Disney Is Cool Again

It's more than just a game. Next week, the Kingdom Hearts II video game hits stores, and it's going to sell briskly. More than a million copies were sold in its first three days in Japan back in December. The title combines original characters with more than 100 Disney (NYSE: DIS  ) animated classics in an ambitious action-adventure game.

It may be the one time that you can approach a diehard gaming teen to talk about Goofy, Donald Duck -- or new additions in this second installment, like Stitch and Chicken Little -- and not get laughed at.

The original game was a runaway hit a few years ago, moving more than four million copies worldwide. At the time, the title stuck out like a sore thumb. Disney's theatrical animation division was in the toilet. Disney Store sales were waning. There was nothing of note going on at ABC. Kingdom Hearts was the only beacon of hope for Disney in a jaded teen market. Fittingly enough, it wasn't even a Disney product. The franchise is the handiwork of Final Fantasy creator Square Enix. However, given the wide licensing rights of its characters, Disney is the welcome beneficiary of a third party that's making Disney cool again.

But Kingdom Hearts II isn't the only new initiative putting a little magic back into the House of Mouse.

How Disney got its groove back
Midway through watching Disney's farm-based Home on the Range animated feature, it dawned on me that the film was unbearable. My two sons, for whom I had rented it, had given up and moved on to other diversions around the house. My wife hadn't even bothered to make it that far with the movie.

There was a time when a new Disney animated feature was a big deal. One of the first trips that my wife and I took after getting married was out to California. The highlight of that trip was catching a sneak preview of Beauty & the Beast at the grandiose El Capitan theater on the Hollywood strip.

Over the years, Disney failed its animation studio legacy. It grew formulaic, cost-conscious, and irrelevant. It cheapened the brand with direct-to-video sequels, somehow unaware of the long-term harm it was committing in the pursuit of near-term profitability.

I'm not sure how long it would have taken Disney to win its way back into favor organically. I just know that CEO Bob Iger's finest move to date in his young term was making peace with Pixar (Nasdaq: PIXR  ) . Now that the two are hooking up for keeps, Disney is once again the undisputed king of theatrical animation. Chicken Little may have been a nice effort out of the Disney camp, but Pixar's Cars comes out in June as a can't-miss blockbuster.

Keeping the teens talking
It's amazing how Disney is suddenly in tune with the younger demographics that sponsors crave. Hit a high school and try to find the kid that isn't watching Lost. Go for a show of hands to see how many folks have abandoned watching NBC's ER in favor of ABC's Grey's Anatomy. And let's not get started about the scandalous ladies living over at Wisteria Lane.

Aim a few grades earlier in the schooling process, and the Disney Channel -- though still not as culturally significant as Viacom's (NYSE: VIA  ) Nickelodeon -- continues to make respectable headway in launching young personalities into the mainstream.

Then you also have some of Disney's latest online undertakings, which can only be described as aggressively ambitious. With this year's opening of the Expedition Everest roller coaster at the Animal Kingdom theme park, Disney has launched a standalone site promoting the ride with clips, interactive games, and assorted eye candy at DisneyEverest.com.

Yes, the world's leading theme park operator realizes the importance of themed attractions, even when guests aren't on them. Disney's Virtual Magic Kingdom, a free online game, is a role-playing experience where members deck out their avatars and stroll through various areas to chat, trade, and play games with others on the site.

I have seen the game evolve since its beta last year, and Disney continues to top itself at its vmk.com domain. What started out as a simple whitewashed community site with just three games has been transformed into a more engaging experience, with real-world quests that find players on missions through the real Disney parks to earn virtual trinkets. It's not just about the parks, though. Step into the rendered replica of the Sci-Fi Dine-In restaurant, which was recently added to the online game, and you'll see ads for Disney's The Chronicles of Narnia and this summer's sequel to the surprising smash The Pirates of the Caribbean.

And, yes, speaking of Pirates, the highly attractive trio of Keira Knightly, Johnny Depp, and Orlando Bloom grace the cover of Disney's latest annual report in full pirate regalia.

It's easy to draw the line between the end of Michael Eisner's tenure at the helm and the promotion of Iger, but that's not entirely fair to Eisner. He was there as many of these revitalizing programs were just getting started.

Disney doesn't always get it right. It inexplicably did away with Disney Magazine last year, just as Disneyland was celebrating its 50th anniversary. And the company really did take too long to build out Animal Kingdom into a full-day destination, though with the arrival of Everest, I may have to go back and rework my once scathing critique. Then again, you don't need to be perfect to matter. In fact, imperfection can often be an endearing trait if you're hitting it out of the park everywhere else.

The high price of staying cool
Hooking up with Pixar won't come cheap. Because Disney and Pixar have continued to impress investors since the $7.4 billion deal was first announced, the all-stock acquisition has bumped up in value to a meaty $7.9 billion.

It's the right thing to do, though. David Gardner is bullish on computer animation. It's why Pixar and DreamWorks Animation (NYSE: DWA  ) have both been recommended toMotley Fool Stock Advisor subscribers. (For more of David's prescient picks, plus an equally attractive selection from his brother Tom, try a free 30-day guest pass.)

Disney, with Pixar on its arm and so much audience-attracting splendor sparkling all around it, gets it. It couldn't be the true family entertainment juggernaut without resonating with all age groups, and now the company is finally there. It took a while for it to get back the connection it squandered after the animated classics ran dry and The Mickey Mouse Club moved on.

The long path it took to get to this point is almost immaterial now. The important thing is that it has finally arrived.

It's more than just a game. This is business.

Longtime Fool contributor Rick Munarriz has been a fan of Disney ever since he could don mouse ears, but that doesn't mean he hasn't been critical along the way. He owns shares of Disney and Pixar.The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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