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The Death of Toys-to-Life?

When a major player pulls out of a billion dollar market completely, it's probably time to sit up and take notice, so when Disney announced last night that it was giving up publishing, killing Disney Infinity and shutting down the 300 employee Avalanche studio which developed the core game, the future of the toys-to-life market suddenly took something of a tarnish.

Obviously, written in the 20/20 of hindsight, the warning signals seem abundantly clear. Disney had already alluded to troubled waters in the division, openly stating that the annual Infinity franchise was taking a break in 2016; NPD had predicted a contraction of the market despite a 7 per cent growth in 2015, and Infinity's main historical competitor had also underperformed, also resulting in more layoffs.

Nonetheless, other factors were pointing towards a potential golden era for Disney's digital toy box, with a massive boost from the reinvigoration of Star Wars selling an estimated $200 million worth of Infinity games and toysets last Autumn. As always, the near bottomless well of Disney IP looked set to deliver a raft of potential new opportunities for the Infinity brand over the next few years, with several almost certain blockbusters lined up which should resonate perfectly with toys-to-life's key demographics.

Even amongst some of the more negative predictions about the market, both NPD analysts and new players were offering solutions, with innovation and a shift to mobile bringing new avenues for development. At the same time, Warner Brothers was rapidly establishing LEGO Dimensions as a serious contender, offering the particular creativity intrinsic to its brand as well as a less aggressive approach to some aspects of monetisation which was proving popular to parents.

But the fact remains that the leading player (according to Disney itself) has pulled out of a market which inflated incredibly rapidly before hitting a stutter which many think maybe the first shimmers of a bursting bubble. It certainly wouldn't be the first instance of a peripheral-driven business to crash suddenly because of a lack of innovation - the fallout of the plastic instrument implosion is still painfully fresh in many minds - but many are confident that toys to life is much less the one trick pony.

"I believe there is potential to avoid a 'bubble bursting' scenario with innovation regarding the type of games that utilize interactive gaming toys," NPD's Liam Callahan said in April. "Music games innovated with new game modes, song lists, and by adding new instruments, but there was a limitation in the gameplay as ultimately you were playing a song.

"With that being said, there are similarities in the sense of many companies going after the same target market, which has a limitation in terms of how much the consumer can spend, which is why I believe a wider demographic target is needed for further growth."

"What's happening in the current toys-to-life space is they're not innovating," said Jumo CCO Chris Esaki. "They're not changing the game that much. And as a game player, when something doesn't change, you just get tired of it. So I don't know that it's necessarily saturation; it's just fatigue."

Steve Bailey of analyst firm IHS isn't so sure that there's much clear water between the TTL market and that of Rock Band and Guitar Hero, but agrees that a lack of real innovation has been a key factor in the arrest of the market's momentum.

"To me, the toys-to-life movement has felt a lot like the peripheral-led rhythm-action boom of around 2008 (Rock Band, Guitar Hero, et al). There was this great initial splash and some wiggle-room for refinement of the idea, but it struggled to innovate beyond its initial premise," he said in a statement to GamesIndustry.biz. "Once someone's bought into the core of what you're offering, making them buy a full refresh again a year later can be a much steeper uphill task for a games company, compared to producing a traditional game sequel (which can be expensive, of course, but is a relatively well-established idea).

"Part of the pressure that the segment is under is a need to evolve the physical-toy offering, which is why we had Skylanders pushing out into vehicles last year. But it seems that while publishers have been skilled at creating compelling games with toys attached, we're still only just beginning to explore how games and toys can interplay. If Lego and Activision want to remain productive in this segment, they're going to have to look at broadening the offering (e.g. Activision's animation tie-ins for Skylanders) or deepening it (e.g. develop more alluring interplay between games and toys).

"As for Disney retracting itself here, I suspect that it has seen the cost/effort required to keep Disney Infinity as a fresh proposition in the console market, and found it to be too risky. Contrast this with, say, its licensing success with EA and SW Battlefront last year, and it's clear where its focus should reside. Not to mention, Disney has made a number of major commitments to the game-publishing space over the past decade - think the $500+ million acquisition of Playdom in 2010, or its bids to enter the console market via Junction Point/Black Rock Studios - but those investments have not delivered substantial returns.

"Even if the major players did pull away from the toys-to-life market, the idea of connected toys (or whatever you wish to call it) will be kept alive by a wellspring of smaller companies out there who are working on elaborating how the ideas of physical toys and video games can interact - Fabulous Beasts, for example - so the segment won't so much die, as find fresh life via a different configuration."

