Don Chmielewski
(Reuters) – In 2017, Epic Games was among the few companies selected to participate in Walt Disney (NYSE:) is an Accelerator incubator program in which the gaming company founder sought to incorporate the entertainment giant’s famous characters into his digital playground.
Now Disney is making a much bigger bet to make this possible.
Disney CEO Bob Iger on Wednesday announced a $1.5 billion investment aimed at allowing consumers to interact with stories and characters from Disney, Marvel, Pixar and Star Wars in Epic’s Fortnite, where 100 people gather each month millions of players. This was in recognition of the amount of free time that Generation Alpha, Generation Z and Millennials devote to gaming.
“In terms of the total amount of screen time devoted to video games, to me it was staggering – it’s equal to what they spend on television and movies,” Iger said during a call with analysts and investors after reporting quarterly results. “And I came to the conclusion that we should be there. And we must be there as quickly as possible and in the most convincing way.”
Shares of the stock rose on Thursday, the day after the earnings report, gaining more than 13%, marking its best day in more than three years.
“Gaming is becoming an important part of the entertainment world, especially for young people, and this gives Disney an opportunity to catch up in this important area,” said Douglas Arthur of Huber Research Partners.
Epic CEO Tim Sweeney has long envisioned Disney characters populating the digital playground Fortnite, according to two former executives.
“Disney was one of the first companies to believe in the potential of combining their world with ours in Fortnite,” Sweeney said in a statement, adding that Disney is using Epic’s real-time 3D graphics creation tool, Unreal Engine.
Other companies such as Lego have also partnered with Epic.
Game industry analyst Michael Pachter of Wedbush said Disney has failed several times in developing its own games. He struggled to make money even from popular games like “Disney Infinity,” he said, referring to a game that included a vast collection of Disney characters brought to life in a virtual toy box.
Since the company switched to a licensing business model in 2016, Disney’s nine game franchises, including “Spider-Man” and “Kingdom Hearts,” have generated more than $1 billion in revenue, Disney said.
Pachter called Disney’s investment in Epic Games a “really smart, strategic” move that is consistent with the company’s approach to building brand awareness and protecting its integrity.
“Disney, I think, recognizes … we’re really good at brands and leveraging them,” Pachter said. “And Epic is really good at hooking consumers, getting their attention and keeping them entertained.”