Why Disney Licensed Star Wars to Electronic Arts – Businessweek

Star Wars fans can get emotional about their favorite science fiction saga. So it was no surprise last month when some of them were upset about Walt Disney’s (DIS) unexpected decision to cease development at Lucasfilm’s video game division and focus on licensing deals instead.

Disney didn’t wait long to act. On May 6, it announced an exclusive, multiyear agreement to license Star Wars to Electronic Arts (EA), the second largest video game company. In other words, people obsessed with the franchise can look forward to more digital diversions as they wait for Disney to release the hotly anticipated seventh Star Wars movie in 2015.

The agreement is a departure from Disney’s bigger video game strategy. The company is trying to move away from developing one-off titles tied to individual movies and television shows. Instead, in September, Disney will release Disney Infinity, a game platform in which customers will be able to play with their favorite characters from the Magic Kingdom in a “sandbox” environment.

But Disney clearly thinks differently about the Star Wars franchise, which it acquired last year in its $4 billion purchase of Lucasfilm. That explains its more traditional licensing deal with the EA deal. The financial terms were kept under wraps.

For EA, the Star Wars deal is a chance for vindication. Two years ago, EA released Star Wars: The Old Republic, a massive multiplayer game that cost an estimated $300 million. At the time, analyst P.J. NcNeaily said it was the “single largest bet” in the career of John Riccitiello, who was then EA’s CEO.

The Old Republic didn’t attract enough pay subscribers. In November, EA tried to salvage its investment by releasing a free version. It’s unclear if EA’s rescue attempt will work. Riccitiello won’t be around to celebrate if it does—he resigned in March when EA warned that it was likely to miss its quarterly numbers.

Disney doesn’t want to take such risks. That’s why it pulled the plug on game development at Lucasfilm. And if the EA deal doesn’t pay off, Disney can always let Star Wars-obsessed gamers play with them in Infinity’s open world.