How Disney Changes Gaming’s Future

How Disney Changes Gaming’s Future

It is not surprising that Disney would buy Playdom or Tapulous. What is surprising is that very few of the big media companies are doing very much about the breathtaking disruption in media in general. Others should be following Disney’s lead, and fast. Here’s why.

Media used to be analog, passive, boxed and sold for the purpose of amusement through channels that had limited shelf space (including television).  There was very little technology involved and each medium had a ubiquitous standard like NTSC. Media companies did not need to excel at engineering or technology development, or even creativity, which they could easily outsource. Hence, media business models used to be about using finance and distribution muscle to create chokeholds in the value chain. I even founded and built Electronic Arts on these principles. Disney, more recently, was still thinking this way in the first phase of their Pixar relationship. What Pixar presages is now going to be a pandemic for all media industries.

New media is digital, interactive, virtual and sold through the unlimited shelf space of the Internet. The consumer is no longer limited in their choices to what the distribution powers chose for them. Now, the best business models are about using technology and engineering to create original properties and brands, also known as “IP” (Intellectual Property). We saw this first with the Internet where the big winners have been new technology companies inventing new brands like Facebook.

But even the Internet was a case where there was a dominant platform standard which again allowed media companies to avoid having to become advanced engineering and technology companies. Now, however, consumer platform use is permanently fragmented as consumers roam across various devices, screen sizes and networks. Hence in addition to creating new IP, the other issue will be how to use technology leverage to efficiently cover all devices, screens, platforms and languages around the globe.

Outsourcing is not an option in this case because original IP requires such an advanced level of expertise. You cannot just go to a third-world supplier and tell them to copy what Pixar is doing, but to make up their own original brands. And you also cannot rely on an industry of outside artists because they’ll all use their own software tools and code libraries and you won’t be able to efficiently cover the fragmentation. There is only one solution and that is to become vertically integrated at enough scale and with enough expertise.

Big companies understandably struggle to innovate and would rather wait and “buy in” instead of having to build from scratch. This is unlikely to change, so it pits all the big media companies in competition with each other to acquire the clear industry leaders. At this point, being a leader in digital media basically means being a game company that is competent, at minimum, on both the Internet and the iPhone. I say a game company because we are talking about interactive media and this is not well understood outside the game industry. I say the Internet because that is where digital media is happening now, such as Facebook. And I say the iPhone because it is the first stepping-stone for the mobile Web in the West. And in case you haven’t figured this out yet, the Web on mobile devoces is going to be a much bigger consumer market than the Web on the PC. And it already is in places like Japan where the mobile Web has had time to mature.

So if you are a big media company like Disney, you logically need to cover both Internet games and the iPhone. This is obviously what they are thinking in making the two acquisitions, as Playdom is strong on the Web and Tapulous is strong on the iPhone. Disney faces severe integration problems with their scattered digital media dominion, but I give Disney credit for addressing the issue early. The combined purchase price of Playdom and Tapulous is only about 10% of what they had to spend on Pixar. Disney may face some challenges from being an earlier entrant among the big companies, but they’ll get down the learning curve faster and be in a better position. Their competitor that enters later will be the one that pays ten times more this time around. And given the scarcity of acquisitions that can really solve this problem, some of the late entrants won’t find that there is anything good left to buy.

About Trip Hawkins
Trip Hawkins is CEO of Digital Chocolate, a top publisher of social applications like Millionaire City, MMA Pro Fighter and Tower Bloxx. A new media pioneer for 30 years, Trip helped define the personal computer at Apple and founded industry leaders Electronic Arts and 3DO.

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