Fabulous Beasts is a game coming from Sensible Object, a small London start-up with a passion for innovation in the toys-to-life space. Founder Alex Fleetwood says that the creativity needed to keep the market alive is already bubbling to the surface.

"I see a lot of innovation and creativity coming through in connected play, and it's being driven by indies, small studios and start-ups like us. We can take advantage of a whole set of tools for prototyping and scaling games cheaply, and we've found retail to be very receptive to new games and companies. Technologies like 3D printing, Arduino and Unity put physical/digital development within the reach of tiny teams, crowdfunding and e-commerce mean we can grow. And working with Chinese manufacturers is getting easier and easier."

So as Infinity's shadow fades, there's a possibility that Skylanders, LEGO Dimensions and a new swell of smaller competitors can sweep up the fragments of its former audience by bringing change to the key aspects of the gameplay, but the platformesque nature of the market is likely to work against them, with the established model working against change. In addition, having already invested in one set of expensive toys and the attendant software, parents might not be keen to open the door to another licensed walled garden.

"I'm still taken aback by the news because it doesn't seem like long ago Disney Infinity was poised to take over the world," said Rob Purchase, Eurogamer Senior Staff writer and parent. "It had irresistible credentials. What happened?

"I wonder if Infinity suffered because other parents, like me, had already bought into Skylanders. The thought of collecting another expensive set of figures didn't excite me, it put me off, and I would even distract my son in game shops so he didn't linger on Disney Infinity displays. And I've talked to other parents who say the same.

"Maybe the formula wasn't right; maybe Disney Infinity could have been more lenient about using characters from one licence in a story campaign for another licence. Perhaps the whole make-your-own level idea was too involved for a younger audience. I always thought Skylanders' blend of easy action and simple puzzles was just right for my son. Or maybe there simply wasn't room in the market for the both of them - it didn't grow to accommodate two brands. And this was exacerbated when the powerhouse LEGO Dimensions entered the fray last year.

"I'll be interested to see what happens next. Does this mean happy days for Skylanders and LEGO Dimensions as they capitalise on Disney Infinity's exit, or does it mean worrying times are ahead for them too? There are only so many toys for games I'm willing to buy. Perhaps, as with Guitar Hero and Rock Band, people have had enough."

"My children love the toys-to-life market, but they're always fickle," added VG247 editor Matt Martin. "What's popular with them and their friends one day is suddenly not cool at all. The prices of these toys to life games and accessories are hard to swallow for parents, but children consider them just toys, and have very little concept of value. So in that sense they're just the next big thing; one day it's Disney Infinity, the next it's loom bands.

"I don't think parental trust is damaged as Disney Infinity has been on the market for long enough. The game is still available and the figures won't disappear for some time. In fact, as harsh as this sounds, from a parent's point of view it means prices will drop and we can finally fill out a collection. But like most games, Disney Infinity has been over for a while, the buzz has gone, the children have moved on. I completely understand why Disney is moving on too."

Activision has to hope that the sudden absence of its key rival will open the doors for a market advantage - the publisher is doubling down on the Skylanders brand with a new game and an accompanying television series in 2016. However, asked for comment in response to the retirement of Infinity, Josh Taub, Senior Vice President, Product Management was keen to reiterate the company's commitment to Skylanders.

"We are making a phenomenal Skylanders game in 2016 that's being led by Toys For Bob, the development studio that pioneered the Toys to Life category. We've got a tremendous plan for this holiday in place and can't wait for our fans to get their hands on the newest innovation. We look forward to sharing more details soon."

So what do analysts think about the ramifications of the news for Skylanders, LEGO Dimensions and the rest of the market? Newzoo's Peter Warman identifies the shift to mobile and pure digital markets as a key factor - something which both rivals are yet to capitalise upon.

"The fact that Disney has killed its Infinity franchise and is quitting game publishing as a whole does not come as a complete surprise considering the major changes the market and industry have gone through since the launch of Infinity in 2013," says Warman. "A combination of factors have played a role here, some directly related to Infinity and others that have had a direct impact on Disney's publishing business as a whole.

"Infinity is directly hit by the continued shift of spending on games for kids to smartphones and tablets along with the downfall of the Wii consoles that are particularly catered to this target group. In a market that is moving towards a completely digital ecosystem, the investment required for the development, distribution, and retail sales of physical products are enormous and risky.

