Disney sets sights on social media users

29 July 2010

NEW YORK: Walt Disney, the entertainment group, is planning to enhance its social media capabilities after purchasing one of the leading games developers in this area.

The company has announced the acquisition of Playdom, founded two years ago, with the maximum fee for this takeover possibly climbing to $763m (€586m; £490m) depending on performance.

"We're already looking at the Disney catalogue and how we can bring those characters into our games," Christa Quarles, Playdom's chief financial officer, said.

At present, around 42m netizens use the organisation's titles, such as Sorority Life, which are hosted on Web 2.0 services like Facebook and MySpace, every month.

"People are consuming product in new destinations, on new devices," said Robert Iger, Disney's chief executive. "You've got to put your product on those devices."

"We see strong growth potential in bringing together Playdom's talented team and capabilities with our great creative properties, people and world-renowned brands like Disney, ABC, ESPN and Marvel."

Other major firms in this arena include Playfish, which was bought by Electronic Arts last year in a deal that could ultimately be worth $400m.

Zynga, the brains behind FarmVille, the most popular social game on Facebook, is currently independent.

"Media companies are recognising that social games are a big market and a way for them to reach a large number of consumers and monetise well on the internet," Justin Smith, an analyst with Inside Network, said.

"A lot of media companies were initially sceptical of the web because they got burnt early in the 2000s, but the fundamentals of social games are strong."

However, Ray Valdes, an analyst at Gartner, warned that certain obstacles might pose a challenge to Disney.

"The success of social gaming has been about the user, rather than the branded character," he said.

"When a person plays FarmVille, they aren't interacting with random characters; they're creating their own world."

Previous examples from this category have also demonstrated the difficulties of combining the cultures of a start-up with that of a more established, and structurally complex, buyer.

"When News Corp bought MySpace it was number one in the social networking sector," Valdes argued. "But that marriage between the corporate parent and the once hot property didn't pan out."

By contrast, Iger suggested that a cautious approach typically delivered sub-optimal results.

"When deciding how to place a bet we thought we should do it at a significant level and not just take a little shot," he said.

"Too often traditional media companies only put a toe or two in, and they deprive themselves at the opportunity for real growth."

Data sourced from Financial Times; additional content by Warc staff