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The Walt Disney Company (DIS), Zynga Inc (ZNGA): Why Cancelling Star Wars 1313 Is Such a Good Thing

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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.

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