Toy Story: another fad or future of videogames?

The biggest thing in videogames today? Tiny figurines that sit on a shelf.

Take Camo, a half-plant and half-dragon fire breather. Or the villainous Sheep Creep, imprisoned for leading a sheep rebellion. They’re part of a growing genre called “toys to life,” which uses a form of wireless technology to transport physical toys inside videogames.

It sounds whimsical, but the money is real. In pairing geek-culture passion for collectible figurines with videogames, Activision Blizzard Inc.,Walt Disney Co.and Nintendo Co.have raked in billions of dollars in sales since the genre took off in the past few years.

That success is luring new industry competitors, including toy-aisle heavyweights such as Lego A/S and Hasbro Inc.The challenge now is to fuel interest without burning out Beanie Baby-style.

“Toys to life” sales accounted for about 10% of all software and accessory sales in the U.S. in the past 12 months, according to NPD Group, which is planning to release its first report on the sector Wednesday. Sales could hit $3 billion this year world-wide, Wedbush Securities analyst Michael Pachter estimates.

“It’s going to get bigger,” he says. “The idea that your toys can come to life is pretty exciting if you’re a little kid.”

Here’s how it works: A pricey starter set comes with a few figurines that have special sensors and a portal, or, in Nintendo’s case, the Wii U console gamepad, that talk to each other using near-field communication technology. (It’s the same technology used by Apple Pay.)

Gamers tap a figurine to the sensor, and a digital version pops up in the videogame ready to build worlds or complete missions. Part of the appeal is putting characters from different universes—think Mickey Mouse and Captain America—into the same virtual world. There are dozens of extra figurines for sale separately. Different “toys to life” games can be played on the same system, such as an Xbox console, but characters can’t be mixed and matched.

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Trey Perlut, a fourth-grader from St. Louis, Mo., is stashing away Tooth Fairy money and doing yard work to save for a set from Lego, even though he already has sets from Activision and Disney. His favorite is Tuff Luck, a cat warrior from Activision’s “Skylanders” that wields crystal weapons. “I’m into games that involve realistic figures,” the 10-year-old says.

The toys can tug at a collector’s instinct to amass whole sets—the second edition of Disney’s “Infinity” included Marvel’s “Avengers”—and to hunt down rarer or defective toys.

A white Skylanders dragon missing a wing, for example, is available for $4,000 on eBay. “The wing is not in the package that is still Factory Sealed with absolutely no tampering,” reads the toy’s description. (No bids so far.) The warrior Marth from Nintendo’s “amiibo” toys is notoriously difficult to find and sells for double or more online. Some toys are completely out of stock before ever reaching store shelves because of presales.

On CompleteSet, an online marketplace of pop-culture collectibles, people have asked for help finding more than 2,145 toys-to-life figures. “They connect with people’s nostalgia,” says the site’s founder and chief, Gary Darna.

Lennon George admits to spending $200 on Chop Chop, a metallic-blue undead warrior from Skylanders. He sometimes buys three of each toy—keeping one unopened, another displayed on a shelf and a third for playing the game. “I have a room dedicated to all of my toys,” the 34-year-old musician from Dayton, Ohio, says.

He has instructed his children, ages 4 and 5, not to touch the collectible ones. “They know these are daddy’s toys and we don’t mess with daddy's toys,” he joked.

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In some cases, it is the kids that get the adults into collecting. Beth Durham, a skin-care consultant in Dallas, says she began acquiring Skylanders toys after seeing her 7-year-old nephew play. Now, 57 of them adorn a bookshelf in her home.

Companies don’t break out how much profit they make on the pocket-size figurines, which weigh as little as three ounces and cost buyers around $10 each. But margins can be as high as 90%, Mr. Pachter estimates.

Disney’s Infinity has generated more than $1 billion in sales globally since its September 2013 launch, the company says. Nintendo recently said it sold more than 10.5 million of its amiibo since their November launch.

Over the past two years, Ty Jero estimates he has spent at least $1,000 on more than 100 characters displayed on shelves in his Cincinnati home. He’s attracted to Nintendo and Disney because he grew up with some of the names, like Donald Duck. “I’m collecting characters I have an emotional attachment to,” the 32-year-old IT professional says.

Activision has raked in more than $3 billion in global revenue since it launched Skylanders, which spent three years in development, in 2011. But Eric Hirshberg, head of Activision’s publishing division, acknowledged on an earnings call in February that Skylanders is no longer the only player. “We continue to see more and more competition entering the category,” he says.

That includes veteran firms like Hasbro, which makes the well-known Transformers and My Little Pony toys. It’s “working on some exciting stuff within this space,” a spokesman says.

Another big rival is slated to arrive before Christmas. Time Warner Inc.and Lego are planning to launch “Lego Dimensions,” pulling together a diverse cast, including Batman, the Wicked Witch from “Oz” and Gandalf from “The Lord of the Rings.” Rumors abound that the Time Lord from the cult British show “Dr. Who” will make the cut.

In true Lego fashion, players must first build the toys before transporting them into the game. “It’s the largest investment we’ve ever made” in videogames, says Jeff Junge, a senior vice president at Warner Bros. Entertainment.

He declined to say how much Warner Bros. Entertainment is spending to get the franchise off the ground. But he acknowledged the move is risky and will include a “huge” marketing campaign. “We’re not taking this as a slam dunk,” he says. “To convince people this is not just the next Lego videogame coming out—but something brand new—is not an easy thing to do.”

With so many collectibles, fans could become overwhelmed. Activision is planning a fifth round of Skylanders. Disney’s third Infinity release will include “Star Wars.” Nintendo has nearly 60 amiibo in circulation. There are already four versions of Mario available and three colors of a yarn Yoshi dinosaur in the works.

Ben Bontekoe of Fairlawn, N.J., bought Skylanders for his two children last Christmas. But he doesn’t plan to shell out for more than one franchise. “I’d rather spend money on more Skylanders than start with a new set,” he says.

Signs of pocketbook fatigue are emerging. “Toys to life” sales rose just 2% in the 12 months ending in March, compared with 45% growth in the same period a year earlier, NPD says.

John Blackburn, who heads Disney’s toys-to-life-franchise, said he hopes the genre isn’t a fad. Disney pared back its starter pack to cut the price by $10, responding to customer feedback.

For now, the competition is still heating up. Activision Chief Executive Bobby Kotick echoed a missile the company lobbed at rivals during an earnings call. Skylanders, he said, isn’t limited to “existing intellectual property” or tied down by release schedules as movies are.

This article was originally published on 19-05-2015 on The Wall Street Journal

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