At Disney, Hard Times in Software

Last week’s layoffs at Disney Interactive point up a basic fact of life in the entertainment industry: If you’re looking for a comfortable job immune from risk, look outside Hollywood. Disney cut the work force of its in-house video-game maker by nearly 25%--laying off 90 permanent workers and more temporary employees at Interactive’s Glendale headquarters. Disney plans to concentrate its energies on successful products like its animated storybooks and license out other work to subcontractors.

A healthy chunk of the recent growth in the entertainment industry has come from electronic development houses like Disney Interactive, which produces CD-ROMs and video games starring Disney’s most recognizable assets, animated characters like Mickey Mouse and Buzz Lightyear. Most major studios have interactive divisions that try to keep successful box-office franchises alive by creating versions for personal computers or TV-based video-game systems. While those start-ups have helped fuel tremendous growth in Southern California, electronic entertainment is an extremely volatile segment of an already volatile industry. If movie audiences are fickle, video- and computer-game players are downright persnickety.

Even once well-capitalized companies such as 3DO and Atari have failed in recent years and powerhouses like Sega have products that are floundering. It’s not uncommon for talented artists and programmers to hop between development companies flush with venture capital. But for every blockbuster title one house produces, three or four others--or more--may fail miserably. Like the movie industry did years ago, the interactive entertainment industry is moving from the garages of tinkerers to corporate suites. Games are becoming more like movies in everything from overhead to distribution. A top-notch computer or video game can easily cost $1.5 million to produce today, compared to a few hundred thousand dollars a few years ago. And as costs rise, so do expectations. Software companies--or studios with software divisions--are releasing fewer titles, but with higher hopes.

That’s the business climate Disney faces. But the very volatility of the industry bodes well for those who lost their jobs last week. It may be small comfort now, but most of those laid off will probably be working again before summer. The layoffs highlight the cyclical nature of the entertainment business, a fact few have had to deal with during the industry’s recent growth spurt. But longtime workers know the lesson: Save money when you’re working because the current show or movie might be the last for a while. Everyone benefits if the San Fernando Valley’s entertainment businesses continue to grow, but the layoffs at Disney demonstrate that the bubble can just as easily burst.