Disney Buys Small Video Game Developer, Starts Venture

After failing to run up a score in the 1990s, Walt Disney Co. is again vying to be a video gamer.

On Tuesday, Disney announced it gained a toehold in the business by acquiring a small Salt Lake City-based video game developer, Avalanche Software, and launching a new venture in Vancouver, Canada.

Terms weren’t disclosed, but the company pegged the total investment at less than $50 million, a relatively small outlay for the $31-billion entertainment giant.

The deals signal the Burbank company’s latest efforts to cash in on the burgeoning $24-billion video gaming business.

Disney and other movie studios poured millions into developing video games in the 1980s and 1990s only to discover how difficult it was to compete as outsiders.

Studios are beginning to show renewed interest in the business. Disney itself has been cautiously wading back into developing games in-house, rather than relying solely on licensing its characters.

Avalanche, which was founded in 1995 and employs more than 100 artists and programmers, will make video games based on Disney movies such as the upcoming animated film “Chicken Little.�

The Vancouver start-up will create adult-oriented games. It will be led by a team of former Electronic Arts Inc. staffers who helped create such hard-core fare as “Def Jam.�

The deals represent a modest step compared with an acquisition of a major video game company.

Graham Hopper, senior vice president and general manager of Buena Vista Games, said the moves marked a “significant milestone in becoming a top-tier video game publisher.�

Hopper said that Disney had learned important lessons from the missteps of the past, including the importance of hiring top talent and controlling spending.

“This is less risky than it was then because there’s better management processes now and it’s more clear now what works or doesn’t work,� Hopper said.

Disney expects video game revenue to reach $500 million by 2006, but faces some tough competition.

“This is clearly a growth opportunity for Disney,� said Richard Greenfield, a media analyst with Fulcrum Global Partners. “The question becomes: How much time do you want to invest in building production for video games versus licensing the great content to people who do it better than anyone else.