Nintendo Is Ready to Take On Skylanders and Disney Infinity

Can a copycat strategy for Nintendo work, or is it late to the party?

Jun 23, 2014 at 9:00PM

Nintendo (NASDAQOTH:NTDOY) showed off its upcoming Amiibo interactive gaming figures at the E3 Expo. The figurines may seem similar to gamers and investors, as both Activision (NASDAQ:ATVI) and Disney (NYSE:DIS) have had success with interactive models. Even though Nintendo is late to the party, it should be able to increase hardware and software sales with an upcoming slate of Amiibo related products.

Beginning with the upcoming Super Smash Bros. game from Nintendo, gamers will be able to use these Amiibo characters directly in games by using technology already featured on the Wii U.

Plans  call for every character in Smash Bros to have their own Amiibo. A picture from the E3 site hints at Amiibos of Donkey Kong, Mario, Luigi, Kirby, Fox McCloud, Link, Princess, Yoshi, and Toad. At the launch, there will be 10 Amiibo characters; more are expected to be released in time for the Christmas 2014 season and other upcoming games.

Nintendo didn't hold back with its plans for Amiibo. This isn't just a test with one game to see if there is customer demand. The company plans on the Amiibos being compatible with other games like Mario Kart 8, Captain Toad: Treasure Tracker, Mario Party 10, and Yoshi's Woolly World. The company also plans on the Amiibo characters being compatible with Nintendo 3DS handheld devices in 2015 via a peripheral device. This could be a great selling point for Nintendo and could boost accessory sales with the extra device needed.

Nintendo is also hoping that the additional characters for sale could garner more retail space for the company. Activision and Disney have several games and accessory lines that get strong attention at stores. Of course, both companies have also seen strong partnerships with GameStop and Toys 'R' Us that Nintendo should also look at copying.

For Nintendo, this new gaming accessory could be the pitch that gets investors back into its stock or helps stabilize falling revenue. In fiscal 2014, Nintendo saw net sales decrease 10%. Despite the sales struggle, net income rose for the full fiscal year. The Wii U has been a slow seller recently and didn't get the initial head start on Sony and Microsoft that many expected.

Competition fierce, but shows demand
Nintendo has surely followed the success that Activision had with its "Skylanders" franchise. The franchise was the no. 3 best-selling for all of 2013. Skylander Swap Force was the no. 1 title in the first quarter in North America and Europe combined. The strong sales of the game and franchise helped Activision turn in an impressive first quarter.

Due to the strong accessory sales of "Skylanders" games, the franchise even ranks  in the top 20 for all-time franchises. The brand has over $2 billion in sales, thanks to sales of more than 175 million toys. "Skylanders" gets more than half of its revenue from accessories and toys. The brand is also becoming a licensing powerhouse.

Disney launched its "Infinity" interactive game series in August 2013. The game features interactive characters from Disney movies and has been a huge success. The game system sold 3 million starter packs from launch until the end of 2013. In the key holiday month of December, Disney even came close to matching the "Skylanders" franchise. "Skylanders" outsold "Infinity" by a margin of 597,000 to 551,000 units.

Due to the popularity of "Infinity" and the plethora of characters Disney has to work with, the company is launching a separate "Marvel Super Heroes" edition in September of this year. The game will be compatible with other "Infinity" characters, but should lead to increased sales as a higher-priced item to individual characters. Rumors also see Disney releasing a separate "Infinity" Star Wars edition in the future.

The success of "Infinity" even turned one of Disney's smallest business segments profitable. Disney's Interactive unit saw a 26% increase in revenue for fiscal 2013. This was the highest increase of any Disney segment. The unit posted a full-year operating loss of $0.1 billion, an improvement of 60%. The unit was profitable in the fourth quarter and is on track to be profitable for the full year.

Shares of Nintendo have been hit hard as the Wii and Wii U decline in popularity. The company needs to continue making moves like this, giving gamers a reason to come to Nintendo products. With strong brands that are exclusive to Nintendo, the Amiibo platform may be a huge driver for the company. Shares of Nintendo are down over 60% in the last five years and remain down in 2014. Shares should see a steady rise prior to the holiday 2014 season, however. 

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Chris Katje does not own shares of any company mentioned. The Motley Fool recommends Activision Blizzard and Walt Disney. The Motley Fool owns shares of Activision Blizzard and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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