One of Nintendo’s most profitable video game franchises is about to unleash a whole new revenue stream.

The video game maker and home console manufacturer revealed today (according to Pokémon news site Serebii) that Pokémon Rumble U for the Wii U home console will utilize physical toys that connect to the game like publisher Activision’s popular Skylanders series. The new Pokémon title will use the built-in near-field-communication (NFC) sensor in the Wii U GamePad. Players will use it to place small action figures, like Pikachu, on to the controller to activate them within the game.

Each figure’s in-game monster is fully trainable, and the toys store the information even when not connected.

Pokémon Rumble U will debut in Japan on April 24 for around $19. Nintendo will sell the interactive toys starting on that same day for around $2 each.

You can see the Pikachu figure sitting on the GamePad in a scan from Japanese magazine CoroCoro below:

GamesBeat contacted Nintendo to determine if and when this game is due out in North America.

Activision introduced this new and extremely successful business model that combines digital video games with physical toys when it released Skylanders: Spyro’s Adventure in 2011. Players place an action figure on a sensor called “The Portal of Power” that instantly zaps the character into the game. In February, Activision announced the franchise crossed $1 billion in sales between the games and the toys.

Disney is also getting in on this trend with its Disney Infinity game that brings many of its popular franchise, like Cars and Pirates of the Caribbean, into a digital playground using toys.

It’s a three-way battle for toy-store dominance.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Activision Blizzard is unveiling a new Skylanders game today that shows how it continues to innovate with its extremely successful hybrid toy-video game franchise. The interchangeable body halves of Skylanders: Swap Force toys are the new gimmick that the company is using to get kids to buy even more Skylanders and push the franchise to a billion dollars in sales.

Skylanders: Swap Force features toys that can be split in half and then mixed with other toys, giving characters inside the video games new amalgamated features. You can, for instance, combine the legs of a fast Skylander with the upper body of a brawny beast to create a fast character that has a lot of firepower. The 16 new characters in Swap Force can be combined into more than 250 unique combinations.

In Swap Force, players will find a new adventure in the Cloudbreak Islands, or floating lands in the sky that are home to a mystical volcano that erupts once every hundred years. During a battle, a group of Skylanders were caught in a volcano eruption, which blasted them apart and sent them to earth. They now have the ability to swap halves. But the evil Kaos is back with a new plan to attack the Skylands.

It’s not a huge change from the past games, which included Skylanders: Giants (released in October 2012) and Skylanders: Spyro’s Adventure (released in October 2011). But it is different enough to give something new for kids who have purchased more than $500 million worth of Skylanders toys and games in the past two years. The big idea with Skylanders is to “bring toys to life” by enhancing them with video games.

With the launch of Skylanders: Swap Force this fall, Activision is doing what it does best: taking a blockbuster game franchise and milking it for all it’s worth on an annual refresh cycle. Most big games come out once every two or three years, but Activision has put enough developers on the Skylanders property to release one every year. In fact, this game isn’t being made by the Toys for Bob game studio in Novato, Calif., that made the two previous versions. Instead, Vicarious Visions studio is developing. (That means Toys for Bob is probably working on something else.)

Santa Monica, Calif.-based Activision is unveiling the products at the Toy Fair show next week in New York City. In a short time, Activision has made Skylanders into one of the top-five best-selling franchises of 2012, moving more toys in a quarter now than Star Wars or Harry Potter. On the video game front, Skylanders was such a threat that Disney just launched its similar toy-hybrid product family, Disney Infinity, based on its own characters. Such franchises are huge “transmedia” efforts, or those that cross different media.

“With Skylanders, we didn’t just create a beloved new franchise — we actually created an entirely new category that brings the world of physical toys and video games together like never before. And now with Skylanders Swap Force, we are pushing the genre we created forward with another big innovation: customization,” said Eric Hirshberg, chief executive of Activision Publishing, a division of Activision Blizzard. “The idea that kids can customize their own characters in the physical world and have their unique combinations recognized in the virtual world is an idea as big as the concept of bringing toys to life itself.”

