Sully, a character from Pixar’s ‘Monsters University’ film stands on display next to members of the media as they receive a demonstration of the Walt Disney Infinity video game system during a Disney Interactive event in Los Angeles. Walt Disney overhauled its struggling interactive division in a sweeping reorganisation to focus more on mobile market.

Reuters/Los Angeles/San Francisco

 

Walt Disney overhauled its struggling interactive division in a sweeping reorganisation that will reduce the number of video games it develops and alter its advertising strategy to focus more on the fast-changing mobile market.

As part of the revamp, Disney will lay off 700 employees, roughly one-quarter of the interactive division, according to a person with knowledge of the layoffs. A Disney spokeswoman would not confirm the number.

Disney’s games and online division has for years been a persistent money loser and a small but significant drag on a corporate empire that spans movie-making and television to cable network ESPN, theme parks and cruise lines.

As with other major game publishing houses, Disney has been trying to keep up with rapidly shifting consumer preferences and an explosion in mobile gaming worldwide. In 2010, it bought mobile game developer Playdom for over $500mn, an acquisition that has yet to bear significant fruit.

“We are trying to consolidate things and focus largely on the mobile platform,” the president of Disney Interactive, Jimmy Pitaro, said in an interview with Reuters. “The industry is moving very quickly in that direction and we’re making that transition.”

Last year, Disney Interactive lost $87mn as revenues rose 26% from 2012; the division has lost a total in recent years of more than $1bn.

In Disney’s fiscal first quarter that ended on December 28, the unit reported $55mn in operating income.

Disney now plans to license most of its games to earn additional revenue, Pitaro said.

It will continue to develop games and content for its “Infinity” platform, a combination video game and toy line; it has sold more than 3mn copies of the platform globally since its August release.

That line, which echoes Activision Blizzard Inc’s “Skylanders” product, is viewed as a pivotal element in Disney’s effort to revive the interactive division.

Disney will continue to make kid-friendly mobile games and short videos for YouTube, Disney.com and elsewhere, Pitaro said.

The company also intends to adjust its online strategy and streamline its diverse websites.

It will close two smaller sites, Spoonful.com and BabyZone.com, and revamp Disney.com to use its primary website more as a promotional site for its retail, parks and other businesses.

Disney will continue to generate advertising revenues from Disney.com and will increase the amount of content it produces in conjunction with sponsors, Pitaro said.

For instance, Disney produced a 38-minute video with Google called “Blank: A Vinylmation Love Story.” In December, it announced it would make a series of animated shorts with Rosetta Stone that Pitaro said would be the model for future joint efforts.

Meanwhile, DirecTV is in talks with Walt Disney Co to license the rights to offer Disney’s broadcast and cable channels as part of an Internet-based product, DirecTV said on Wednesday.

The deal would mirror a first-of-its kind agreement that Disney and satellite rival Dish Network Corp announced earlier this week.

The Internet rights being discussed are part of a large-scale programming agreement that would replace a deal between the companies that expires in late December. Disney and DirectTV are in negotiations but the timing of the new deal could be not be learned.

 “The deal and terms are not unexpected as the Dish contract was the most recent in the Disney timeline to expire,” DirecTV spokesman Darris Gringeri said on Wednesday. “The DirecTV contract is up next and we’re in the process of working with Disney on a similar long-term agreement of our own.”

A Disney spokesman declined to comment.

A new pact could give both Disney and DirecTV, the No 1 satellite operator, an additional revenue source as consumers gravitate toward online video services such as Netflix Inc and watch more television online.

The agreement between Dish and Disney marked the first time that a US pay TV operator has been given the flexibility to offer its content over the Web through smartphones, tablets and computers outside of a pay TV subscription.

In that agreement, Disney allows for Dish to stream linear and on-demand content from ABC broadcast stations as well as cable channels, ABC Family, Disney Channel, ESPN and ESPN2. Dish has not revealed plans for its streaming service.

DirecTV, which has 20.3mn subscribers, is expected to secure better rates on programming than Dish, which has 14.1 mn subscribers, because of its size. Both companies have complained about the rising cost of programming and have been involved in high-profile blackouts over the past few years.

DirecTV Chief Executive Mike White has previously said the company is working on an “over-the-top” video package to suit niche audiences featuring Hispanic or kids programming, but has not yet given details on that offering.