"The business rules for games have changed considerably in the past few years and I believe this is the reason Disney is pulling out of games completely. As all games are now run as a service, the majority of money is made after the launch of the initial game. This transition is doing away with blockbuster launch moments that are so crucial to retail. Early access comes long before the official launch, spreading the launch out over many months to ensure gameplay and monetization are optimized before the masses come and play. This requires a completely different organization than the one Disney has set up to market and sell products and blockbuster entertainment productions.

"It is also the reason why other traditional publishers struggled in the past five years to catch up with smaller players who were set up to run (free) games as a service from the start. Disney does not want to transform part of its organization to a different setup knowing that it will need years to learn the tricks of the trade. So I completely understand its reasoning, even though giving out IP to specialist publishers is not a guarantee for success. Most experienced publishers in the new games-as-a-service space want to build up their own IP."

Warman's thoughts on the importance of the mobile shift were echoed by Superdata's Joost van Dreunen, who also sees Disney's complete exit from publishing as a sensible move.

It's not for lack of effort that this didn't work out. But with the shutdown of its game publishing activities Disney is doing itself a favour. You have to remember that Disney has tried, for years, to gain a sustainable foothold in the games market. All the way from its educational software days to acquiring Playdom and Club Penguin, the company has shown a willingness to place big bets, but, unfortunately, was never quite able to compete on equal level with companies like Electronics Arts or Activision. Even as digital content sales on console and PC are up, we're seeing Disney Infinity pulling in under $1 million a month. And with LEGO, Skylanders and Amiibo as competitors at retail, it is unlikely that Disney will capture a dominant share.

"The toys-to-life category is expensive, for one, and with several major firms crowding shelf space at retail it doesn't make sense to hold on for dear life. Now that the category is starting to slow, we'll see how the others manage, but Disney has a wider range of options in terms of reaching audiences.

"Disney's core audience is increasingly on mobile, for instance, where it manages to do really well by simply licensing its major properties to developers. It makes more sense to have others assume the risk of game development. The success Electronic Arts reported earlier this week with Star Wars Battlefront, having shipped 14 million copies to retail so far, presents a more reasonable risk/reward proposition. Consequently, Disney will likely re-up its efforts to license out its properties instead of going it alone.

"That said, we do anticipate somewhat of a rush on the remaining retail inventory, as fans will try to complete their sets at the 11th hour.

In addition to the shockwaves spreading through the market in a fiscal sense, there's also the very human aspect to consider. Disney had eight studios working on the Infinity franchise: Avalanche making the core game, Studio Gobo, Sumo Digital and Digital Front making playsets and Blind Squirrel, Panic Button, and Heavy Iron working on porting and other aspects. 300 ex-Avalanche employees suddenly find themselves jobless today, but what of the impact on other affiliates?

"We are disappointed to hear that The Walt Disney Company will not be continuing the Disney Infinity franchise," said Tony Beckwith, head of Studio Gobo. "We have enjoyed a very close working relationship with our friends at Avalanche, as well as many of the Disney team, over the last four years.

"We're immensely proud of the games we've made alongside them and wish them well for the future. Last year we made the decision to grow the company and establish a second studio in Brighton which has two high-profile projects in development and others in discussion. Some of the team will now work on these projects and its very much business as usual here at Studio Gobo."

Jon Gibson, who heads up Gobo's new mobile-focused studio, also sees the bright side, with room to improve and take the genre in exciting new directions.

"Toys-to-life products remain as popular as ever, although usage patterns are certainly changing and evolving," Gibson told GamesIndustry.biz. "Traditional console experiences brought Toys To Life in the digital world and we now see the emergence of digital experiences bringing Toys To Life in the real world.

"Mobile technology really lends itself to creating these kinds of products, with lower than ever hardware prices and an increasing range of affordable technology helping to build better, smarter and more magical experiences. Rather than Toys being a component of the video game, it's the video game that can add real value to the physical toy.

"It's an exciting industry to be part of and we remain firmly optimistic about the future growth of this sector."

Sumo Digital were unable to give comment at the time of going to press, referring us to Disney and Ninja Theory also declined to speak on the record. Hopefully they'll have had the requisite time to adjust without any job losses, but the loss of a lucrative client such as Disney is never good news for a firm, indie or not.

Suffice to say, though - whilst this is a blow for the future of toys-to-life, and a move which has clearly shaken some investors and analysts, it's not a final death knell for the sector. As the industry saw when Disney shut down Black Rock five years ago - sometimes a giant tree falling is just what a forest needs.

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