In Recession, Walt Disney Expands Influence

October 15, 2009 Updated: October 15, 2009

The Walt Disney Company, taking advantage of a soft economy and weakened competitors, has been on an acquisition spree.

Disney Interactive Studios recently acquired Wideload Games Inc., a Chicago-based developer of interactive entertainment. Sales terms were not publicly disclosed. Wideload Games is slated to develop original video games for Disney.

Wideload Games is well known for its Bungie Software label, the Marathon and Myth computer game series, and the extremely popular game franchise Halo.

Disney was successful in hiring Alex Seropian, founder of Wideload, into a vice president position with Disney Interactive. Disney desired Seropian’s creative talents, imagination, and ability to bring imagination to life.

“Alex has built his reputation around the power of original thinking. In leading the studio that created Halo, he helped turn great storytelling, exceptional design and polished game play into the 'killer app' for Xbox,” Graham Hopper, executive vice president and general manager at Disney Interactive, said in a statement.

A Company to Marvel At

In August, Disney announced its purchase of Marvel Entertainment Inc., including the portfolio of over 5,000 characters, for about $4 billion or $50 per Marvel share. Disney will pay Marvel shareholders $30 per share and in addition, 0.745 Disney stock per Marvel share owned .

Popular Marvel characters include “Iron Man, Spider-Man, X-Men, Captain America, Fantastic Four and Thor,” according to Robert A. Iger, president and CEO at Disney.

“This acquisition combines Marvel’s global brand and library of characters with Disney’s creative skills, global portfolio of family entertainment, characters, theme parks and other franchises, and business structure that maximizes the value of creative properties across multiple platforms and territories,” Disney said in a Sept. 22 SEC filing.

Just as with other acquisitions, Disney is bringing Perlmutter, the Marvel CEO, on board as president and most senior executive officer. He will be in charge of Marvel character licensing and publishing businesses and work directly under Iger, Disney’s CEO.

Perlmutter, who favors the acquisition, holds around one-third of Marvel’s outstanding shares. His stake, if stockholders and the SEC approve the merger, is worth $6.1 million in cash and 153,775 restricted stocks, amounting to a total $10.6 million.

In March, Marvel’s board of directors awarded options to Perlmutter for superior performance that give him the right to buy or sell shares of Marvel common stock at a specified share price. According to the filing, he would collect around $13 million if he exercises his rights.

Combining Forces

Disney is also pursuing joint ventures and expanding its media business. At the end of August, the Disney-ABC Television Group, jointly with the Hearst Corporation and NBC Universal, announced the acquisition of A&E Television Networks LLC and its subsidiary Lifetime Entertainment Services LLC, known for catering to women and developing popular television series, including Project Runway, Army Wives, and Drop Dead Diva.

“The new agreement will, upon closing, consolidate three of the nation's top cable networks under single management while preserving the distinct brand identities of each network,” read a joint press release. “In addition, the combined company will be a global media content company reaching over 250 million homes worldwide in more than 140 countries around the globe.”

Despite the global downturn, Disney has remained profitable. Year-to-date September profit amounted to $2.4 billion. The company’s media network accounted for 68 percent and parks and resorts 22 percent of total income. The Interactive Media Group ended up with a loss of $181 million.

“Lower costs at Disney Interactive Studios were more than offset by a decline in unit sales of self-published video games at Disney Interactive Studios reflecting the strong performance of ‘The Chronicles of Narnia: Prince Caspian,’” Disney said in an earnings release.

Analyzing Disney’s Moves

Experts suggest that Disney’s acquisition spree cannot go unnoticed by other entertainment giants. To remain competitive, competitors must match Disney’s vigor for growth or be left out in the cold.

“My gut reaction is that other companies, like Warner Bros., will have to jump in and take some action,” Lawrence Hrebiniak, professor at the University of Pennsylvania, in a recent article published by Knowledge @ Wharton (KW).

He continued, “[The Marvel acquisition] is a major coup for Disney.”

All of the KW experts believe that Marvel will prosper under Disney’s umbrella, just as Disney has done with previous acquisitions such as Pixar Animation Studios. Disney has the power, funds, know-how, reach, and name recognition among the young and the old.

One slight issue relates to Marvel’s licensing agreements—the most successful icons such as X-Men and Spider-Man are distributed by Fox Studios and Sony Pictures Entertainment. Disney, the company that now owns Marvel, is left with more unknown comic book characters.

Daniel Levinthal, management professor at Wharton, is not worried about Disney’s ability to produce and come up ahead of the entertainment game.

“If any company can make unknowns into superstars, it is Disney, which he [Levinthal] says operates like an old-time Hollywood studio developing unknown—and low-priced—talent into megastars,” according to KW.

“Nobody had heard of Hillary Duff or Miley Cyrus. Disney signed them as cute, perky, but unknown 14-year-olds for five- or six-year contracts, then created awareness and built a franchise around them,” he continued.