With Skylanders, you plug a portal (pictured right) into a video game console. When you put a toy on the portal, it lights up and transfers the character and its saved status into the game. You can swap characters whenever you need to make a change. And now you will be able to swap the halves of the 16 new characters as well. The existing Skylanders toys will work in the upcoming Swap Force game.

In a demo, Activision producer Chris Wilson showed me that the company is also making tweaks to the video game. The new imagery will be in high definition, with much more crisp art work. Skylanders characters will also be able to jump for the first time, allowing them to scale walls that they couldn’t in the two previous games.

One new character is Magna Charge (pictured below), as a Skylander with tech capabilities, such as a magnet. He can engage in bursts of speed. Another character is Countdown, who is a walking time bomb. He can toss his head at enemies. If you combine Magna Charge’s lower half with the upper body of Wash Buckler, a close-range fighter, then the combined character is faster and good at close-range fighting.

The game will also have 32 new core Skylanders characters (16 completely new Skylanders and 16 new versions of fan favorite characters from previous games) and eight new Lightcore characters. After Swap Force launches, kids will have more than 100 characters to choose from. That gives the games endless replay value.

“Skylanders Giants was named to our 2012 Holiday Hot Toy List for good reason — it extended the franchise’s breakthrough gameplay, and its performance at retail has been incredible. We’re continually impressed by the originality that Activision delivers in bringing toys to life,” said Jerry Storch, chairman and CEO of the Toys “R” Us retail chain. “The innovation of allowing kids to customize their toys in the real world and then send them into the Skylanders Swap Force game is sure to raise the bar for the franchise.”

Vicarious Visions, which has worked on parts of Skylanders since the beginning, is making the Wii U, Xbox 360 and PlayStation 3 versions of Skylanders: Swap Force. The Beenox studio is making a Wii version, while n-Space is making a 3DS version.

“Toys for Bob is not developing this one, but they are providing input,” Wilson said.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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This week, Nvidia unveiled its new mobile gaming platform Project Shield, the itty-bitty Android console GameStick gets in trouble on Kickstarter, and developer and publisher THQ loses it quick sale request and loan in its ongoing bankruptcy negotiations.

You’ll also find reviews for Anarchy Reigns, Seduce Me, and Noble Nutlings.

News:
The DeanBeat: Nvidia is taking big risks moving into game hardware. Is it crazy or genius?
Skylanders toys outsell Transformers and Star Wars action figures in 2012
Wii U sells 890,000 units in U.S. in first six weeks
The top 10 best-selling games from all of 2012
December NPD: The Xbox 360 dominates another dull month at retail
New wave of Skylanders Giants action figures start hitting retailers
Will you buy this TCL TV for a new way to play Fruit Ninja?
The Walking Dead first-person shooter debuts in March
Kickstarter takes down GameStick project due to intellectual-property dispute (update)
Game developer association to Biden: ‘We welcome more evidence-based research’
GameStick will support the Xbox 360 controller-like Green Throttle Atlas
Entering the ‘free-to-play’ MechWarrior Tactics closed beta will cost you
Fantasy MMO Tera goes free-to-play
Planescape: Torment followup is set in new RPG world Numenera, and a Kickstarter is likely
Hanna writer attached to Shadow of the Colossus film
New Pokémon X and Y details: Legendary Pokémon named
Shaq is back in gaming with ShaqDown on smartphones
GameStick gets more colors and MicroSD support if backers meet new goals
American McGee sees brighter future for year-old Akaneiro: Demon Hunters on Kickstarter (updated)
GameStop’s holiday: Used sales down 15.6 percent, digital up 40 percent
Big Fish’s casual cloud-gaming service headed to Windows 8, brings Xbox Live Achievements
Imprisoned Arma II developer helping DayZ map design from behind bars
THQ equity backer agrees to hear bids for individual titles (update)
DayZ standalone entering prerelease testing soon
Lenovo and Ubisoft deliver cool touch-screen games on giant 27-inch Table PC
THQ denied request for quick bankruptcy sale and loan

