Disney Accelerating Search for the Next Great Digital Toy

NEW YORK (TheStreet) -- The digital age seems to have hit the tool box at Walt Disney (DIS), which is merging its Consumer Product and Interactive units in an effort to find the next big digital toy.

The reorganization combines the much larger Consumer Product unit, which in recent years accelerated the design of its own toys in addition to licensing Disney characters, with an Interactive unit that initially struggled, but has been profitable for nearly two years, thanks in part to the game Disney Infinity, which synchronizes collectible figures with online play.

"As technology and digital entertainment continue to evolve, a shared innovation strategy will enable this new segment to create unique and engaging products," Disney Chief Operating Officer Tom Staggs said in a statement.

Disney's Consumer Product unit is already one of the leading publishers of digital apps for children, and this fall, it will introduce Playmation, a game that uses motion sensors and wearable technology.

The two units have combined before. Consumer Products began selling a line of  Tsum, Tsum stackable plush collectable toys after the interactive unit created a hit mobile game based on the toy developed in Japan. 

The Consumer Product delivered $988 million in operating earnings in the company's most recent fiscal year,  with a 42% operating margin that is the highest among Disney's five operating units.  Interactive delivered the company's smallest margin, with 16% on $101 million in operating earnings .

Combining the two units could signal Disney intends to focus less on digital offerings in the future, counters Laura Martin, an analyst with Needham & Co., who has a hold on Disney stock.

"The Interactive unit will get much less visibility from the top management when it is folded into a much larger unit that is so immensely profitable," says Martin. "It will take a really big new digital toy to move the needle now."

Former Interactive chief Jimmy Pitaro and Consumer Products unit head Leslie Ferraro will jointly head the newly created unit.

As part of the new structure, Disney will be able to combine areas that include product development, licensing and retail relationships, which will report to Ferraro. Pitaro will oversee the joint unit's social and mobile games, Asia games, online media and sales, and Disney Infinity.

There will be no layoffs, according to a Disney spokeswoman.

The new unit will also create its own think tank to be called DCPI, which will combine new product development staffers from both units and will focus on what the company's statement said would be  "cutting edge technology to cerate new immersive products."

DCPI will report jointly to Ferraro and Pitaro, who will also jointly oversee Disney Publishing Worldwide, which has increasingly created digital-based stories.

This article is commentary by an independent contributor. At the time of publication, the author held shares of Disney.

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