Disney, Struggling to Find Its Digital Footing, Overhauls Disney.com
LOS ANGELES - Trying to finally master the Internet the way it has theme parks or animated films, the Walt Disney Company has redesigned its Web site, Disney.com, for the third time in five years.
The Web series “Talking Friends,†based on mobile apps.
The new site, introduced this month and promoted as “cleaner, simpler, more elegant,†is one way Robert A. Iger, Disney's chief executive, hopes to turn around the company's gaming, mobile and Internet division after 15 consecutive quarters of losses - some $977 million in total.
Mr. Iger is optimistic about new products, which include an ambitious and unannounced gaming initiative code-named Toy Box. He has promised that Disney Interactive will turn a profit sometime next year. “It's about time,†he told analysts in May, sounding a bit fed up himself.
But questions abound. Disney has now taken several stabs at creating a thriving Web site, and has vacillated on game strategy. Has the entertainment giant finally solved the riddle of new media? Or is it playing a no-win game on the whiplash-fast Web?
Furthermore, why has the deep-pocketed Disney taken this much time to figure it out?
“We've been waiting for years and years and years,†said Jessica Reif Cohen, a senior analyst at Bank of America Merrill Lynch. “For traditional media companies, this really does seem like a totally different skill set.â€
Figuring out the Internet is critical for all media companies, but Disney's future in particular depends on a winning strategy. The children it hopes to turn into lifelong consumers of its products are increasingly living online. Disney Channel used to be the company's most important welcome mat. Now executives refer to Disney.com as the “front door.â€
The interactive division's losses are small for a company that last year recorded $4.8 billion in profit on $40.9 billion in revenue. Ms. Cohen noted that new media is “not a primary driver†of Disney shares, which have climbed 57 percent over the last year, to about $51.90. But at some point those losses threaten to besmirch an otherwise stellar record for Mr. Iger, who has said he will step down as chief executive in 2015.
“I don't think he's going to want any black marks,†Ms. Cohen said.
Almost every major media company has had a difficult tangle with the Web or gaming. Time Warner and AOL. News Corporation and MySpace. Viacom and the Rock Band game maker, Harmonix.
Disney is no different. In 2001, under Mr. Iger's predecessor, the company took $878 million in charges to close its Go.com portal.
But recently, Disney has had more technology brainpower than most. Steve Jobs sat on its board from 2006 until his death last year. Current board members include John S. Chen, chief executive of the software developer Sybase, and Sheryl Sandberg, Facebook's chief operating officer. Mr. Iger himself is a strong technology advocate, pushing for the company's ABC network to become the first channel to offer its shows on iTunes, for instance.
That Disney has nonetheless struggled underscores how difficult it is for traditional media companies to compete in this arena. Challenges include the pool of available talent. If you are a prominent technology executive, or a creative young designer, you are more likely to join Google or found a start-up, not toil deep inside a media conglomerate.
Disney and its cohorts also resemble aircraft carriers trying to compete with speedboats. Smaller gaming companies can quickly change course as technology preferences change (although upstarts like Zynga have not succeeded at that lately). But the lumbering likes of Disney move slower.
Consider Epic Mickey, a 2010 video game that depicted a rough-and-tumble version of Mickey Mouse. Disney spent six years developing the idea, which required approval from a number of executives because it involved tweaking a sacred character. Disney managers then limited its release to the Nintendo Wii console, whose popularity had slumped by the time the game reached stores. Disney also missed that year's Thanksgiving retail season.
Disney also bet heavily on console-based games - operating six development studios - but consumers abruptly moved to mobile gaming. Disney was not positioned to swiftly follow and had to buy its way in, spending what analysts considered a large sum, $563 million, for the social gaming company Playdom in 2010.
As for Disney.com, it must serve an array of products: 13 theme parks, games, children's books, TV, movies, music, Broadway and online worlds like Club Penguin. (ESPN and ABC's digital businesses, both considered innovative and successful, are handled by separate divisions.) Disney.com must cater to a broad audience, including toddlers interested in Winnie the Pooh and mothers booking theme park vacations.
Leading Disney Interactive's latest quest for profitability are James Pitaro, a former Yahoo executive, and John Pleasants, Playdom's former chief executive. Named co-presidents in 2010, they quickly cut costs through a series of layoffs and have shut down three of Disney's console game studios. Going forward, their profitability strategy turns on multiple fronts.
Disney Online, which also includes subsidiaries like the parenting site Babble.com, attracts about 33 million monthly unique visitors, according to comScore. Mr. Pitaro's vision for those sites centers on entertainment. “We can't expect to grow Disney.com in reach and engagement if we're just focused on marketing,†Mr. Pitaro said.
The redesigned Web site still provides advertising support for Disney products, but the sell is much softer and relies heavily on exclusive videos - backstage at Disney's Broadway musical “Newsies,†for instance, or Re-Micks, a video series where classic Disney cartoons are remixed to current dance music. The site's overhaul is only in its first stages. Plans call for adding a movie streaming service.
Mr. Pitaro has also reversed Disney's go-it-alone Web strategy. He has sharply bolstered its presence on YouTube, spending up to $15 million to make original Web series. One of them, based on Outfit7's Talking Friends apps, has generated over 102 million views in only a few months. Disney now operates more than 60 YouTube channels.
“We have to take our content to our guests wherever they are,†Mr. Pitaro said.
 Mr. Pitaro and Mr. Pleasants are working to build character franchises that can spread across Disney's empire, a priority for Mr. Iger. There is promise in Swampy, an alligator who stars in Disney's mobile game “Where's My Water?†The hit game - 100 million downloads and counting - has spawned a modest toy line and been added to Typhoon Lagoon, a Walt Disney World water park. Disney Channel will run a Swampy short series next month.
Epic Mickey 2: The Power of Two arrives on Nov. 18 - before Thanksgiving and playable on every available game platform - while Club Penguin, a virtual world where children groom virtual arctic fowl, is set to fully expand onto mobile devices after a long delay. “It's an important ingredient to profitability,†Mr. Pleasants said of Club Penguin.
Mr. Pleasants is also pouring money into a project Disney refers to as Toy Box, a console game with extensive mobile and online applications in which various Pixar and Disney characters will interact with one another for the first time. “I'm excited about what we've already done and where we're going,†he said, adding that Disney has had three No. 1 apps in the last six months.
But every time Disney appears on the verge of making true strides in digital media, it seems to stumble. Last week, a major executive resigned: Lane Merrifield, the founder of Club Penguin, will join an education-focused start-up after clashing with Mr. Pleasants in operating philosophy and personality.
Mr. Pleasants said he is proud of the intensity he has brought to his division. When his contract expires in 2014, he said “it would be an honor to be asked to stay.â€
“We have a long way to go,†he said, “but we have a plan and just need to execute it.â€
This article has been revised to reflect the following correction:
Correction: October 21, 2012
An earlier version of this article misstated Lane Merrifield's role at Disney. Mr. Merrifield, the founder of Club Penguin, was not one of the executives leading the Toy Box initiative at Disney.