Mobile News:
Balrogs! Kabam can’t keep #11 top grossing iOS game The Hobbit live tonight
Point this app at your TV screen and it overlays all kinds of augmented-reality goodies
Mobile-ad platform Chartboost raises $19 million to fund further product development
Moga unveils a console-style mobile-gaming controller
Nvidia unveils Project Shield, an open mobile game console you can play in the living room or on the run

Interviews:
Nvidia CEO’s 7-year journey to make the Project Shield portable gaming device (exclusive interview)

Previews:
Nvidia’s Project Shield: Hands-on demo with the hot portable gaming system of CES (video)
Razer wants to satisfy gamer lust for tablets with the Edge (hands-on video)

Community Spotlight:
Save me: The symbolism of Silent Hill’s save points
The music industry took too long to recognize game music as worthy of the Grammy
Saying farewell to the PlayStation 2 (2000-2012)
Japanese role-playing games on major consoles are dead
The Buddhist teaches players that goals aren’t always necessary
Video games, violence, and religious identity

Reviews:
Anarchy Reigns is the digital version of a big box of mismatched toys (review)
Noble Nutlings is a safe debut from three former Angry Birds developers (review)
Seduce Me makes sex seem really boring (review)

Pieces of Flair:
If Mega Man had a dating site profile
8 button prompts we would like to have seen
10 female characters not featured in their game’s cover (and 10 that are)

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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When I was your age, nothing happened when I put my Ghostbusters toys on top of my Nintendo Entertainment System. You kids have all of the gadgets!

Skylanders is $500 million big. That’s half of a billion dollars in retail sales between the toys and the two games. Skylanders Giants alone raked in $195 million in U.S. sales in the last quarter of 2012.

“Just a year ago, the concept of bringing toys to life in a virtual world was an untested play pattern that Activision and Toys For Bob believed in,” Activision Publishing vice president of consumer marketing John Coyne said in a statement. “Now, the category has been established in the market and embraced by parents and kids everywhere. We’re humbled by the continued support and acclaim from parents, kids, and critics alike, but more importantly, it’s gratifying to see kids excited about the adventures that await them both in the digital and physical worlds.”

Skylanders is one of the fastest kids-focused properties to reach this level of financial success. Activision obviously found something big here with this title’s formula, which allows physical toys to communicate and interact with a virtual world. When gamers place an action figure on a special device connected to a gaming console, that character becomes playable in the game.

That interconnection between the plastic and digital led to stunning toy sales. Skylanders was the top-selling line of action figures for 2012 through November. The game’s toys outsold both the Transformers and Star Wars lines of action figures.

“Even before the concept was fully formed, we were immediately taken with the charm and magic behind the Skylanders property,” said Toys ‘R’ Us chief merchandising officer Richard Barry. “And following the highly successful introduction of Skylanders Spyro’s Adventures, we knew that Skylanders Giants would be a top seller in 2012. We believe that Skylanders is one of the most innovative and exciting toy properties to hit the market and are thrilled to continue our strong support of the brand.”

Skylanders is definitely positioned as Activision’s next big annualized gaming franchise. The challenge, as always, is keeping the game fresh while pleasing the current committed fanbase.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Mobile-game juggernaut Angry Birds has been downloaded more than a billion times, and publisher Rovio isn’t done with it yet. The company launched Angry Birds Star Wars on mobile devices last Friday, and it also debuted a whole line of Hasbro-made toys featuring mash-ups of Angry Birds and Star Wars characters. The double-barreled launch shows that the feathered franchise’s slingshot gameplay can be applied to just about any theme, and Rovio could very well have an endless series on its hands — as long as fans don’t get tired of it.

