Disney Buying More Video Game Developers

Disney announced today that they have acquired Wideload Games, a small but highly respected video game development firm based in Chicago. Why has Disney acquired and built a series of internal game development studios in recent years? After all, many entertainment firms simply license their characters to the major video game producers, and collect healthy fees for those licensing arrangements? Those deals enable media firms to capitalize on video game opportunities without sinking huge amounts of capital into internal game development efforts. After all, creating a great video game can cost more than $20 million. The answer for Disney is quite simple: They like to control their brand and their characters. Licensing arrangements abound at Disney, but in some circumstances, they come to the conclusion that such deals do not provide them enough control over the quality and the experience that they offer their customers. In the language of academics, we would say that the transaction costs associated with working out and managing a complex licensing arrangement become too large at some point, more substantial than the coordination costs of managing the business internally.