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Disney’s investment in Epic Games signals the company has to ‘be there’



© Reuters. The popular video game “Fortnite” by Epic Games is pictured on a screen in this picture illustration August 14, 2020. REUTERS/Brendan McDermid/Illustration

By Dawn Chmielewski

(Reuters) -In 2017, Epic Games was among a handful of companies selected to participate in Walt Disney (NYSE:)’s Accelerator incubator program, where the game company’s founder held ambitions of incorporating the entertainment giant’s well-known characters into his digital playground.

Now, Disney is making a much bigger bet that will make this possible.

Disney CEO Bob Iger on Wednesday announced a $1.5 billion investment aimed at letting consumers interact with stories and characters from Disney, Marvel, Pixar and Star Wars, on Epic’s Fortnite, where 100 million players gather each month. It was an acknowledgement of the amount of leisure time Generation Alpha, Generation Z and millennials devote to gaming.

“In terms of their total media screen time on video games, it was stunning to me – equal to what they spend on TV and movies,” Iger said during a call with analysts and investors after reporting quarterly results. “And the conclusion I reached was we have to be there. And we have to be there as soon as we possibly can in a very compelling way.”

Shares of the stock surged on Thursday, the day after its earnings report, gaining more than 10% in what would be their best day in more than three years. Analysts at Wolfe Capital said in a research note that Iger had “adapted to accelerating industry change” since his return in late 2022.

Epic CEO Tim Sweeney had long envisioned a Disney’s characters populating Fortnite’s digital playground, according to two former executives.

“Disney was one of the first companies to believe in the potential of bringing their worlds together with ours in Fortnite,” Sweeney said in a statement, adding that Disney uses Epic’s real time, 3D graphics creation tool, Unreal Engine.

Other companies, such as Lego, have similarly forged partnerships with Epic.

Game industry analyst Michael Pachter of Wedbush said Disney has failed multiple times at developing its own games in-house. It struggled to make money even on popular titles such as “Disney Infinity,” he said, referring to a game that incorporated an expansive collection of Disney characters, which would come to life in the game’s virtual toy box.

Since it shifted to a licensing business model in 2016, nine Disney 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 of extending brand awareness and protecting the integrity of the brand.

“Disney, I think, is acknowledging … we are really good at brands and exploitation of those brands,” said Pachter. “And Epic is really good at hooking consumers and getting them engaged and having fun.”

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