Dear Bob: Here’s the M&A Move That Will Boost Disney

Dear Bob: Here’s the M& Move
Photo illustration VIP+: Adobe Stock; AP Photo

Dear Bob,

You’ve officially been the CEO at Disney for nearly two years now. But for all intents and purposes, the job has really just begun now that your predecessor, Bob Iger, exited at the end of 2021.

Unfortunately, just when you’re finally free to operate outside Iger’s shadow, you’ve got a pretty lousy hand to play. COVID-19 has battered some of the pillars of Disney’s business, particularly parks and movie theaters. The company’s stock sank as much as 38% from February to March 2020 and more recently tumbled 14% throughout November 2021.

Shifting Disney’s priorities to go all in on streaming has been the right call, as Disney+’s  118 million subscribers make it the only new streamer that realistically rivals Netflix. But new subs are slowing.

Let’s face it: You’re going to need to make a transformative move beyond Disney+ to help get the company back on track. Lucky for you, there’s an M&A opportunity staring you in the face.

The way to make your mark is reversing one of the few faults of Iger’s tenure: It’s time for Disney to re-enter the video game business with an acquisition of a publisher that is a great fit for the company.

When Microsoft announced last week its game-changing $69 billion acquisition of Activision Blizzard, it made clear a painful reality: Disney and other media companies are standing pat while bigger tech companies absorb the video game companies they themselves should be going after if they want to remain relevant with younger audiences who are as highly engaged with gaming as they are with premium video entertainment, if not more so.

Netflix clearly gets this, as its own recent push into video games gets more aggressive by the day, even if their approach to mobile games is fairly unorthodox so far. And despite selling its Playdemic mobile studio to Electronic Arts in 2021 and the approaching merger with Discovery, WarnerMedia remains intent on doubling down on Warner Bros. IP to maintain a steady slate of games across the new console generation.

Of course, the mere mention of video games is sure to make any Disney veteran like yourself shiver. The company retreated from the business in 2016 with the closure of Disney Interactive Studios, effectively transitioning Disney’s presence in gaming to a licensing model and nothing more. As Iger himself conceded on a 2019 earnings call, “We’ve found that we haven’t been particularly good at the self-publishing side.”

But Disney has run up against the limitations of a licensing-first strategy since then. Lucasfilm already rebranded its licensing operation as Lucasfilm Games a year ago as new “Star Wars” games from Ubisoft, Sony Interactive Entertainment and French developer Quantic Dream were announced over the last year, making it clear the era of EA’s exclusivity over “Star Wars” games is over, even if the publisher has since announced more games.

Licensing IP is an easy way to generate revenue, but Disney can benefit strongly from adopting a vertically integrated pipeline for at least some of these games.

Naturally all eyes are now on Electronic Arts as the biggest Western games publisher after Activision Blizzard, but with an estimated market cap of almost $40 billion it’s probably beyond your scope as an acquisition target, as combined end-of-period cash, cash equivalents and restricted cash have hovered around $16 billion for the past three quarters.

When considering an acquisition Disney must think small, but not too small for such a move to be rendered pointless. A publishing acquisition around the scale of Microsoft’s $7.5 billion ZeniMax buy in 2020 would be risky but at least manageable.

Enter Bandai Namco.

Its business strongest in its home turf of Japan, Bandai Namco earns most of its revenue from its Bandai Namco Entertainment publishing business, but also earns substantial revenue from selling toys. And similar to Disney, it ran its own arcade and parks business that drove a dent into revenue when the pandemic hit; Bandai Namco has since bounced back, merging its video game and toys business in the process.

Bandai Namco also owns anime studio Sunrise, responsible for IP like “Cowboy Bebop,” a beloved series Netflix recently failed to make a successful live-action adaptation of.

As active as it is in Japan, Bandai Namco is trying to make larger strides into the Western market. It put out a 2020 “Fast & Furious” game with voice contributions from stars Vin Diesel, Michelle Rodriguez and Tyrese Gibson that was ambitious but poorly received, has an annual horror series whose games count stars like Will Poulter or Jessie Buckley as their leads, and in February is releasing “Elden Ring,” by far the publisher’s most high-profile release yet.

An open-world fantasy RPG, “Elden Ring” is a collaboration between well-regarded studio FromSoftware, known for Bandai Namco’s “Dark Souls” franchise and other critically acclaimed games, and George R.R. Martin, best known as the mastermind behind “Game of Thrones,” which was borne from his novels.

Even if purchasing a significant stake in the company ultimately makes more sense than outright acquiring it, Bandai Namco is exactly the kind of company that would benefit from gaining better access to the Wonderful World of Western IP via a relationship with Disney, which would be mutually beneficial given the IP Bandai Namco owns.

The company controls well-regarded franchises like “Tekken,” “Gundam,” “Soulcalibur” and “Ace Combat,” partially owns “Digimon” and has gaming rights to further IP like “Naruto,” “Sailor Moon,” “Sword Art Online” and “Dragon Ball.”

But most enticing is Bandai Namco’s full ownership of “PAC-MAN,” one of the most recognizable brands in gaming history. Consider the slew of high-profile films being built from such classic brands: there’s 2020’s “Sonic the Hedgehog” at Paramount, with a sequel due in April; 2019’s “Pokémon Detective Pikachu” from Warner Bros; and Universal’s upcoming “Mario” film from Illumination due at the end of 2022. Each property was licensed for these films, so imagine how fruitful full access to “PAC-MAN” could be given Disney’s knack for turning well-recognized IP into successful films and TV series?

At the end of the day, Disney is not a tech company, so this kind of IP trade-off is key for a serious entrance into gaming, and you’d be gaining a company that knows what it’s doing.

A smaller but smart entrance into games that also benefits other content units at Disney is by far the best way to get out of your fellow Bob’s shadow by addressing the one area he overlooked. Whether it’s an outright buy or stake in the company, Bandai Namco is the right company to target.

Sincerely,

Variety Intelligence Platform