Will Video Game-Toy Hybrids Save the Industry or Eat It?

Trend could a bubble or the future of playtime

Until recently, your kid’s brain has been the best place to stage battles between Spider-Man and Skeletor. But technology has made this a brave new world, and digital architects have built a whole new arena. Gaming has come to toy town. 

Photo: Vasava

Good timing, too. The domestic toy industry flattened in 2012 and actively declined 1 percent in 2013 to $16.3 billion, according to market analysis firm the NPD Group. But one of the few categories growing—by a whopping 70 percent year over year, if you believe Activision—was the interactive toy market. These toys work directly with video games by way of a little plastic platform hooked into a game console that reads a chip in each toy’s base. Put Wash Buckler or Smolderdash on the Skylanders: Swap Force “portal” and suddenly your new toy shows up on-screen, able to summon a translucent blue pirate ship or set bad guys on fire. Buy the “playset” with the princesses from Frozen for Disney’s Infinity game, and you get a clear plate about the size of a poker chip that unlocks minigames themed to the figures.

This is an idea, by the way, that has been tried several times before, often disastrously . It didn’t help the initial pitch that when Activision created the category with the first Skylanders game during the 2011 Christmas season, casual and family gaming was considered a waning trend. “The premier children’s console was the Nintendo Wii, which was on the decline, and most developers were running away from it at the time,” recalls Tim Ellis, CMO of Activision. “We essentially got into the toy business, which is not the core competency of the company. And we just had a lot of data at the time telling us that it was not a particularly smart idea.”

But the possibility that Activision could create and then corner new markets in both toys and games was too good to pass up. This time, there were no technical flubs, no angry parents and none of the other roadblocks that had stymied past gaming-toy development. All told, Activision informed investors it generated more than $2 billion in sales from both toys and copies of the Skylanders games since launch.

Disney has sold 3 million Infinity starter packs since the game went on sale in August, and for Disney Interactive, that success is a huge shift. The unit operated at a loss of $76 million in Q4 of 2012 but reported a profit of $16 million for Q4 of 2013. That’s not yet enough, frankly. The company spent $100 million to make the game over nearly four years, during which time Disney Interactive lost hundreds of millions of dollars—notably from social gaming unit Playdom, a company Disney bought for $563 million in 2010. (Playdom is reportedly slated for major layoffs.) Infinity represents an opportunity to turn the ship around. Revenue for 2013 more than doubled from the previous year to $396 million, according to the parent company’s SEC filings.

John Blackburn, the Disney Interactive vp who oversees Infinity (and founded Avalanche, the studio that developed the game), says the game solves a problem that had grown more and more difficult over the years for IP rights holders: how to make tie-in games on a movie-release timeline that don’t bust budgets or play like junk. (Disney isn’t alone in dealing with this problem. Said one critic of the final Harry Potter movie tie-in game, “We can’t score it low enough.”)

“With Frozen, we didn’t do a full game this time around,” Blackburn says—they did an Infinity playset and will do more for future movies. The game was originally for the Toy Story 3 tie-in that the programmers didn’t have time to implement fully. “When we actually saw the first cuts of the film, we thought, if we could make a game that is just about playing with your toys, we should do that for Toy Story 3,” he says. Instead, it was shelved, given a relaxed lead time, and code-named Project Toy Box.

Interactive toys are also an acknowledgement that the overall model for the video game industry has changed—the single-purchase $60 game built from scratch is a less and less attractive proposition to publishers, as risky as making a big-budget movie that might not get its investment back. Downloadable content—extra levels, new play modes, different playable characters—with lower price points and lighter investment has been the norm for a while in the grown-up gaming world (think the $0.99-$14.99 bells and whistles that roll out every few weeks for Activision’s other juggernaut, Call of Duty).

Skylanders and Infinity are an expression of that same ethos: spend less on development, publish more frequently, charge the consumer a smaller premium. Kids (and yes, some adults) get a physical doodad for $12, and it’s kind of cool. And within the games themselves, there are also levels and sections blocked off that can only be accessed with a toy from the toy store. Though Infinity and Skylanders aren’t terribly similar in terms of their play styles, both have one in-game feature in common. When you try to get into those sections with the wrong character, you’re treated to a fairly shameless video previewing all the fun you’re missing until you buy the toy that can open up that section.

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