Rovio launched its fourth Angry Birds title this year as part of its ambition to turn its characters into the next Mickey Mouse. Peter Vesterbacka, chief marketing officer of the Helsinki-based outfit, said in an interview with GamesBeat that Rovio hasn’t hit a wall yet when it comes to growth. In fact, he said the company no longer thinks of itself as just a game maker. Like Disney, Rovio is shooting to become a broad entertainment organization. Here’s a transcript of our edited interview.

GamesBeat: So how long has this been in the making for you?

Peter Vesterbacka: The contract was finalized in March. We work pretty fast. We got the physical products out in record time. When we first talked to Hasbro, they said it was impossible, but then they surprised us and themselves. We got them out sooner and in much bigger volume than we thought. It’s been a great experience from that perspective. It was very fast. We’ve been working on the game about a year.

GamesBeat: What’s unique about the design of this game?

Vesterbacka: We’ve taken the best of Angry Birds with the best of Star Wars and merged it in a very organic way. If you have your Luke bird, it’s like the traditional red bird, but now it has a lightsaber. Or Han Solo meets the yellow bird with lasers. One thing we used, as an example, now the pigs also shoot lasers in some levels. When you then use the lightsaber, you can deflect the lasers. It’s these funny little details from the movies that [make it fun]. In the Star Wars movies, you always see the lasers bouncing left and right and going everywhere. We made sure you can see that in the game. There’s an amazing attention to detail. We worked very closely with Lucas.

GamesBeat: I like the stormtrooper piggies.

Vesterbacka: Yeah! They’re funny. That’s what we loved about the collaboration. It’s peanut butter and jelly. It works. Everything fits. You see a lot of very forced collaborations, but this is just fun.

GamesBeat: Now you have four games a year coming out. Do you think you’re going to maintain that pace?

Vesterbacka: Yeah. It’s a good pace. Next year we’ll probably do four, maybe five.

GamesBeat: Amazing Alex was a new intellectual property that you launched. Are you encouraged by the sales results, or does it suggest you should do more Angry Birds-all-the-time stuff?

Vesterbacka: I’d say it’s a bit of both. On one side, we’re very happy with the numbers for Alex. If you look at it as a new franchise, totally new everything, from that perspective it’s very good. But if you compare it to when we do a new Angry Birds game, those numbers are … a bit bigger.

Still, we always have to think about when we launched Angry Birds. We have flyers saying something like, “Angry Birds: 500,000 downloads!” Now it’s like, “Really? How could we have thought that was anything?” But, at the time, it was a big deal. When I first talked about how we were going to get 100 million downloads, everyone at the company thought I was crazy. Outside the company too. One-hundred million? Only Tetris had done that. Now it’s like a footnote.

Look at our Bad Piggies launch. We launched on the 27th [of September]. It’s been number one until now, when we bumped it down with Angry Birds Star Wars. The amazing launch is part of the Angry Birds universe — it piggybacks on that — but it’s off to a much faster start than Angry Birds. That’s also true for Amazing Alex. We have more downloads than we did for the original Angry Birds at this point. So everything is relative.

With Alex, we don’t have 100 million downloads yet, but we need to keep our history in mind. We made 51 games before Angry Birds. Not all of them were Angry Birds. On the one hand, we’re happy, but on the other hand, we’re always hungry for more. We need to keep that hunger.

We’ll continue doing more Angry Birds, more Bad Piggies, more Amazing Alex, more other things. If you look at Rovio, you could say Angry Birds is our Coke, but we’ll keep doing Sprite and Fanta. Angry Birds is our main brand, but it’s OK to do smaller things. Smaller for us can still be tens of millions.

GamesBeat: So what’s different about how Rovio can launch new titles?

Vesterbacka: We’re learning new things every day. At the same time, we’ve grown a bit. We’re now 500 people. With more people, that always introduces new challenges. But we’re happy with how fast we can move. If you look at last year, we launched one game, Angry Birds Rio. This year, we launched Angry Birds Space, Amazing Alex, Bad Piggies, and Angry Birds Star Wars. We had four big launches, and that’s just the games side. We’ve done tons on the animation side. Merchandising is seeing explosive growth. Everything is growing constantly.

