. In terms of both sales and influence, this epic crossover between Disney and Final Fantasy was, without a doubt, one of the biggest games the company had gotten involved in at that point. Kingdom Hearts III, made by Square Enix released in 2019, shipped 5 million copies, becoming one of the best-selling games of the year.

There were some downsides. If a licensed game became a surprise hit, Disney would only receive a small part of the profit. On the flipside, if a game got cancelled or underperforms, the Mouse House would be financially insulated. They wouldn’t lose any of their investments because they wouldn’t invest anything to begin with, and they wouldn’t have to deal with the mess; that would be the developer’s responsibility.

As licensing partner, Disney only had to take care of one thing: find the right developer for the right property. Due in part to the failure of the rushed Epic Mickey 2: The Power of Two, company executives decided to pull their cartoon characters out of the limelight, giving priority to other, newer additions to the Disney vault, including Marvel and Star Wars.

Whether Iger’s gamble paid off financially is difficult to say. Our first instinct might be to look at stock prices but, as former editor-in-chief of GameDaily.biz Amanda Farough points out in an email, gaming is “only a thin slice” of the entertainment conglomerate’s operations, and unlikely to be reflected in Disney’s overall financial performance. On top of that, the company does not disclose how much it charges developers for its licensing deals, making it difficult to determine how their game-related earnings have shifted over the years.

What we do know is that Disney now plays a bigger role in gaming than they ever did before. EA was one of the first developers to land a licensing deal with the company, and their Star Wars titles have grossed more than $3 billion in revenue. Marvel’s Spider-Man, produced by Insomniac, is one of the best-selling PS4 games of all time. Square Enix’s Guardians of the Galaxy game, which came out a few months ago, became a hit despite initial concerns.

If the present looks good, the future is looking even better. This year alone saw the reveal of more than a dozen tie-ins with and adaptations of Disney’s properties. Bethesda acquired the rights to make an Indiana Jones game. Marvel’s Spider-Man 2 is set to release in 2023, and Ubisoft announced it’s working on both an Avatar game and a Star Wars title, the first of many now that EA no longer holds exclusive rights to the coveted franchise.

The benefits that these critically and commercially successful games have for Disney cannot be measured in terms of licensing revenue alone. Disney’s lack of operating costs has to be taken into consideration, too, as does the amount of brand exposure that the company now enjoys.

“These other studios they’ve licensed their games out to can deliver premium, prestige games.”

“Would these games be nearly as good, and then in turn have sold as much as they have, had they been made by some in-house Disney team?” Cade Onder, a video game industry reporter at ScreenRant, tells Input. “Probably not. Disney Interactive had some decent games back in its day, but none of them came close to the gargantuan successes of what’s being released today and I think that’s just because these other studios they’ve licensed their games out to can deliver premium, prestige games.”

Even if Disney Infinity technically earned Disney more per sale, that franchise was also confined to a smaller, younger player base. Their licensed games, on the other hand, reach a larger, older and arguably more important demographic — the sort of people that don’t just watch Disney movies, but Marvel and Star Wars movies as well.

When Disney Interactive was founded in the eighties, the video game industry was still small enough to serve as a mere sideshow to the company’s main attraction: their animated films. Today, the gaming business is just as big as the movie and television business — perhaps even bigger — and not even a company as large as Disney possesses the resources it needs to produce quality games in-house.

With all the competition that exists out there right now, it’s no longer adequate to make video game adaptations of your films. Instead, games must offer original experiences that stand on their own and make full use of the unique properties of the medium. Ironically, despite having little in common with the iconic films they are based on, these licensed games may actually be the most effective kind of promotional material that Disney could have asked for.

And to think that all they had to do was give up.