Can ‘Disney Infinity’ Turn Around the Mouse House’s Worst Performing Division?

Upcoming vidgame/merchandise hybrid 'Disney Infinity' counting on popular friends to push underperforming Disney Interactive to profitability

disney interactive mashup

Every three months, Walt Disney Co. regales Wall Street with its quarterly results. There hasn’t been much for CEO Bob Iger to worry about since each of his divisions, from cable TV to theme parks, has performed strongly, with even the film studio showing signs of a turnaround this year. One laggard, however, has remained : Disney Interactive.

The group, which oversees games and online efforts, spent 16 consecutive quarters in the red until posting its first profit in February. But a $54 million loss the subsequent quarter means Iger’s pledge to investors that the division would be profitable for the duration of the company’s fiscal 2013 year, which wraps up in September, is unlikely.

To say that Disney hasn’t truly excited the videogame industry in years is an understatement.

“We have always had successful things, but we’ve never had enough of them or our hit ratio hasn’t been good enough,” says John Pleasants, who serves as co-president of Disney Interactive alongside James Pitaro. “We haven’t been focused enough and haven’t executed as well as we should have, given the opportunity that’s unique to us. Our division is acutely aware of that.”

But heading into the videogame industry’s annual E3 conference in Los Angeles this week, Disney Interactive looks like an entirely different animal — one that’s generating positive buzz rather than rumors of its demise. While the spotlight will be put on the next-generation videogame consoles and tentpole games coming to market this fall, the Mouse House will be putting its promotional weight behind “Disney Infinity,” a game reliant upon toy figurines of popular characters from Disney’s films and TV shows. The toys are used to trigger avatars that can be played across an array of minigames and virtual worlds via consoles including Microsoft’s Xbox 360, Sony’s PlayStation 3 and Nintendo’s Wii U.

Disney had hoped to get “Infinity” out sooner, but retailers requested Disney shift the June launch date closer to August in order to coincide with the start of the back-to-school shopping season. That will push the game’s financial haul to 2014.

Michael Pachter, an analyst of the media and videogame industries at Wedbush Securities, believes Disney is well advised to leverage its iconic characters, but still could be biting off more than it can chew considering the difficulty inherent in mastering so many different businesses.

“Disney thinking they can do this themselves and do it better is being pretty presumptuous,” he says. “I know Iger wants to execute on this, but that doesn’t mean he can.”

Disney has much riding on Infinity. It’s invested more in the game than it has in any other title, making it a risky bet. But if it succeeds, Disney will have a major new franchise on its hands, and, inasmuch as it brings toys to life, it’s an example of the type of project Iger has long requested from his conglomerate’s various divisions — a property the entire company can benefit from both creatively and financially for years to come.

“It’s the biggest product we’ve made by a factor of three,” says John Blackburn, CEO of Avalanche Software, which has been developing “Infinity” since 2010, and has spent north of $100 million to produce the game, according to multiple sources.

Anecdotes from various people in the games biz say the budget is even higher: The legend goes that when Blackburn pitched “Infinity” to Disney, it came with a $65 million pricetag. After Iger sparked to the idea, he questioned why Avalanche didn’t ask for $200 million or more. Blackburn says there’s little truth to that story and that it’s taken on a life of its own over the years.

To play “Infinity,” gamers need to purchase a $75 starter pack that comes with three figures and a “reader” pad. When the toys are placed on the reader, the game recognizes the figures and inserts them into one of two game modes on the TV screen — a story-based campaign and a toy-box mode in which anything goes and a mashup of all things Disney can take place. Additional discs, which are also placed on the reader, determine various powers of the characters and add upgrades or new locations, props and settings. The game’s split-screen modes enable multiple people to play together at the same time.

“I would be surprised — shocked, actually — if this doesn’t play well with gamers and at retail,” says Martin Rae, president of the Academy of Interactive Arts & Sciences. “Sometimes companies get too focused on one character or one movie and attempt to make a game franchise out of it. If (‘Infinity’s’) a good game experience, they’re going to be successful. They have such a great library and they need to be in the game space in a meaningful way.”

But “Infinity” is not a completely foreign idea. The industry’s largest videogame publisher, Activision, has proven that there’s demand for such a product with its successful “Skylanders” (pictured above) franchise, which also uses toys to play a videogame. Two versions of “Skylanders” have generated more than $1 billion worldwide for Activision since 2011, and sold better than 100 million figures.

With the strong demand for the “Skylanders” toys so far, parents are certainly familiar with how “Infinity” will work, and that’s exactly what Disney is hoping for. (“Skylanders” will clearly face some serious competition from “Infinity” given the similarity of the gameplay.)

Backed by the considerable marketing muscle Disney will put into “Infinity’s” launch, the popular characters the Mouse will introduce in the first phase of the game’s rollout will include “Monsters University’s” Sulley and Mike, Cars’ Lightning McQueen, “Pirates of the Caribbean’s” Capt. Jack Sparrow, and two of the most recent additions to the Disney canon, the Lone Ranger and Tonto.

With the high recognition factor of its own characters, Disney is downright giddy over “Infinity’s” financial prospects. “This is a big game. There’s no question,” says Pleasants, who oversees the games portion of Disney Interactive, while Pitaro focuses on the online half.

The game not only provides a home for every character in the Disney portfolio, but also can integrate film locations and theme park attractions via hexagon-shaped discs that will be sold alongside the figures. “Infinity” also will provide a way to leverage vidgame tie-ins to films that don’t necessarily merit a full game investment themselves.