GamesBeat: How do you keep this going? Media people are starting to like the angle of, “Well, this fad has to die out soon.”

Vesterbacka: Well, look at Mickey Mouse. Mickey Mouse has been around since 1928, and he seems to be still alive and kicking. Hello Kitty, since 1974. Mario, quite a while. Star Wars, 1977, still going strong. There’s always people who speculate about when we’ll do this or that thing. We’re not worried about it. It’s our job to keep it fresh. We’re working closely with Sanrio in Japan, the Hello Kitty guys, and now of course with Lucas. You could also have looked at Star Wars as a fad and argued it wasn’t going anywhere….

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The Skylanders series will join Call of Duty and World of Warcraft as one of publisher Activision’s billion-dollar franchises.

Activision has a history of popular games that combine the interactive medium with physical products. Skylanders does that with a line of toys that work with the game. The company’s Guitar Hero series coupled music titles with plastic instruments and led to a few years of phenomenal success. Many argue that Activision ran the music genre into the ground with yearly releases. That history led an analyst to question Skylander’s long-term potential during an investor call yesterday.

Activision Publishing chief executive Eric Hirshberg was adamant that Skylanders will be a part of the company’s portfolio for a long time.

“We have a pipeline already in development with spectacular innovation. We can continue to surprise and delight and exceed kids’ expectations,” said Hirshberg. ”This is the combination of two play patterns that have been healthy for a very long time. Games and toys have been healthy for a long time.”

Skylanders: Spyro’s Adventure and the newly released Skylanders Giants found huge success along with the line of toys that players can use in the game by placing them on the Portal of Power reading device. New innovations  may recapture the fickle attention-spans of children, but Hirshberg’s other point seems flawed.

The executive is suggesting that since toys and games have been around for a long time, a game like Skylanders that uses both should have sticking power. That makes sense, except music has been around longer than toys and that couldn’t save Guitar Hero.

Skylander fever is still raging for many gamers. Collecting all the toys and level packs released for Skylanders: Spyro’s Adventure can run you well over $300 at this point, yet parents and players all over the world are scrambling to get a full set of figures. That’s because despite the whimsical atmosphere and child-friendly design, Skylanders is a dungeon crawler, and a pretty addictive one at that.

Skylanders Giants maintains the epic quest foundations laid down in Spyro’s Adventure but deepens the gameplay through interactive environments and usable items. It feels much more like a measured introduction to Blizzard’s hack-n-slash Diablo series than its predecessor and gives players many more opportunities to customize their experiences.

What you’ll like

Level design
The first Skylanders game was very pretty, but many levels felt too short or too simple. Giants answers this by introducing sweeping, multistage worlds full of hidden pathways and tricky puzzles.

One of the biggest changes is that characters can now go inside of buildings. You never know what you’re going to find tucked away inside a house, and that adds so much to the depth of a level. You can easily overlook some of the legendary treasures or hats hidden in each level if you don’t explore every inch of the map.

Element-specific areas are also better designed. Rather than putting up a special gate that is often thematically inconsistent to everything else in the world, elemental areas now send up rocks, towers of gears, or vines to block Skylanders that aren’t allowed in.

Finding these areas are little more difficult than before, but it’s a lot more fun to stumble across a special zone and watch the path close in front of you until you select a corresponding character.

Compatibility
However profit-driven you believe Activision is, the company is smart enough to realize that forcing consumers to buy a whole new set of Skylanders toys to replace the ones they already have is a terrible plan. When you pick up Skylanders Giants, all of your current figures will work.

A whole new batch of toys is on the way, though, and a few of them won’t work with the older Spyro’s Adventure. But enough characters overlap that you won’t feel cheated.

What’s really great is that the separate adventure maps from the first game actually work on Giants. I was very surprised when I threw my pirate ship figure on the portal and actually got to play through the level again. You can even use the new Skylanders in these additional areas.

