[LOS ANGELES] Walt Disney Co pulled the plug on its Infinity video-game business, which combines onscreen play with collectible toys, catching analysts by surprise and casting doubt on the health of that segment of the industry.
Disney announced the decision Tuesday in a footnote to its second-quarter earnings, saying it incurred a US$147 million charge for severance costs and to write off its investment in the business. The company will close its Salt Lake City game studio and cut about 300 jobs.
With the action, Disney is ending efforts to develop games on its own and will instead rely on licensees like Electronic Arts Inc, which makes Star Wars titles. Disney launched Infinity with great fanfare in 2013. The decision is a big win for Activision Blizzard Inc, which pioneered so-called "toys to life" games with its Skylanders franchise.
"I'm really surprised that Disney couldn't make a big profit at this level," said Michael Pachter, a long-time video- game analyst at Wedbush Securities. "It's great news for Activision, as they are the last man standing in a market with more than US$1 billion of annual demand."
Infinity allowed characters from many Disney classics to interact onscreen together, letting kids create adventures that put Star Wars or Toy Story characters like Buzz Lightyear on a mission in Cinderella's coach.
Much like Skylanders, customer bought a base unit that connected to a console. Collectibles placed on the base showed up in the onscreen story.
At First Infinity did well at first, Disney Chief Executive Officer Bob Iger said on a conference call Tuesday. The game helped lift Disney's interactive unit to its first annual profit of US$116 million in 2014.
But making and distributing toys and video-game equipment proved costly, Iger said, and the risk of getting stuck with unsold inventory is high.
"We did quite well with the first iteration of it, and we did OK with the second iteration," Mr Iger said.
"But that business is a changing business, and we did not have enough confidence in the business in terms of it being stable enough to stay in it from a self- publishing perspective."
The shutdown will be a blow to Utah's tech industry, which has earned the nickname "silicon slopes," said Matt Lusty, a spokesman for the Salt Lake Chamber, the state's biggest business association. About 300 jobs will be eliminated, the Associated Press reported.
"Tech in Utah has been growing at a tremendous pace," Mr Lusty said, adding he's "never excited" to hear that a business was closing. Disney's operation in Salt Lake City was the result of its 2005 acquisition of game developer Avalanche Software.
It's also a disappointment to fans, as some said on Twitter. "Shame on who ever made this decision," LongChase wrote on Twitter. "I'll think twice b4 buying anything like this from Disney again!"
"My daughter is so disappointed," Colleen Vanderlinden also wrote on social media. "Infinity is her favourite thing in the world right now. :("
Activision's success with Skylanders, which began with the first game in 2011, attracted other competitors. Nintendo introduced its Amiibo games and characters in 2014 and Warner Bros Interactive produces Lego Dimensions.
Activision said it plans to introduce a new Skylanders game later this year. Nintendo is introducing new Amiibo characters. Warner Bros hasn't announced plans for new Dimensions games.
The decision to close Infinity raises doubts about the health of the toys to life category, said Jon Erensen, research director at Gartner.
"That has been one of the areas of the video-games market that vendors have been counting on to grow sales," Mr Erensen said. The question is if "this is just related to Disney or if we may see other vendors that have invested in those platforms have issues, if sales are slowing down."
Disney plans to have two final game releases, including three new characters from Alice Through the Looking Glass later this month and the Finding Dory Play Set in June, John Blackburn, senior vice-president and general manager of Infinity, said on the company's website.
"Losing a developer with the pedigree of Avalanche is certainly a big deal," Andy McNamara, editor-in-chief of Gameinformer, said in an e-mail.
"Larger traditional media companies have generally had trouble understanding the business and how to support and execute games, so falling back to licensing is ultimately a good move."