Toys With Smarts

Disney’s newest Mr. Incredible Toy doesn’t look all that different from your average Happy Meal trinket. But an RFID chip inside is making him irresistible to kids. That’s because the figurine, part of the new Disney Infinity series, can beam information to game consoles. Mr. Incredible and the 16 other characters currently for sale act like memory cards, storing saved games. A child’s individual game-play progress makes each toy unique (and valuable) to its owner.

Toys and consumer electronics have long overlapped. But ahead of the 2013 holiday season, the proliferation of connected gadgets has led to a surge in so-called smart toys that adopt some of the chips, sensors and software found in smartphones. These products combine the store-window “I have to have it” impulse with the addictive, repetitive game play of video games and apps.

That formula is generating hundreds of millions of dollars in sales. Activision’s Skylanders–a series similar to Infinity that launched in 2011–brought in $750 million in 2012. Disney’s version, released this August, yielded an estimated $30 million in sales in just two weeks. Wedbush Morgan analyst Michael Pachter predicts the two companies will tally as much $2 billion in sales of both franchises by the end of the Christmas season. (Overall, the toy industry generates about $20 billion in annual U.S. sales.)

It’s not hard to see why these products are so lucrative. A starter kit costs $75 to $100; individual figurines cost $10 to $15. What’s more, Disney has a deep bench of beloved characters to choose from for years to come–including those from Marvel Comics, Star Wars and its own animation studios like Pixar. (Skylanders, meanwhile, already offers 100 different figurines.) “We know the kids who come in here by name because they’re here so often, asking their parents for more and more of the toys,” says Jose Denizard, who works at a Manhattan GameStop. “We’re always out. It’s a cash cow.”

A number of startups are also trying to cash in. Founded by former Pixar employees, San Francisco–based ToyTalk recently released the Winston Show, a game-show-style iPad app for young children. Its voice-recognition technology allows kids to have conversations with cartoons as you might with the iPhone’s Siri. This month, Plumzi, another Bay Area venture, is releasing an app that pauses an otherwise normal TV episode and asks the viewer to help Nickelodeon characters by swiping the screen or speaking into the mike. And Orbotix, based in Boulder, Colo., sells a zippy remote-controlled sphere that can be piloted via iPhone.

The question now is whether these toys are just a fad, inevitably bound to fall out of favor like Pokémon, Beanie Babies or, for that matter, Teddy Ruxpin before them. Pachter, the analyst, doesn’t think so. By merging toys with technology that can be upgraded, companies are setting themselves up for the long haul, he says. And games aimed at youngsters rather than fickle teens tend to have more staying power. Or as Pachter puts it, “Every 8-year-old can be replaced by a 6-year-old.”