This will likely make a lot of parents very happy since the adventure maps were $25 a piece when they launched. Activision also has a handy Skylanders compatibility list on the game’s website.

Giants
The eight new giant Skylanders are massive, brawny monsters ripped out of Skyland’s history. They were the first heroes in the world and act a lot like titans out of Greek mythology.

Beyond their place in the story, stomping around as a massive and seemingly indestructible character is amazingly fun. They can perform new feats of strength, which means that they can throw piles of logs in the air or pull chained islands down so you can access the goodies on them.  They can even break through obstacles other Skylanders need cannons or bombs to destroy.

Giants are the perfect characters for less experienced players who want to smash everything in their paths but don’t think about conserving health. Giants have twice the hit points of other Skylanders and deal out a lot more damage, so they’re great for crowd control.

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Paul Reiche III is the president of Activision Blizzard’s Toys for Bob game studio. The company labored in obscurity for decades, but last year’s Skylanders: Spyro’s Adventure put Reiche’s team in the spotlight. The hybrid toy-game combination was the most successful new video game of 2011. It’s spurred the sales of 40 million Skylanders toys, and many of those are being used to activate characters in video games sold alongside the collectible figures. So far, Skylanders has been the top-selling game of the year for Activision.

Activision bought the studio in 2005, but it still runs as a separate entity in Novato, Calif. Now it’s working on Skylanders Giants, the sequel to the first Skylanders that’s coming out just a year after the last game. Here’s an edited transcript of our visit with Reiche on Tuesday at the company’s Tiki-style headquarters.

GamesBeat: You’ve turned Activision into a very large toy company. [Laughs]

Paul Reiche: Yeah, it’s amazing.

GamesBeat: It seems like that whole idea turned out to be very disruptive. How much of this do you think is great timing, or how much of it was your plan?

Reiche: Well, it’s a combination of those two. We were very intentional about what we tried to do, and we were pretty confident that the audience was going to like it. But a number of factors effectively magnified our success. There really wasn’t anything competing with us, both in the software and in the hardware realms. It was a slow time. Plus, it was a great idea, and Activision had RedOctane and the business that was built around Guitar Hero ready to support us. Luck is always a component of it, but you have to have everything else lined up. I feel fortunate, but we thought it was going to be pretty successful. I don’t think any of us believed it was going to be this successful.

GamesBeat: What sales numbers are the games and toys hitting?

Reiche: I’d have to double-check on what I’m allowed to say. I know that, toy-wise, we’re in excess of 40 million. I don’t know if I can say exactly where between 40 million and 50 million we are. Up until the day Black Ops II releases, we’ll be the number one Activision title this year. Then we’ll be the number two title this year. [Laughs] We always combine our toy revenue and our software revenue. We don’t distinguish that much. We saw a big pulse after Christmas, and then pulses when the toys would arrive, and we’d sell out. But it’s been a consistent seller.

GamesBeat: Is this in a class by itself, or are a lot of digital game/toy combinations doing well now?

Reiche: I don’t really know if there are. I have friends who’ve bought the cars that play on your iPad, the Appmates, and they like the idea. But the execution isn’t complete enough to make it feel magical. We don’t have any competition that we’re aware of yet. I had thought that this year, someone who’d seen us a year ago, before we released, would catch up. It’s a pretty hard task.

GamesBeat: The timing for the technology was right. If you’d had the idea five or 10 years earlier, the technology would have been too expensive to do it.

Reiche: That’s correct. It was a confluence of the technology getting incorporated into a bunch of subway cards and security cards. As those numbers escalated into the tens of millions around the world, prices dropped down. So the core electronics cost, both for the reader inside the portal and for the tags inside the toys, reached a price that we could incorporate into a consumer product. It’s just getting better.

Initially, Skylanders went through a cycle where we almost released it, and then we delayed by a year. That delay made a huge difference. The cost on read/write technology dropped. Initially, we were just using read technology. We could identify the toy, but we couldn’t write back to it. We had this difficult pairing in beta.

