What’s Behind Disney’s Social-Media Land Grab: Fresher Mouse

With the purchase of Playdom and Tapulous — and even Marvel — Iger pays top dollar for a different generation of savvy customers

Nobody can accuse Disney chief Bob Iger of being stingy.

When he sees something he believes will help the venerable entertainment conglomerate evolve — be it Marvel, Pixar or his latest bauble, social media gaming developer Playdom — he pays top dollar.

Over Iger's five-year stint in the top seat, Disney's acquisitions have totaled nearly $13 billion. Disney believes that's a small price to pay for a portfolio of brands that will help it attract a different generation of tech-savvy customers. 

Like the Pixar and Marvel moves, Playdom — which cost $563 million, plus a $200 million performance-based earn-out — represents an opportunity for the Mouse House to modernize and expand its audience.

In the case of Marvel, Disney was acquiring properties that appeal to young men, a traditionally difficult demographic for the company to crack. Likewise, the Pixar purchase was an implicit acknowledgement that Disney's traditional animation division had plateaued and that the CGI studio was more finely attuned to today's audiences.

So, too, with the newest star in the Disney galaxy. By bringing Playdom into the Disney tent, the company gains a team well versed in new media. It also gets another bridge to the online world, one that brings with it several potential revenue streams. Disney plans to leverage Playdom by selling online goods and advertisements.

Plus, Playdom brings along serious Facebook and MySpace street cred. The Mountain View, California-based company has developed a number of popular games for social network sites including Social City, Sorority Life, Market Street and Bola.

“It’s still in its early days, but if done correctly, it has the potential to be a high growth engine,” said Mike Hickey, an analyst with investment firm Janco Partners. “This could grow by 30 to 40 percent. Where else could you find that?”

In making a big play for several new-media properties, Disney is bucking a trend among its entertainment-conglomerate brethren. Its growth spurt comes when other media companies such as Time Warner are constricting and divesting assets.

And as an analysis by Bloomberg last spring pointed out, Iger is a big spender who shows no signs of closing the checkbook soon. In the past month, Disney acquired not only Playdom, but also Tapulous, a maker of mobile games. The pricetag of that deal was not disclosed.

Many think that after years of sitting out the mergers and acquisitions boom — at least until its 1996 play for ABC/Capital Cities — Disney's expansionist drive is good business.

"Iger’s got very good judgment," Matthew Harrigan, an analyst with Wunderlich Securities, told TheWrap. "They can't create a Zynga in-house, so Playdom is a natural venue to extend their brands."

Of course, while Playdom's pricetag wasn't on the order of the $4 billion Disney paid for Marvel last year, let alone the $7.4 billion it coughed up for Pixar in 2006, it's still an expensive gamble.

“The only thing that surprises me is the price,” said Michael Pachter, an analyst with Wedbush Morgan Securities. “Disney has been looking for a while to expand into games, and it's device-agnostic in terms of delivery.”

But Disney is no bargain-hunter. Pachter says that in buying Playdom, Disney was willing to pony up more than double the $275 million Electronic Arts paid for Playfish last year. At that time, Playfish was the second most popular game producer on Facebook, with more than 60 million active monthly players. Playdom reports having 42 million visitors.

It does, however, represent a cheaper alternative to buying online game developer Zynga, which is valued at $4 billion. An added bonus is that it fits in nicely with Club Penguin, the kiddie-themed virtual world Disney bought in 2007 for $350 million.

Part of the reason Disney may have been willing to pay a premium is that Playdom operates in the black — it was profitable last year and boasted revenue of $50 million.

The Playdom purchase plays to a rapidly growing part of Disney's business, albeit one that still loses money — gaming and social media. On the plus side, Disney saw an increase in interactive media sales of 20 percent to $155 million for the second quarter this year. Yet costs associated with developing games meant the company lost some $60 million for the quarter.

Disney likely will integrate its own brands into the games Playdom makes. “We see strong growth potential in bringing together Playdom’s talented team and capabilities with our great creative properties, people and world-renowned brands like Disney, ABC, ESPN and Marvel,” Iger said in a statement.

The only problem may be antsy stakeholders.

“Shareholders are going to look for results in the nearer term as opposed to the longer term,” Pachter said. “With Playdom they’ll say, ‘You spent money,’ and they’ll ask for metrics. Forty million uniques better go up to 50 million — and they’ll be looking for a return every quarter.”

Others believe investors may be willing to grant Disney a long leash.

"People will be more patient with Disney, because there is so much reverence for the brand," Harrigan told TheWrap. "Iger thinks in long-term timelines, like [News Corp. chief] Rupert Murdoch. With something like Marvel or this, over the first three or five years, the numbers might not be beautiful. Over 10 or 20, the value will be seen."