Smart toys' or 'app toys' consist of three interconnected elements: a video game (or application interface), one or more connected objects and a distribution platform with a display. Smart toys now constitute a new market segment, halfway between the video game and toy industries. This report analyses the current state of development of this phenomenon, including the operating principles, creative potential, summary of current offerings, business models and challenges facing the industry.

1. Smart Toys
A new video game market segment
July 2014 –Synthesis of Chatper Iand III
Digital Entertainment
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2. 1. The pioneer Skylanders

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1.1. The "smart toys" concept
Smart toys now constitute a new market segment, halfway between the video game and toy industries.
'Smart toys' or 'app toys' consist of three interconnected elements:
-a video game,
-one or more connected objects,
-a distribution platform with a display.
The possible interactions between these three components of video games are inspiring games creators to create new innovative forms of entertainment, which can be exploited by both video game developers and toy manufacturers in search of new markets.
The leading toy manufacturers, such as Hasbro, Mattel, Lego et Bandai, are mainly centred around the toy, but they are gradually putting more emphasis on video games.
Video game players, both major and independent, are also exploring the potential created by linking physical toys and software.
-Activision Blizzard is one of the pioneers in this area with its Skylanders series of video games and collectible figurines that interact with a fun app of the same name.
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1.2. A simple concept, a huge success
A few statistics illustrate the huge and rapid success of Skylanders since its launch in late 2011
15 months after the release of Spyro's Adventure, the franchise broke the 1 billion USD barrier, with more than 100 million figurines sold in stores.
In February 2013, Skylanders Giants won the best e-Connected Toy of the Year award by the Toy Industry Association.
In 2013, for the second year in a row, Skylanders figurine sales surpassed those of all other action figure brands in Europe and the United States (including Star Wars, Transformers and Beyblades).
In January 2014, Skylanders became one of the top 20 best-selling video game franchises.
In February 2014, the Skylanders franchise crossed the 2 billion USD threshold in sales and had sold more than 175 million figurines.
Specifically, small action figurines representing imaginary and fantastical characters — the Skylanders — are equipped with NFC tags and are designed to sit on a platform connected to a games console. The characters then come to life on-screen in a fantasy world and can be controlled using a gamepad.
One of the essential features of the figurines is their ability to save the players' progress. In this way, a character's experience (XP, level, statistics) is not lost, which can be particularly useful when going to someone else's house for a multiplayer game.
Source: Activision Blizzard
How Skylanders works
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1.3. NFC and ubiquity
The NFC standard makes the game ubiquitous
Data communication between the figurine and the base on which it is placed by the player (which is itself connected to the console), is provided by NFC (Near Field Communication) technology.
The NFC tag embedded in each Skylanders figurine keeps game information in its memory (name of the character, levels and powers obtained, game statistics, etc.) until it is next connected.
These figurines therefore bring a certain ubiquity to the game:
-They allow players to start a game on one platform and then continue it on another. Players can bring their figurines to a friend's house and can play with the progress they achieved elsewhere.
-They are compatible with all games from the Skylanders franchise. For example, figurines from Skylanders Spyro's Adventure can be used in Skylanders SWAP Force.
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Ubiquity means that players do not have to start a new game on each device they own.
If that were the case, players would be splitting their playing time and would probably be unable to progress as far on a single platform.
Alternatively, they would only play on a single platform and thus lose out on the benefit of certain device features (screen size, touch interfaces, standard connections).
In both cases, the lack of ubiquity is a source of frustration.
Conversely, ubiquity is fun on two levels:
It pushes developers to exploit gameplay opportunities on multiple platforms.
These opportunities might offer alternative or complementary elements that potentially enrich the narrative. It gives players the chance of a continuous experience, in any circumstance.

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1.4. Business model
To play Spyro's Adventure, Giants or SWAP Force, players need to buy the video game in stores and also Skylanders figurines.
Each figurine belongs to one of eight elemental categories (Fire, Earth, Magic, Tech, etc.).
A figurine from each elemental category is needed to complete the game. However, players are encouraged to collect the complete set (there are 64 for all three games).
Prices vary depending on game platforms and packs offered.
Starter packs (including the video game, 'Portal of Power' and three figurines) are priced between 40 and 80 EUR.
Each additional figurine costs between 10 and 30 EUR.
The SWAP Force game is based on a concept where the top and bottom parts of the figurines' bodies are swappable. So, hundreds of combinations are possible and each figurine can possess two different powers.
The publisher's goal is to get players to buy a starter pack with the video game and one or several figurines, then to get players hooked so they will want to purchase new figurines to explore new areas in the game.
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This business model, which aims to extend monetisation of the game through the collection of figurines, creates a close relationship between object and gameplay. The properties of the object determine the nature of the gameplay, define boundaries and accessible areas within the game world, and enables players to interact with the game. For its part, the gameplay aims to make the object a fun and essential part of the video game. Gameplay and object combine to create an immersive and innovative game experience..
Collecting figurines is ultimately not just a mechanism for authorising the game but also creates a symbiosis. This interdependence has obviously been successful in the case of Skylanders, mainly because the fragile balance between 'player experience' and monetisation targets has been achieved. Revenues are generated from the expectations that players want from this symbiosis.

7. 1. The Smart Toys Worldwide Market

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3.5. Market prospects for ‘smart toys’
As for the pace of change, IDATE assumes that this segment could show moderate growth rates each year, which means it will represent a little more than 10% of the video game or toy market by 2018.
In this context, the smart toy market could be worth 7.4 billion EUR in 2018, XXX.
Evolution of Worldwide Smart Toys Market (billion EUR)
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2013
2014
2015
2016
2017
2018
Smart Toy Market
7.4
Smart Toys Growth Rate
21.9%
Video Game Market
68.4
Video Game Growth Rate
3.0%
Toy Market
67.8
Toy Market Growth Rate
0.8%
Worldwide Smart Toys Market (billion EUR)
Source: IDATE in Smart Toys, juin 2014
Source: IDATE in Smart Toys, July 2014

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