On Wednesday, The Walt Disney Company (NYSE:DIS) announced something of a surprise. They are shutting down LucasArts. LucasArts is the branch of George Lucas’ company that develops video games. Over the years they have made dozens of games based on the Star Wars universe. But they also have developed other classic properties such as The Secret of Monkey Island and Day of the Tentacle.
But for the last couple of years the developer has been struggling. Four months into the happy marriage between The Walt Disney Company (NYSE:DIS) and Lucas, The Walt Disney Company (NYSE:DIS) thought it best to shut it down. 150 people were laid off. Games in development, like Star Wars: 1313, are being cancelled. The Walt Disney Company (NYSE:DIS) now plans on licensing LucasArts’ video game properties out to third party developers.
Video game’s future
While the Star Wars video games have been lackluster of late, don’t think that gamers aren’t still serious about their light sabers. Star Wars still has a huge following. Recent games like Kinect Star Wars only got a 53% ranking on GameRankings.com. But despite this, fans were drooling over upcoming Star Wars: 1313. Read any of the articles out there now that it’s cancelled, and you’ll see scores of comments from angry fans. They want their game back.
But here’s some reasons that I think it’s a smart move:
LucasArt’s properties already have a cult-like following. The Walt Disney Company (NYSE:DIS) can leverage this to get the most lucrative licensing agreement.
Any developer paying a premium for properties like Star Wars or Indiana Jones is going to push the video game’s limits to ensure success.
Success will result in a no-cost all-profit situation for The Walt Disney Company (NYSE:DIS).
The Walt Disney Company (NYSE:DIS) can shop smaller properties like Monkey Island and Full Throttle that likely wouldn’t be developed if they all stayed in-house.
Activision Blizzard, Inc. (NASDAQ:ATVI) already has a history with LucasArts. They have been in a distribution agreement for some time. But perhaps now Activision Blizzard, Inc. (NASDAQ:ATVI) will want to take it to the next level and develop a property such as Indiana Jones. As the parent company behind games like Call of Duty, the possibilities are pretty interesting.
Electronic Arts Inc. (NASDAQ:EA) is another likely candidate. Electronic Arts Inc. (NASDAQ:EA) has already developed Star Wars games before. They are the developer behind Star Wars: The Old Republic. And here’s a consolation prize force fans: Star Wars 1313 may not be dead after all. A representative stated that it’s “still possible” it will get released by a licensing agreement.
ATVI Revenue TTM data by YCharts
Revenue for both Activision Blizzard and Electronic Arts has largely flat-lined since 2009. Despite both companies having great properties and good reviews, there hasn’t been that one thing that pushes revenues higher. Getting a hold of a major property like Star Wars or Indiana Jones could be just what the doctor ordered.
But I’d like to see Zynga Inc (NASDAQ:ZNGA) make an attempt at one of the smaller properties, like Full Throttle. Many investors are ecstatic with Zynga Inc (NASDAQ:ZNGA)’s new real money gambling endeavor, but I’m much less optimistic. Online gambling already has many options. And with the United States clamping down, it may be a dead end. I see the real pathway for this company in social networking and smartphone apps.
Zynga Inc (NASDAQ:ZNGA) has attempted to up their presence in the smartphone world with the $200 million purchase of developer OMGPOP. So, they have a big time developer now in their arsenal. Time to put it to good use. Licensing a known property from LucasArts and releasing a game for smartphones and tablets would make a lot of sense.
Episode Seven
More than anything, the move to shut down LucasArts underscores The Walt Disney Company (NYSE:DIS)’s current commitment to making a stellar Star Wars Episode 7.
| Year | Movie | World-Wide Box Office* |
| 1977 | A New Hope | $797,900,000 |
| 1980 | The Empire Strikes Back | $534,171,960 |
| 1983 | Return of the Jedi | $572,700,000 |
| 1999 | The Phantom Menace | $1,007,044,677 |
| 2002 | Attack of the Clones | $656,695,615 |
| 2005 | Revenge of the Sith | $848,998,877 |
| 2015 | Episode Seven | TBD |
*Source www.the-numbers.com
These movies practically sell themselves. The Star Wars movies have some of the most committed fans, willing to camp out in parking lots dressed in a full Kit Fisto costume for weeks before opening night. And let’s be honest, the most recent trilogy of films wasn’t thatgreat. Yet, they made quite a bit of money at the box office.
Imagine what the potential would be if The Walt Disney Company (NYSE:DIS) nails episode seven. Many analysts are already speculating the possibility. Several are saying that Episode Seven is going to join the very prestigious $2 billion club. With no distraction from LucasArts, I have confidence that The Walt Disney Company (NYSE:DIS) is going to pool all their resources, all their experience, and all their best people to make this movie a screaming success.
Foolish bottom line
When The Walt Disney Company (NYSE:DIS) bought LucasFilm a couple months back, I thought it was a brilliant move. But as time has gone on, things keep brightening. Make no mistake about it, this deal has gigantic revenue potential for Disney. Developments like this only highlight that we just don’t know how big this is going to be for Disney yet.
Jon Quast owns shares of Activision Blizzard. The Motley Fool recommends Activision Blizzard and Walt Disney. The Motley Fool owns shares of Activision Blizzard and Walt Disney.
