Nintendo Goes After Activision Blizzard and Disney With Amiibos

Source: Nintendo

Nintendo (NTDOY -0.33%) has been struggling to sell its Wii U game console, with sales in 2013 coming in well below the company's initial expectations. The launch of major games, like the recently released Mario Kart 8, has helped boost Wii U sales, but now Nintendo is turning to interactive toys in an attempt to create more demand for the console.

Activision Blizzard (ATVI) pioneered the concept with Skylanders in 2011, and Disney (DIS 0.18%) followed suit in 2013 with Infinity, so Nintendo is certainly not being original here. But there are some important differences that could give Nintendo's Amiibos an advantage, although whether the market can support three lines of these toy-based games is an outstanding question.

Activision hits a home run, then Disney hits a grand slam
Activision's Skylanders series of games, launched in 2011 with Spyro's Adventure, has generated more than $2 billion in sales so far. But the games themselves only sold a few million copies each, far short of blockbusters like Call of Duty and Grand Theft Auto.

Source: VGChartz

While these are respectable sales figures, the toys are what makes Skylanders a serious cash cow for Activision. In total, more than 175 million Skylanders toys have been sold so far, and that puts the toy attach rate per game sold at an astounding 13.

Source: Activision

This feat is particularly impressive given that Activision isn't working with a stable of already ubiquitous characters. Disney had a huge advantage when it launched Infinity, its own toy-driven game, in 2013, as many of the toys were based on well-known characters from its movies. Disney's follow-up game, Infinity 2.0, will feature characters from the Marvel universe, such as Iron Man and Captain America. It's not a stretch to imagine characters from Star Wars eventually being including in the franchise. Disney purchased Marvel in 2009 and LucasFilm in 2012.

According to Disney Interactive President Jimmy Pitaro, Infinity has been outperforming Skylanders in terms of total revenue since its launch in August of last year.

Nintendo has its work cut out for it
Nintendo is seriously late to the party with its Amiibos. Activision has an established franchise, and since older toys work with each new Skylanders game, there is a degree of lock-in as well. Disney, on the other hand, has a deep bench of well-known characters, and even Activision may have a tough time competing with that.

Nintendo does have a few things working in its favor, however. First, Amiibos won't require any additional hardware. Both Skylanders and Infinity require a separate device in order to interact with the toys, but the Wii U's game pad already has all the necessary technology built in. This saves parents money by not having to buy an extra piece of hardware to get started

More importantly, though, Amiibos will not just work with a single line of games. The toys will launch with Super Smash Bros. later this year, but they will also work with Mario Kart 8, Yoshi's Wooly World, Captain Toad: Treasure Tracker, and Mario Party 10, all first-party titles from Nintendo. In addition, Amiibos can be integrated into games from third-party developers, greatly increasing the versatility of the toys compared to the competition. This is the key differentiating factor for Nintendo.

The bottom line
Nintendo has taken its time and created something that's not just a copy of Skylanders or Infinity, but it remains to be seen whether the market can support three different lines of interactive toys. For now, with Wii U sales so poor, getting third-party developers on board may prove difficult. But Nintendo's own games are extremely popular, and if the toys are integrated in a compelling way, they could not only help drive sales of the Wii U, but also turn Nintendo's losses into profits.