Disney's Big LucasArts Gamble

Disney (NYSE: DIS  ) is through playing games.

The House of Mouse just shut down LucasArts, the video game studio it purchased along with Lucasfilm for $4 billion late last year. Almost all of the 200 people employed at LucasArts have been laid off, according to The Wall Street Journal. And the two new games that they were working on, Star Wars: 1313 and Star Wars: First Assault, may never see the light of day.

Disney is walking away from some potentially huge video game content around the Star Wars brand. And instead, it's putting all of its gaming chips this year onto one title centered on its own characters like Buzz Lightyear and Jack Sparrow. Called Disney Infinity, that game is slated to come out in August.

Infinity is the company's answer to Skylanders, the action figure/console game hit from Activision Blizzard (NASDAQ: ATVI  ) that has quickly grown into one of Activision's tentpole franchises. The big draw in this category is that gaming revenue gets a boost from the sales of toy figures that accompany the game discs. Players collect any number of action figures that they can interact with both inside and outside of the console game.

The result can be a bounty at the cash register. Activision's Skylander franchise sales rocketed to $1 billion in just 15 months on the strength of millions of toy sales.

Disney was already going to need a similar kind of hit for Infinity to reverse the losses coming out of its gaming studio, Disney Interactive. That business group shed more than $200 million for Disney over each of the last three years, making it by far the worst performer in the House of Mouse. Even Disney's studio arm, which occasionally has to absorb expensive flops like last year's John Carter, consistently kicks in more than $600 million to the company's bottom line.

Disney has a decent shot at hitting it big with Infinity. It might not be the first to the party in this video game sector, but Disney boasts a wide catalog of characters that young gamers already know well. The game will include figures from among Disney's hit properties, including Toy Story, Monsters, Inc., and Pirates of the Caribbean.

However, Activision isn't ceding the category to Disney -- not by a long shot. The gaming company is working on an innovative twist to its Skylanders franchise, and will have a sequel out soon. This rivalry may not be a Star Wars-level epic, but it should be entertaining anyway. Stay tuned.

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