Disney’s Epic Deal Reignites Hollywood Love Affair With Video Games

Alex Weprin
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Not long after he returned as Disney’s CEO in late 2022, Bob Iger sat down with Josh D’Amaro, Disney’s head of parks and experiences, and Sean Shoptaw, the company’s head of games, to be briefed about the media habits of young consumers.

“The first thing they showed me were the demographic trends,” Iger recalled, speaking to Wall Street analysts Feb. 7. “When I saw Gen Z and Gen Alpha and even millennials, and I saw the amount of time they were spending 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.”

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The conclusion he reached: “We have to be there, and we have to be there as soon as we possibly can in a very compelling way,” Iger added, noting that historically Disney has simply licensed its IP to outside game studios.

The “stunning” data led to Disney’s biggest bet in gaming ever: a $1.5 billion investment in Fortnite studio Epic Games, run by Tim Sweeney, and a promise to create a “games and entertainment universe” filled with Disney IP, interoperable with Fortnite, “a world where people could play games that we create, could create their own games,” Iger added. “You can imagine the creation of shortform videos, or we may even use the platform to actually distribute some of our content.”

In a world where it has become increasingly challenging to make entertainment profitable (streaming entertainment at least), many of the biggest producers of films and TV shows suddenly find themselves thinking about those Gen Z and Gen Alpha habits. Warner Bros. Discovery, the only traditional entertainment company with a meaningful in-house game studio, Warner Bros. Games, has in recent quarters spent more time touting its efforts in the space to Wall Street: “Games will be even more important to our fans in the future, and so having this asset in our arsenal is a critical differentiator and a real growth opportunity,” WBD CEO David Zaslav told analysts Nov. 8.

Netflix, the streaming leader, has spent nine figures over the past few years to acquire a handful of indie game studios, and has released dozens of titles for its members to enjoy, including original titles based on its IP, as well as acquired titles like the Grand Theft Auto trilogy, which co-CEO Greg Peters said on Jan. 24 delivered “the biggest download and engagement numbers that we’ve seen so far.”

Even NBCUniversal owner Comcast has explored the possibility of getting into the game business, going so far as to hold talks to merge NBCU with Electronic Arts back in 2022 (those talks reportedly fell apart over valuation, but still underscore the serious interest).

Entertainment companies have had an on-again, off-again approach to video games over the years. As recently as 2022, WarnerMedia (before the Discovery merger) weighed selling its game division, and Disney shuttered or sold its in-house game divisions to focus on licensing a number of years ago. So why are big entertainment companies suddenly re-enamored with video games? Iger spelled it out: Among consumers under 30, the amount of time being spent with games is comparable to traditional film or TV. And they don’t want to cede that direct relationship. “It’s a huge opportunity, $140 billion in consumer spend,” Peters said. “Research has shown that Gen Z and Gen Alpha prefer gaming to any other form of entertainment,” Zaslav underscored in the call to analysts.

The company sold 22 million copies of its Harry Potter game Hogwarts: Legacy last year, delivering well over $1 billion in revenue. The studio also released an update to one of its core video game franchises, Mortal Kombat. But while WBD already has a games studio (albeit small in scale compared to giants like EA and Activision Blizzard), companies like Netflix, Disney and NBCUniversal are trying to figure out the right way in.

Netflix has bet big on a mobile-first strategy, blending smaller-scale indie games with acquired titles (like Grand Theft Auto and an upcoming Sonic the Hedgehog game) and IP-driven offerings (like games based on its shows Virgin River and Money Heist).

The company is quick to note that games usage is still small compared to its core film and TV content, but that also means it has a lot of room to expand. Wells Fargo analyst Steven Cahall, for example, cited games as one reason that Netflix is “still a growth stock,” noting that games are an “additional content vector” that the company can try to own.

Disney has, until now, relied on licensing its IP (EA produces Star Wars titles, while Sony released Spider-Man 2 last year, in one of the biggest game releases of 2023), but the Epic investment marks a significant expansion, with Morgan Stanley’s Ben Swinburne likening the move to “playing offense” and “investing to position its IP where younger consumers spend more time.”

Epic, buoyed by its Fortnite franchise and long history with Disney (it participated in a 2017 Disney accelerator program, and Disney has licensed some characters like Marvel superheroes to be playable in the game), is seen as a way to grow in the space quickly. And for Hollywood, the IP is kind of the point, as Disney knows all too well, constantly bringing its characters and theming to its theme parks, merchandise lines, cruise ships, and devices like the newly launched Apple Vision Pro, where users can watch Star Wars while sitting in the cockpit of a land speeder parked outside the Mos Eisley Cantina.

For companies looking to build new brands or reinvigorate older ones, games are a new way to engage young consumers. “Our Harry Potter fans have immersed themselves in Hogwarts: Legacy, playing more than 700 million hours to date,” Zaslav told analysts. “That engagement helps not only our games business, but also helps build and revitalize the entire Harry Potter franchise, and we know our fans want even more.” (In a big bet on that franchise, WBD is now developing a Harry Potter TV series.) And just like the film and TV business, the hits work. Noted Peters, “One of the things that we’ve learned is that recognizable games — that’s either existing popular game titles or game franchises or games that are based on well-known IP, and in many cases, that’s IP from our own films and series — those are the ones that are working the best for us right now.”

This story appeared in the Feb. 14 issue of The Hollywood Reporter magazine. Click here to subscribe.

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