Andover Townsman, Andover, MA

August 16, 2013

Disney enlists Buzz Lightyear to lure Activision's gamers

By Christopher Palmeri and Cliff Edwards
Bloomberg News

LOS ANGELES — An ad for Walt Disney Co.'s new Infinity video-game system features the Pixar characters Buzz Lightyear and Sulley squaring off against a phalanx of movie villains.

Real-world combat moves to toy stores Sunday when Disney, the world's largest entertainment company, introduces Infinity. The system, using technology that combines collectible figures with onscreen play, goes head-to-head with the top-selling "Skylanders" game from Activision Blizzard Inc., the largest independent U.S. video-game publisher.

For Disney Chief Executive Officer Robert Iger, Infinity represents the best shot at reviving his only unprofitable division, an interactive unit that lost $216 million last year. The product will compete with "Skylanders SWAP Force," the next installment in a $1.5 billion franchise that Activision CEO Robert Kotick is counting on as he engineers an $8.17 billion buyout of his largest investor.

"Disney is going to put a lot of marketing dollars into this platform," said Michael Hickey, a Denver-based analyst at Benchmark Co. "They have a treasure chest of intellectual property. They're going to market the hell out of it."

Infinity links collectible figures with game consoles. When players set plastic characters from Disney's "Pirates of the Caribbean" or "Monsters" movies on top of the unit, they appear on screen as game characters and can interact, the first time the company has put characters from different films together in a game. Additional toys and discs, introducing other characters and features, cost $5 to $13.

Infinity's $75 starter kit includes a base unit that connects to consoles such as Sony Corp.'s PlayStation 3, Microsoft Corp.'s Xbox 360 and Nintendo Co.'s Wii U. The Disney game and earlier versions of Skylanders are rated as suitable for children ages 10 and older, according to the Entertainment Software Rating Board.

"We've had our, call it fits and starts in this business, and we think we are due for a hit," Iger said in an Aug. 9 interview with Fox Business Network. "And we believe Infinity is that hit."

Tony Wible, an analyst at Janney Montgomery Scott LLC in Philadelphia, predicts Infinity will lead Disney's interactive unit to a $123 million profit in fiscal 2014.

Under the direction of John Pleasants, co-president of Burbank, California-based Disney's interactive division, the company has cut back on releases of traditional console-based video games. By developing Infinity as a game platform rather than a standalone title, Pleasants is betting he can develop and sell new products at a lower cost than standalone games.

"It's something we'll be able to live on for years and continually add to it," Pleasants said in a interview earlier this year.

Kotick is working to defend a product that allowed Santa Monica, Calif.-based Activision to buck declining industry software sales and increase revenue 2.1 percent to $4.86 billion last year. He's relying on "Skylanders" earnings to help repurchase most of the 61 percent stake in his company held by Paris-based Vivendi SA.

"Skylanders" is the top-selling video-game title this year in North America and Europe, including toys and accessories, according to Activision. The company will increase marketing outlays this year to meet the Infinity challenge, said Eric Hirshberg, who runs Activision's publishing unit.

"While this genre we've created will face more direct competition than ever before, every indicator tells us that 'Skylanders' franchise is solidly on the rise and has both the cultural momentum and the product innovation to keep it that way," Hirshberg said in an Aug. 1 conference call.

The "Skylanders SWAP Force" starter kit costs $75, with more characters priced at $15 each. Retailers have committed at least 25 percent more space to the Oct. 13 "Skylanders" release compared with last year, Hirshberg said.

Hickey, who recommends buying Activision shares, forecasts Infinity will produce sales of $200 million for Disney this year, while he's predicting $500 million for "Skylanders," an increase from $350 million in 2012.

While both products primarily target boys, Infinity will have broader appeal, including girls and adults who want to collect the figures, said Michael Pachter, an analyst at Wedbush Securities Inc. in Los Angeles.

 "Infinity is more of a toy customer, 'Skylanders' is more a game customer," Pachter, who has an outperform rating on Activision, said in an interview.

Target Corp. and Amazon.com Inc., have been taking Infinity orders for months. GameStop Corp., the largest video-game retailer, has dedicated space in its stores for Infinity toys and is working with Disney on promotions such as a free magazine for early buyers, according to Kristin Djurdjulov, a vice president for marketing at the Grapevine, Texas-based company.

Toy R Us Inc., the largest toys-only retailer, is putting Infinity boutiques in the front of all its stores, according to Richard Barry, the company's chief merchandising officer. The Wayne, N.J.-based retailer is selling exclusive figures developed by Disney and opening its stores two hours early on Aug. 18 to meet demand.

At a Disney fan convention in Anaheim, California, on Aug. 9, Brenden Stark, a 41-year-old website director from Riverside, grinned as his 7-year-old son Andrew took Sulley, a character from "Monsters Inc.," on an aerial ride in Cinderella's coach at an Infinity trial station.

Andrew has already played through all of the levels of the "Skylanders" games, Stark said. Asked if his son might have to choose between the two games this year, Stark shook his head.

"We'll probably buy them both," he said.