Then [the cost] dropped down. And RedOctane is also able to save us a bunch of money. We’re watching a lot of other technology now as it drops down. We want to make these toys magical going forward. There’s a ton of stuff we can do with that if other technologies drop in price.

GamesBeat: And it’s 100 people or so now working on Skylanders?

Reiche: Yeah. We’re expanding into the rest of this floor. We’ll be the entire top floor of this hangar. We’re going to expand with about 20 more permanent people here for the next project we’re working on. We still continue to work with Vicarious Visions and Beenox up in Canada. We work with other studios on aspects of Skylanders.

GamesBeat: How long have you been working on Skylanders?

Reiche: We’d been working on it for three and a half years. Two and a half years on Spyro’s Adventure and one year for Giants.

GamesBeat: I remember that, when you pitched it, Activision said “Run with it!” and you were kind of surprised.

Reiche: We spent a year and a half getting to that point. Bobby Kotick [Activision Blizzard chief executive] believes that Activision has a great capability [to succeed] on large opportunities and can really hit those hard. What he wanted to do was make Skylanders bigger so Activision could hit it harder. And so he asked us bluntly, “If I give you guys another year, can you make this a lot better?” It was just so funny to me. That’s usually, 99 times out of 100, the other way around. You ask the publisher for another year. I’ve never heard of it before, where the very top executives say, “Go spend more time.”

They provided us with resources for that year. I’m not trying to unnecessarily promote Activision, but when I say that it takes an Activision to pull something like this off, I mean it. To make the game and get all the toys developed took many, many tens of millions of dollars. That’s not something that many software developers can do. It’s also not something that many toy developers can do. They’re obviously not comfortable in the software world. Activision sits at a unique crossroads, where there’s only two or three other studios I can think of that could pull it off.

GamesBeat: Here’s a game that’s cross-platform and there’s toys in it. You think, “Wow, there’s great monetization possibilities here.” But that only works if you have a core value to the game that you can offer to the player, to the kids. How do you do some of that balancing where people understand that they’re going to have to buy the toys but get something out of it?

Reiche: While the business model does assume certain toy sales, the game has to be worth the money you pay for it if you don’t buy another toy. One of the things we did was to use that as a pillar. This is the first game where we composed concrete pillar statements and referred every decision back to them. One of them had to do with value, particularly compared to first-party games. That worked very well. Since we’d never done it before, and nobody had ever done it before, we had to set principles that we operated from. One of them was, “You don’t need more toys. But every one you buy gives you value.” What it required was that we make sure that each toy play experience was sufficiently different, not only in terms of the graphics and the effects but also in terms of how it played with other characters.

Also, the amount of time over which a character developed [in the game] was measured in excess of four hours, and hopefully more. We were looking at what the value of an $8 or $10 toy might be. We were really conservative. It turns out that people have much more than four hours, and that there’s value to the toys outside of the game. Kids are really enjoying them. So we said, “Let’s take a stab at guessing what the attach rate is going to be. Let’s make sure the game can be played with none, and that there’s a sweet spot at our attach rate.”

Then we continued to set milestones out to a ridiculous amount of toys and gave people continuous benefits all the way out there. It has to succeed in its initial starter-kit sets. And then no toy can rely on anything but itself to sell itself. Each toy has to have personality and value and shelf appeal. We’re asking people to do this new thing, to continue to spend money after they buy the game. In order to make that a reasonable request, we have to provide a lot of value.

GamesBeat: This is why you worked so hard on designing the toys first, getting the characters right, and then  finding a place for them in the game?

Reiche: That’s also why we make sure the gameplay duration is quite long. Skylanders and Skylanders 2 both are quite long for kids’ games. We needed to have a playground that was sufficiently large and expansive, and across a difficulty continuum, that it made sense to have eight or 10 toys in that world.

GamesBeat: Does it not work if you have 100 toys?

