Disney Interactive Lays Off 90 Workers

Faced with having to boost production costs to keep up with the fast-moving video game market, Disney Interactive has laid off 90 permanent employees and an undisclosed number of temporary workers, ending the company’s 3-year-old experiment producing video games.

The Glendale-based unit of Walt Disney Co. will continue to offer video games, but only through license agreements and other development relationships with third parties, said Disney Interactive spokeswoman Amy Malsin.

About 335 workers will remain at Disney Interactive’s modest warehouse-style buildings in Glendale, home to the unit’s retail software business.

Malsin said Disney Interactive plans to concentrate on its core business--educational and entertainment CD-ROMs for children, such as its popular “Toy Story” storybook.

Although Disney has had a few big hits in the video game market, it has gained a solid hold on the children’s software market, said Bob Peterson, a senior research analyst with the investment bank Piper Jaffray Inc. in Minneapolis.

The company’s share of the $500-million educational software market rose to 12% by last year, making it one of the largest children’s software publishers in the country, Peterson said.

Disney Interactive was formed in 1994, incorporating Disney’s existing computer software business. The unit includes Disney’s online venture, which employs about 200 people and was not affected by the cutbacks.

Disney Interactive has always formed partnerships to produce games, but until this week, the company was also doing much of the programming and production work in-house.

Changes in the technology involved in video games was another factor leading to Disney’s decision. Instead of upgrading its production to match the new, more powerful games its competitors were producing in the multibillion-dollar industry, Disney opted for a lower-risk strategy of contracting with other firms, Malsin said.

The game industry has been beset with a variety of problems in the past year--rising production costs, limited shelf space and price competition--and that has put pressure on publishers, said Allyne Mills, a spokeswoman for GT Interactive Software Corp. in New York.

But the Disney cutbacks also reflect an aborted strategy to take over functions once parceled out to companies with solid backgrounds in video game production, said Johnny Wilson, editor of Computer Gaming World, a San Francisco-based consumer magazine.

“They never had a long-term commitment to it,” Wilson said. “They have always had a confused strategy that changed every year. . . . I don’t think this a big surprise.”