How Disney’s video games division benefits from a drop in tech start-up funding
A slowdown in tech start-up funding has at least one big beneficiary: Walt Disney Co.’s video games division.
The entertainment giant is having an easier time finding partners with whom it can develop mobile games, one of its top executives said last week. Why? Up-and-coming companies are losing access to the cash needed to launch games on their own.
“As the venture money has dried up and exits have slowed down and valuations have come down, larger game developers that have one or two hits [but not a big stable of them] are now open to work with us in co-development,” said Chris Heatherly, senior vice president and general manager at Disney Mobile Games.
The comments came during a discussion last week at the L.A. Games Conference with Michael Metzger of investment bank Houlihan Lokey.
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The cool-down in venture funding has raised the possibility of a buying spree among big tech companies now that target firms might be available at a discount. A flurry of purchases has yet to materialize, but Disney’s co-development efforts highlight an alternate way large companies may be able to take advantage of the new landscape.
Two to three years ago, video game makers wanted to furnish their own characters and stories, Heatherly said. Venture capital enabled them to spend heavily on advertising to draw consumers to their products.
In recent months, the game developers have become more likely to come to Disney for help. The companies usually have a game they think users like, but short on cash, they require a marketing push from someone like Disney to spread the word.
A recent success has been "Disney Crossy Road," a spin on the popular game "Crossy Road," in which players must maneuver an animal across a busy street.
Hipster Whale, the Australian gaming start-up behind Crossy Road, partnered with Disney to infuse the game with Mickey Mouse, Buzz Lightyear and other characters that could draw more consumers to a game that’s already seen 120 million downloads.
Disney gets a new source of revenue in exchange for licensing its characters and pitching the game to customers. Partnerships also enable Disney employees to delegate basic tasks and focus on bigger issues, such as devising novel forms of gaming, Heatherly said.
“We don't do particularly well when the market rewards start-ups to spend a lot of cash to grow top line [sales] and market share without growing profit,” he said at the games conference. “When the market starts to mature, that's where it becomes much more interesting for us. They need someone like a Disney to amplify what they are good at and to bring an audience to their products.”
The increase in deal-making has led Disney to get more efficient with marketing so that, for example, its partners aren’t bidding against each other for the same ad slots on Facebook.
It has also relied more on testing apps in countries including Australia and Canada before launching them globally. And Disney has fine-tuned ways to generate revenue from games, turning for instance to rewarding players with in-game currency if they sit through a video ad.
The formula of co-developments and original titles has left Disney with 11 games among the 200 most-downloaded, Heatherly said. Other top games are tied to "Frozen," "Inside Out" and "Star Wars."
But the unit's financial performance has been obscured in Disney’s earnings results since last year because the company began including gaming sales within the broader consumer products division.
Heatherly offered a peek at what’s to come, noting that there would be a builder game attached to the movie “Finding Dory” and a mystery-solving app for the hit film “Zootopia.” Disney also plans to revamp Club Penguin, a virtual playground for children, with a new chat component, Heatherly said.
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Snapchat drops in-app purchases
Snapchat Inc. has abandoned paid features, removing an option last week that allowed users to pay about a dollar to view some video and photo messages from friends more than once.
The Venice company introduced such in-app purchases last fall. But it’s done away with them and is instead focusing on selling ads.
A mix of ads and charging for optional features is a common way for apps to bring in money, and it’s unclear why Snapchat would let go of an undisclosed amount of revenue in favor of solely focusing on ads.
The presence of in-app purchases could have annoyed certain users and led them to use Snapchat less, said Otilia Otlacan, an expert in digital advertising who has worked for Facebook and Google. She said another possibility is that in-app purchases distracted people from seeing ads, which could have turned out to be more lucrative. That’s less likely in Snapchat’s case because the paid features weren’t big, time-sucking additions.
Whatever the reason, the move is reminiscent of Facebook, which launched and then soon afterward shut down an online gift store. After killing the experiment in 2014, Facebook said it would use the lessons learned to help advertisers sell products through the social network.
Snapchat has been rumored to be working on a way for companies to use its app as a storefront. So in-app purchases may have been a test run all along.
A new to-do app
A Los Angeles entrepreneur who sold a business software start-up to Intuit for a reported $30 million in 2014 is launching a new app.
Raad Mobrem says Wedo helps people keep track of things they have to do in a new way. Specifically, Wedo integrates chatting features and allows people to create shared to-do lists among groups of friends, co-workers or family members.
Mobrem’s last company, Lettuce Inc., created software for companies to manage inventory and orders. He stayed with Intuit for about year before leaving last summer to work on Wedo with software developer Spencer Shulem.
The app is free, but Wedo could eventually charge for extra features, including to have groups over a certain size.
Video driving media acquisitions
The expected importance of video to media companies’ futures is continuing to drive acquisitions.
Last week, Culver City online media company Woven Digital announced the acquisition of HitFix and AOL’s Huffington Post bought Los Angeles video production company Ryot Corp. Terms of the deals were not disclosed.
The HitFix website delivers entertainment news to about 4 million people in the U.S. each month. But Woven sees an opportunity to present more of the information through video and increase revenue, in part because ads attached to videos pay more.
Woven has raised more than $23 million in venture capital and owns websites including Uproxx and BroBible.
Meanwhile, Ryot has become an early leader in creating videos for virtual reality devices such as the Samsung Gear VR, Google Cardboard and Oculus Rift. The Huffington Post and other AOL media brands, such as tech news website Techcrunch, will now a serve as an outlet to promote Ryot’s virtual reality videos. The company’s initial work chronicled last year’s major earthquake in Nepal, the migrant crisis in Greece and the Syrian civil war.
Separately last week, AOL-owner Verizon Communications Inc. and Hearst Corp. agreed to pay an undisclosed amount for Complex Media, a lifestyle website whose audience is mostly young men. Complex will make videos that are exclusive to Verizon’s Go90 video app as part of the deal.
Elsewhere on the Web
Customized dress maker Fame and Partners, which has raised $7.6 million in venture capital from Upfront Ventures and others, is moving 10 employees to Los Angeles from Australia, according to Smartcompany.
Location database provider Factual says defeating a lawsuit from a patent holding company cost $1 million and several hundred hours of executive time over a two-year span. The Los Angeles start-up argues that the case highlights the need to fight patent trolls.
HopSkipDrive, the Uber-like service aimed at children passengers, is looking to sign up drivers who were working for its failed rival, according to USA Today.
Snapchat is opening an office in Dallas, according to the Dallas Morning News.
Ticketing app Pogoseat has a deal with StubHub Center to allow for seat upgrades at the soccer venue, according to L.A. Biz.
A USC student has developed an app called Drops to donate spare change to charity, according to the school.
As part of a regional school competition, Santa Monica High students developed ideas for an app to track school attendance and technology to use solar energy to heat cars, according to the Santa Monica Daily Press.
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