Why Disney’s Epic Fortnite Bet Could Be IP Lifesaver

Note: This article expands on topics covered in the Variety VIP+ special report “The State of the Video Game Industry,” available only to subscribers.

Disney’s $1.5 billion investment in Fortnite steward Epic Games this month represents a significant partnership for both companies.

While a minority stake, this flow of cash into Epic nearly matches the scale of some of the most significant deals made in the gaming industry, especially in recent years.

The partnership is intended to generate multiple in-game experiences within Fortnite built around Disney properties. Such a bet on gaming isn’t exactly shocking, as Fortnite has been a household name since 2018 and is known for embracing brand partnerships that generate outstanding engagement on the service. Travis Scott’s virtual concert at the height of COVID lockdowns saw more than 12 million concurrent users tune in.

These brand partnerships come with digital merch that can be purchased within what is otherwise a free-to-play game. Commonly known as microtransactions, this revenue model supports live-service gaming — i.e., titles intended to be updated in perpetuity.

Still, the timing of the Disney-Epic deal is telling.

Embracing Fortnite not only opens a new revenue stream, it comprises a back-to-basics strategy for tinkering with core Disney IP in ways that will highlight those that still carry substantial weight with consumers, helping the company to overhaul its film and TV content strategy.

Unlike microtransactions, streaming revenue does not have a reputation for generating profit. Disney+ is getting there, but the billions in losses at Disney’s streaming division as a result of its heavy investment in content have hung over many earnings calls, as CEO Bob Iger touts a narrowing lack of profitability. Losses were reduced by $300 million year over year in the fourth quarter of 2023, and the company expects streaming finally to become profitable by the end of September.

Disney has already course-corrected on its TV strategy for the Marvel Cinematic Universe, embracing traditional showrunner models and pledging to offer shows that can stick around for more than one season. Of the existing MCU series on Disney+, “Loki” is the only live-action show with multiple seasons, which makes the Marvel antihero one of the likelier candidates for a Fortnite experience.

However, the film universe that character hails from hit a breaking point last year. “The Marvels” closed out 2023 as the worst-performing film in MCU history, as other Disney titles struggled to rake in enough substantial box-office gross to turn a profit off their bloated budgets.

Meanwhile, Universal’s “The Super Mario Bros. Movie,” based on Nintendo’s flagship game franchise, was the second biggest film of 2023 after Warner Bros.’ “Barbie,” earning well over $1 billion globally. Sony has already claimed Nintendo’s other signature IP, “The Legend of Zelda,” for the big screen.

On top of that, Warner Bros.’ gaming arm put out 2023’s bestselling title in the console space. “Hogwarts Legacy” sold over 22 million copies, rejuvenating the “Harry Potter” franchise ahead of a planned remake series for Max.

It’s impossible for Disney to ignore that, as the game’s developer, Avalanche Software, was an internal studio at Disney until 2016, when Iger dissolved the company’s gaming division.

The ripple effect of that business decision caused Disney to miss out on the gaming surge that stemmed from COVID lockdowns, separating it from a source of revenue that would have undoubtedly softened the oncoming blow of its push into streaming. Disney was still licensing IP to game entities, but major bets on Marvel games at Square Enix didn’t live up to the success of the publisher’s “Kingdom Hearts” franchise or EA’s newer “Star Wars Jedi” games.

Epic Games’ Fortnite was, on the other hand, a major beneficiary of that surge — until it wasn’t.

Fortnite’s embrace of virtual concerts helped engagement skyrocket throughout 2020, before the battle CEO Tim Sweeney waged against Apple and Google’s revenue-sharing policies got Fortnite kicked off their respective storefronts by the end of that summer.

Epic did eventually obtain a victory in court against Google last December, but the time Fortnite has spent off the two dominant mobile platforms has deprived Epic of revenue in gaming’s biggest sector, making it more difficult to support its other businesses, as Fortnite remains the company’s breadwinner.

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