Disney's Exit From Toys to Life Isn't Another "Death of the Music Genre"
Updated: Jan 23, 2018
RUMORS OF TOYS TO LIFE'S PASSING HAVE BEEN GREATLY EXAGGERATED.
Disney’s announcement on Wednesday that the company is cancelling Disney Infinity has led many in the industry to question if this marks the beginning of the end for the Toys to Life genre. After all, it was not that long ago that we saw another accessory-driven genre, Music, peak at more than $2B worldwide in 2008 only to crash back to earth by 2010. However, the industry should be careful in overreacting to the news and predicting the death of a category based on the strategic decisions of a giant media conglomerate.
First, the Toys to Life category has shown a longer period of stability than the music genre. The Toys to Life genre had its highest grossing year ever in 2015 with global revenue of almost $1.7B across software and toys. This marked year 5 for a genre that started in 2011 with the release of Skylanders: Spyro’s Adventure. In contrast, the Music genre was a shadow of its former glory by its fifth year in 2010.
Second, Disney’s exit from the category makes strategic sense for the company despite their market leading position. Disney’s exit from the Toys to Life space speaks more to Disney’s trending departure from games publishing and transition to a games licensing role. It is ironic that Disney exited the console publishing business on the same day EA announced the success of the Star Wars themed Battlefront.
Releasing Toys to Life games is a complex undertaking. Not only does a publisher have to make a great game, they have to package it with a piece of hardware that can read the toys, and assume the risk of designing, manufacturing, and shipping the toys. That is a lot of overhead to publish one console title. Even if Disney wants to remain in the Toys to Life space it seems smarter to do this as a licensor assuming less risk.
The growing competition in the Toys to Life genre that has lowered per company revenues year over year. From 2014 to 2015, the Toys to Life genre was up approximately 7% overall (upon the entrance of Warner Bros’ LEGO Dimensions), but Disney Infinity revenues fell approximately 20% year-over-year. And the decline came with a Star Wars themed product launch during the year of a Star Wars movie launch. Disney likely expected growth from 2014 to 2015, and were probably disappointed by 2015’s decline, even though they still earned more than $500MM.
Therefore, Disney’s exit from the Toys to Life market is likely good news for the other publishers in this space. Lego is well positioned for growth with its powerful and functional games development division, major expertise in toy manufacturing and sales, and powerful brand marketing partnerships with companies like DC Comics. And despite two years of decline, Activision is investing in Skylanders media content that may enable its toys to better compete with its competitors’ licensed content.
Joe Dodson Analyst, EEDAR