The company has used “Alice in Wonderland” as an example of a property that despite being a billion-dollar hit at the box office, is still difficult to adapt as a game. Alice, the Mad Hatter and the Cheshire Cat could still appear in “Infinity,” however. “There may be no play pattern for a film like ‘Alice,’ but ‘Infinity’ still becomes a vehicle where we can include the characters,” Blackburn says.

Other elements like racetracks from “Cars,” the electric mayhem bus from “The Muppet Movie,” the evil recognizer vehicle from “Tron,” the ability to change the look of the sky to match the cartoony look of “Phineas and Ferb,” and ESPN-branded sports gear and stadiums also will be available on discs.

One thing that’s clear is just how cleverly designed “Infinity” is. Allowing for continuous introduction of new characters, the game has no end.

With that in mind, consider “Infinity” almost was never made.

The idea for the game was introduced as the toy box mode of the “Toy Story 3” videogame in 2010, which was then pitched to Pixar by Avalanche as the basis of the game’s sequel. “We thought of it as your bedroom floor, where you could play with all of (your toys) the way you wanted,” Blackburn says.

At the time, Avalanche had to think big. Pixar worked primarily with the now-defunct THQ on games based on its toons, and Avalanche was looking for the right pitch to convince Pixar chief John Lasseter to award it more of that business. Avalanche had created the “Toy Story 3” game. Given that most movie game adaptations often relied on retelling the story seen on the bigscreen, “it was a pretty nerve-wracking pitch,” says Blackburn. “We didn’t want to do the standard movie game, but something innovative.”

Pleasants and his team of gamemakers turned it into an even bigger vision and saw the game as its own platform for All Things Disney. “We thought, what if we could build a Disney mashup and the characters can come together to meet each other for the first time,” Pleasants says. “That was a big idea to work through the Walt Disney Co. Usually these worlds do not overlap.”

The initial pitch — which was much smaller than what the final product is now, Blackburn admits — called for each toy figure to have a different design, to better refl ect the variety of toys kids play with. But coming up with a unified overall look made the figures “appear like they belonged together stylistically and look nice as a collection,” Blackburn says. “We spent a lot of time on what the design language would be to bring it down to the essence of the characters with as few lines as possible.”

The final stylized look of the characters is based on designs by Avalanche’s Jeff Bunker, “Infinity’s” art director, who worked closely with Pixar and Walt Disney Animation Studios, and met with producers of Disney’s live action films to sign off on the final figures.

To earn their trust, Avalanche’s team worked closely with producers and screenwriters to make sure the game’s characters matched the originals’ authenticity . The process involved trips to Albuquerque, N.M., to meet with Bruckheimer on the set of “The Lone Ranger,” for example.

“It was a little bit of a sales job at first,” Blackburn says. “The tension you had initially was with the creative stakeholders. Guys like Bruckheimer or Marvel don’t know the game teams. They don’t know whether you’re doing the right thing for their film or will protect their property. They’re all very protective, and rightly so.”

The release of “Infinity” isn’t the only thing Disney has to tout these days. In the days before E3, Disney Interactive announced “Fantasia: Music Evolved,” a music game created by Harmonix, whose credits include the blockbuster franchises “Guitar Hero,” “Rock Band” and “Dance Central.”

The game, out sometime next year, treats “Fantasia” the way Walt Disney wanted , updating the 1940 film with new sequences, according to Harmonix’s creative team. It also makes the experience interactive.

There are also plans for eventual releases of new games based on Lucasfilm’s “Star Wars” franchise that Electronic Arts will manage via a multiyear licensing deal.

However, those console-targeted efforts are actually something of an outlier for Disney Interactive, which is more focused on mobile and social games than ever. Disney Interactive also plans new installments of its “Where’s My Water” franchise, a tablet-version of “Club Penguin” to grow the virtual world for kids, as well as mobile games designed for Asian audiences through its purchase of Seoul – based StudioEx, a creator of free-to-play titles. Moreover, later this fall, the look of Disney.com itself will be refreshed.

But as E3, poised to present the next generation of consoles being launched by Microsoft and Sony, exemplifies, the console market is one that, even in decline, is too large to ignore.

“Console games cost tens of millions of dollars to build,” Pleasants says. “They’re not cheap and come with quite a bit of risk associated with them. When you look at what the division was doing three years ago, we were largely focused on console products,” with roughly 75% of Disney’s resources devoted to expensive, high-profile games produced by a number of gaming studios. That’s now dropped considerably, with just one studio, Avalanche, focused on consoles, and the rest of Disney Interactive’s budget devoted to mobile and other online platforms.

“I think this could be the last gasp for Disney on doing console games internally,’ says Pachter. “I think ‘Infinity’ has to work for them or they’re going to be reticent to try a lot of new things going forward.”

Even without “Infinity,” Disney Interactive finds itself on a surer footing than it has in the past.

“We’re proud to be a top publisher, unquestionably, on mobile,” Pleasants says, with games like “Temple Run” and spinoffs based on “Oz the Great and Powerful” and “Phineas and Ferb,” top-grossing apps on Facebook, continued growth of “Club Penguin” through new apps, games based on Marvel characters, and business picking up in China, Japan and other Asian territories.

As for the future — and the potential of “Disney Infinity” taking off with kids and their parents, who will ultimately have to open their wallets, “I’m between cautiously optimistic and bullish,” Pleasants says. “Gaming is the most interesting area in media right now. Platforms are changing, IP is changing, gameplay is changing. We should be doing really well in this category, and we will. The challenge is we are still trying to achieve the success that we can.”