Walt Disney Co (NYSE:DIS) is a massive company, focused on entertainment. Its properties — which include television networks, movies studios and theme parks — brought in $59.43 billion in revenue last year. DIS stock has exploded since April and the catalyst has been excitement over the company’s forthcoming Disney+ video streaming service. With Disney stock trading just off its all time record high at $142.53, the company now has a market cap of over $256.5 billion. But there’s a far bigger entertainment market than video streaming, and one that Disney is largely absent from.
A Disney investor is calling on the company to make a return to the video game market, with an acquisition of Activision Blizzard (NASDAQ:ATVI).
Report: Investor Calls for Disney to Buy Activision Blizzard
Bloomberg reports that investment firm Gerber Kawasaki is calling on Disney to buy video game publisher Activision Blizzard. Gerber Kawasaki counts Disney stock among its top three holdings, and also owns roughly $4.3 million worth of Activision stock.
Why the call for Disney to make what would be one of the most expensive acquisitions in its history? While DIS stock has skyrocketed this year, Activision has been going the opposite direction. It’s down 43% since last October. Gerber Kawasaki sees Activision as a takeover target. So do others. JPMorgan listed Activision as a potential acquisition for Apple (NASDAQ:AAPL) earlier this year. However, even at its current reduced market cap of $37 billion, Activision Blizzard would be a huge investment, and would represent the second largest Disney acquisition ever — after the company’s $71.3 billion purchase of 21st Century Fox.
That’s a big move, but one that could have some serious upside for Disney stock price.
The Booming Video Game Industry Could Power Future Disney Stock Growth
As mentioned earlier, Disney stock growth since April has been driven by the company’s Disney+ video streaming service, which launches in November. It’s expected to make Disney a big player in the video streaming market, which is on track to hit $83.41 billion in value globally by 2022. That sounds great, and investors have clearly been impressed by the prospect of DIS grabbing a chunk of that revenue.
But the global market for video games is worth $152.1 billion this year. For the past eight years, the video game industry has earned more than the movie and music industries combined — and it isn’t even close. Disney owns some of the most recognizable characters in pop culture, from its own mascots like Mickey Mouse, to Pixar’s creations, and the Marvel and Star Wars franchises. There is massive potential for the company to leverage those characters in video games, grabbing a chunk of that $152 billion and boosting the Disney stock price even further.
As Bloomberg notes, Disney already has ties with Activision, with a multiyear deal to televise its esports Overwatch League. Could that relationship — and the lure of the massive video game market — lead to something more?
Disney’s Dark Video Game Past
Naturally, Disney has thought of all this before. It’s gone down the path of buying video game studios with the goal of leveraging its properties, but the results have never been pretty. The company bought and then shuttered at least six video game studios in a decade-long period, where it invested billions of dollars then ended up walking away. Instead, Disney chose to licence its properties to video game studios, as CEO Bob Iger explained to investors (via Business Insider):
“We feel like we’re better off managing the risk that the business delivers by licensing instead of publishing.”
Disney’s corporate culture hasn’t meshed with the very different way successful video game publishers operate, including the huge expenditures now involved to bring in those big paydays. Disney’s Star Wars: The Force Awakens was released in 2015 with a production budget of $245 million, the movie brought in a global box office of just over $2 billion. That’s an impressive return, but compare it to Grand Theft Auto V. The video game is reported to have cost over $250 million, but with that risk has come sales of over $6 billion — making the game the most successful media property in history, outperforming any movie.
The opportunity is there for Disney to make a move back to the video game industry, and the growth potential for revenue and Disney stock with such a move is huge. But to do it right this time, Disney would need to overcome its past aversion to risk and big budgets for video games. Otherwise, history says an Activision acquisition would be an expensive bust.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.