Activision hopes ‘Skylanders’ has staying power

Six-year-old Jericho Rodriguez sprinted into Toys R Us like a cheetah chasing its prey.

“Mommy, Skylanders! Skylanders!” he yelled as he ran through a crowd gathered around the biggest display in the store, larger even than ones for Legos and Marvel superheroes such as Iron Man.

Jericho and other young boys were gathered in Atwater Village early Sunday morning for the new video game “Skylanders: Giants” and dozens of action figures associated with it.

“Giants” is the hottest release of the fall for boys ages 6 to 12, as Jericho’s father, Jess, can attest.

“He woke us up early to come here,” the downtown L.A. resident said. “Right now I’m amazed there are as so many more [characters] to buy.”

The first “Skylanders” game, last year’s “Skylanders: Spyro’s Adventure,” has been the No. 1 game franchise so far this year in the U.S., generating $286 million in sales, according to research firm NPD Group Inc. That’s particularly noteworthy in a year during which overall game sales have plunged 25%.

To play, users buy a $70 game, outfitted with a port where they plug in one of 32 “Skylanders” characters, priced at $8 or more each. Real enthusiasts buy more than one character. Some collect the entire set. “Skylander” publisher Activision Blizzard Inc. has sold more than 30 million toys.

Activision Publishing Chief Executive Eric Hirshberg said “Skylanders” can become the Santa Monica company’s next “billion-dollar franchise,” joining such blockbuster brands as “Call of Duty” and “World of Warcraft.”

“‘Skylanders’ has done a lot better than people were initially expecting, but this holiday period will be the make-or-break time that proves whether it has legs,” said Daniel Ernst, a consumer technology analyst at Hudson Square Research.

Among fans, “Skylanders” has created the kind of obsession that marketing executives crave. On EBay, complete sets of hard-to-find limited-edition toys cost as much as $2,499.

But “Skylanders” didn’t result from a conscious effort to create collector madness. Activision’s Toys for Bob studio, in the Northern California city of Novato, was looking for new material as demand for games based on children’s movies, such as “Madagascar,” its specialty for the last decade, was diminishing.

Toys for Bob was asked to revive the purple dragon character Spyro, who had starred in more than a dozen games from 1998 to 2008.

Designers struggled to come up with a concept until they recalled an earlier idea to allow physical toys to appear in a game when placed on a special interface. But they couldn’t come up with a compelling take until they decided to use a previously discarded notion to make toys that interact with a video game.

Specifically, the team built the device, called a “portal,” and also found a way to store in-game progress on the toys themselves. Focus group testing showed it was something special.

“That was the magic moment when the characters became alive and had memories,” said Toys for Bob studio head Paul Reiche. “Kids were bonding to the toys in a way we had not seen before.”

Unlike so many Wii and Xbox games that encourage staring at a screen in isolation, “Skylanders’” multiple characters and storage ability gave it a different play pattern.

“Sometimes I play with them in the game, and sometimes I play with them as toys,” Jericho said. “When my friends come over, we pick the Skylanders we want [in the game] for our group.”

A key was coming up with characters children would love — a difficult challenge for a company that had never made physical products. Toys for Bob artist I-Wei Huang went through more than 1,000 designs before settling on ones such as “Ninjini,” “Stealth Elf” and “Drobot.”

“We learned that kids don’t like characters they can’t relate to, meaning we had to get rid of ones we thought were cool like a wizard with a long beard,” Huang said.

Typically, games for children cost less to make than games for adults. But with its toys and new technology, launching “Skylanders” cost Activision $100 million or more, roughly as much as making, manufacturing and marketing a title such as “Call of Duty.”

“This started off as a modestly scoped project, but when we saw the idea in action we decided to delay the release for a year and go big with it,” Hirshberg said.

The company’s RedOctane unit, which oversaw plastic instruments for “Guitar Hero,” made and imported 15 million toys from China in time for the launch last year.

Just as important, Activision courted key retailer participation early.

“Most games just face outward on a shelf, but Skylanders needs a lot more space if you’re going to get behind it,” said Troy Peterson, vice president of electronics and entertainment for Toys R Us. Last year the chain devoted 12 linear feet of shelf space per store to “Spyro’s Adventure.” This year it’s giving 16 feet to “Giants.”

“Skylanders” has already become one of Activision’s big three franchises, along with “Call of Duty” and “Warcraft.” The company said in public filings that the trio accounted for 73% of net revenues in 2011 and “a significantly higher percentage” of its operating income.

“Skylanders’” spin-off potential is substantial too. Already, there are books, backpacks, pajamas and Halloween costumes. Hirshberg said Activision is considering partnering with Hollywood studios on “linear media” like television series or movies.

Just as it has done with “Call of Duty,” Activision is expected to make “Skylanders” sequels every fall for as long as the audience will buy them, which will mean recruiting other studios to assist Toys for Bob.

With momentum for “Warcraft” and “Call of Duty” slowing recently, it’s important for the publisher that “Skylanders” keep growing, particularly its action figures. Toys for Bob has made 48 new characters for “Giants.”

MKM Partners media and entertainment analyst Eric Handler said the profit margins on them are higher than for the game itself. “It’s the classic razor/blade business model,” he said.

As they surveyed the new action figures with names such as “Crusher” and “Swarm” at the Atwater Toys R Us, it dawned on parents just how costly the world of “Skylanders” could be.

“It’s financially punishing,” said Highland Park resident Jason Renfro, shopping with his 10-year-old son Danner. “But as a someone who collected ‘Star Wars’ action figures as a kid, I understand.”

[email protected]

MORE:

INTERACTIVE: TVs highest paid starts

QUIZ: Celebrity voice overs

PHOTOS: Hollywood back lot moments