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Why Is Disney Merging Consumer Products and Interactive?

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Reasons for the merger

The Walt Disney Company (DIS) announced on June 29, 2015, the merger of two of its segments: Disney Consumer Products and Disney Interactive.

Disney Consumer Products is increasingly developing toys that use digital technology. This includes application-based storybooks such as Star Wars Journeys and Playmation, which uses wireless systems and motion sensors and will be unveiled later this year. Increasingly, the toy market is moving toward interactive gaming or IGT (interactive gaming toys).

A change of strategy for Disney Interactive has involved licensing more of its IP (intellectual property) for console and mobile gaming, except for the Disney Infinity game. This is because game development is expensive.

Disney reportedly spent ~$100 million to develop its popular console game Disney Infinity. Now Disney is looking to leverage its IP to create different versions of the game using characters from Star Wars or Marvel Universe.

Disney Infinity can be played on Microsoft’s (MSFT) Xbox and Sony’s (SNE) Playstation consoles. The game retails through online retailers like Amazon (AMZN).

A merger of Disney Consumer Products and Disney Interactive should result in cost saving for Disney. Given Disney’s strong IP portfolio, it could also mean substantial licensing revenues in the long run.

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Growth in gaming market

As the above graph shows, the global gaming market is expected to grow at a CAGR (compound annual growth rate) of 9.19% from 2013 to 2018, according to Research and Markets. Considering the rapid growth of the gaming market, it makes sense for Disney (DIS) to merge the two segments.

You can get a diversified exposure to Disney by investing in the iShares S&P 500 Index ETF (IVV), which holds ~1% of the stock.

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