When Activision Blizzard (NASDAQ:ATVI) released its Skylanders line of NFC-enabled game figurines, it managed to marry a video game franchise to a line of collectible miniatures.
This made the sale of the game just the start of the company's relationship with its customers. Games are sold in a starter pack with a couple of figurines. Playing with the included characters is fun, and your play options expand as you buy more characters. Once you purchase a figurine -- a physical toy, not a virtual in-game purchase -- you can play that person/creature/animal/monster in the game. Like baseball cards or collectible miniature games like Warhammer 40,000, Skylanders was designed to make its audience want to buy more.
The NFC-enabled figurines are physical representations of game characters, but they are not just dolls. The figurines are computer-like devices that communicate with the game and gain attributes as you play. My figure and yours start the same internally, but like their digital counterparts, they become customized based on gameplay.
This has been wildly successful. In February 2013, Activision announced that it had sold more than 100 million Skylanders figurines. The toys sell for less than $10 for a single new character and as much as $20 or more for a multi-figure set. The company also noted in a late-2012 earnings call that Skylanders was a $1 billion franchise annually.
Success, however, creates competition. In August 2013, Walt Disney (NYSE:DIS) launched a Skylanders competitor, Disney Infinity. Nintendo (NASDAQOTH:NTDOY) also joined the fray, showing off its own game with a line of NFC-enabled collectible figurines called Amiibo during E3.
How is Infinity doing?
Infinity, which allows players to mix and match Disney and Pixar characters in self-constructed adventures, has sold 3 million starter packs worldwide since Aug. 18, 2013, The New York Times reported. It finished 2013 as one of the 10 best-selling games in the United States, according to NPD, a research firm that tracks retail sales.
At holiday time, both Infinity and Skylanders sold well. December sales for Infinity totaled 551,000 units, according to NPD, while Skylanders SWAP Force, the third installment in the series, sold 597,000 units. It went on sale in mid-November.
What's next for Disney?
Disney plans to up the ante by expanding Infinity to include a lineup of characters from the Marvel universe.
Disney Infinity: Marvel Super Heroes not only offers 20 new superhero figurines including Avengers' Iron Man, Black Widow, Thor, Captain America, Hulk, and Hawkeye, it also features an enhanced fighting mode. This should broaden the appeal of Infinity to older players and bring in more boys while making it more of a direct Skylanders rival.
"We've enhanced and redesigned the gameplay to match the Marvel characters, while also making it easier than ever for players to express and share their own creativity," said John Blackburn, VP and general manager of Avalanche Software.
Disney has an inherent advantage that should help it gain market share in that its movies can create demand for new figurines. When Frozen became a box-office sensation, Disney was able to capitalize by offering Infinity figurines of the film's most popular characters. The new Marvel edition of the game will likely get a huge boost from the hype surrounding Avengers: Age of Ultron, which comes out in May 2015.
Can Nintendo become a player?
Nintendo is coming late to the party with Amiibo, but it shares some of the advantage Disney enjoys. While the company does not have billion-dollar movies to push its characters, it does have well-known personalities that may create demand for figurines. Nintendo has long been able to exploit characters from one franchise to build another. Mario -- who eventually starred in the groundbreaking Super Mario Bros. -- began as the personality-less hero in Donkey Kong. Now he headlines the wildly successful Mario Kart series and Super Smash Bros., both of which feature other Nintendo stars, including the angry gorilla from Donkey Kong -- who apparently calmed down and learned to drive.
The Infinity and Skylanders figurines are tied to the specific games in their respective series. Nintendo is trying something different in that its character toys will work with multiple Amiibo-enabled games. Character info from the figure you are playing is downloaded to the game you're playing. Data also flows back to the figurine, and they can change and evolve as you play. How well that will work to spur sales depends upon how many Amiibo-enabled games the company releases and how valuable having an "experienced" character will be.
Nintendo has not specified a release date for Amiibo, but the technology will be part of the newest Super Smash Bros. for Wii U, which has been announced for the 2014 holiday season. The company is also working on making some existing titles, including the latest Mario Kart, backward-compatible with Amiibo.
Nintendo badly needs to give people a reason to buy Wii U. Copying the Skylanders model, but making it work across multiple titles with characters that are already familiar, may be that reason.
Is there room for everyone to be successful?
It's certainly possible that all three platforms can be successful. Skylanders has built an impressive user base while Disney has started strong and has a nearly endless lineup of well-known characters to add to its games. Nintendo is well behind, but its gameplay and familiar brands may be enough to lure people in.
Though it is the current market leader, the most vulnerable franchise might be Skylanders because it's operating as a stand-alone property. It's much harder for Activision to build buzz around a new release than it is for Disney or Marvel. The introduction of Spiderman or one of the Legend of Zelda characters on their respective platforms will have more buzz than a new Skylanders character among the general populace.
It seems likely that the market can support three players in the NFC-enabled figurine game space. As more companies attempt to enter, there will likely be failures, but Skylanders should be able to retain an audience while Infinity and Amiibo grow theirs.
Daniel Kline has no position in any stocks mentioned. He is thinking about buying Disney Infinity: Marvel Super Heroes. 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.