What Potential Does ‘Infinity’ Hold For Disney?

Disney (NYSE:DIS) plans to introduce its ‘Infinity’ game for gaming consoles, PCs and mobile phones this year. ^[1] The project is big and Disney will look to turn around the losses of its gaming division with this launch. Infinity is similar to the Skylanders game launched by Activision Blizzard (NASDAQ:ATVI) in late 2011, and judging from Skylander’s success, there is a good chance that Infinity can boost Disney’s value by as much as 5%. That’s a lot considering that Disney doesn’t get any direct financial value from its gaming business, which is currently running in losses.

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Infinity’s Style And Launch Time Point Towards Potential Success

Infinity combines video gaming and action figures, similar to what Skylanders does. When customers purchase the game, it will come with a base where the action figures can be plugged in. These action figures will determine which gaming character the customer sees within the game. The game will initially be available on gaming consoles such as Xbox, Wii and PlayStation as well as PCs. The mobile version of the game will be launched later.

Until now, Disney has maintained somewhat strict boundaries between its different franchises, but they’ll disappear with the introduction of Infinity. 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. Besides, the idea of having an action figure mounted on a base to power the game character has proven successful, as evident from Skylanders.

In addition to this, gaming companies such as Electronic Arts (NASDAQ:EA) and Activision Blizzard have reduced the number of game launches for 2013 and that might give Disney a good opportunity to promote Infinity. ^[2]

Looking At Skylander’s Success To Judge Disney’s Potential

Since its launch in late 2011, the Skylander franchise has earned more than $500 million in revenues for Activision Blizzard. ^[1] Overall, the game has  sold about 3.45 million copies in the U.S. and 7 million worldwide. ^[3] If Disney can emulate this success in the next 2 years, it can earn cumulative revenues of more than $500 million given that the company will price the game at $75. ^[1] Another $150-$200 million can come from additional action figures sales. This assumes that on average, each customer will buy 2 add-on figures with average pricing of $10-$15. Disney has said that additional action figures will be available for prices between $5 and $35. ^[1]

If this happens and Disney is able to sustain the success with the launch of additional games with differing themes, it will not only lead to a higher revenue growth but also make its gaming business profitable. There is a good chance that the combination of increased revenues and margins can lift Disney’s price estimate by as much as 5%. Although this may seem like a low figure, it is quite huge in the context of Disney’s gaming business.

Disney’s Other Gaming Efforts

Disney has been making efforts in the past to increase its presence in mobile and social gaming. Following the success of some of its initial mobile games that topped the charts among paid Apple (NASDAQ:AAPL) apps, the company launched more new games that leverage its popular characters. These include Monsters Inc. Run, Finding Nemo Reef and Where’s My Holiday.

Although there is not much money for Disney in mobile games, it helps in better engaging its customers . This provides cross marketing opportunities for Disney’s other businesses and keeps the brand image stable in customers’ minds. For example, Disney could easily promote its movies, consumer products and theme parks via games. Apart from mobile gaming, the company also launched some social games on Facebook based on its popular characters and franchises.

Our price estimate for Disney stands at $54.60, implying a premium of less than 10% to the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Video Game Combines the Worlds of Disney, The New York Times, Jan 15 2012 [↩] [↩] [↩] [↩]
2. SEC Filings [↩]
3. VGChartz [↩]