Reiche: It works for some people. We can monitor the graph of our players and the number of toys they’ve used. We don’t know who they are. But we can monitor that. There’s a pulse at eight, which is one per element, and then it decays down. Then we see a pulse at 32, which is really surprising. Some people are buying every toy. And then, at each multiple of 32, we saw peaks. What we’ve discovered is there’s a reasonable amount of the money we’re making from people who are buying a huge number of toys.

It’s an effect that’s well known in the toy-collecting world, but I had a hard time fathoming it until we did the math. We said to ourselves, “Wow. We need to support this group of people who are willing to spend such a large amount of money and time collecting those toys.” We couldn’t just say, “Well, our attach rate is six and therefore beyond that we’re not going to give you anything new.” We had to support that. That’s one of the reasons why we brought out the Series Two toys.

We wanted to make sure that there were options to buy toys that you may not have gotten the first year, and that if you wanted to buy a second version of a toy you liked, that there was some improvement. It was a really hard request to ask parents to buy the exact same toy twice. We needed to have some value there, so they would see that they not only got this cool new toy impression but that there’s a meaningful change in the game.

GamesBeat: How did you make the Giants game a better experience?

Reiche: One way is that we knew what we were doing the second time around. [Laughs] The story is more coherent. The last time, part of what we did was to tear apart all of our levels and resequence them. The story underwent these transformations. And it ended up as a fun story. But this time, we pretty much knew what we wanted to do from start to finish. There was much less starting and stopping. Alec Sokolow did most of the writing, or almost all of it, and we worked with Alec and Joel Cohen as consultants this time around, not as key writers. Having the narrative closer to the game allowed us to unify them more tightly. Also, taking over the other platforms, doing the 360 and the PS3 ourselves, allowed us to make the games more consistent across all platforms.

There was improved combat. That was a big deal. While the game isn’t entirely combat, at its core our guys are monster warriors. One of the things we did was to have the enemies react differently to giants compared to normal characters. There’s a meaningful change when you switch characters. The little guys will back away from you. Some of the enemies are much harder to deal with if you’re big, actually. There are cases where you’ll arrive at an enemy, and if you’re in giant form, all of a sudden you’ll realize you’re not maneuverable enough to deal with this guy. You’re going to have to switch to one of your normal Skylanders.

Our levels are longer this time around. There’s more playtime. We also added the difficulty levels. While that may seem trivial, it added a lot to our experience with the game. Once you start messing with difficulty, a lot of the detail in the characters starts to emerge. You have to start relying on the difference between distance attacks and short-range attacks. When your character takes some damage, you need to pull him off right away and get somebody else in.

GamesBeat: You have 10 months to do this one. What’s it feel like to be on the Call of Duty cycle? [Laughs]

Reiche: The game worked out better than I thought it would. I know my staff, and they’re very talented. They like to sprint. But we had just sprinted for a year already. I had concerns. We really wanted to make sure that we delivered value when we asked people to spend money again. I have to credit my guys here. The moment we were done with Skylanders, we were running as hard as we could. We couldn’t overreach in that period of time, or we’d have a bunch of half-baked ideas. We tried to focus it down onto things that would reinforce the narrative of Giants.

One of the things we did that I think drove some people crazy, though, is that we didn’t stop adding new features until we shipped. We knew that there was a risk-reward equation involved. If we dialed down expectations too low, we wouldn’t deliver value beyond Skylanders. But we really risked introducing bugs at the end, so we required an expanded test staff to make sure we didn’t introduce anything bad. Fortunately, my guys know their engine, and they know what they can do. Things worked out well.

GamesBeat: And now you’re ready to do one every year?

Reiche: You know what? I would like us to do what Activision’s doing with Call of Duty and have two teams that leapfrog each other, so we have two years to deliver on innovation. Not only do you need to innovate in toys, but we’re going through a console transition now, and it’s not an obvious one. I don’t know what’s going to happen.

The whole cloud gaming thing is interesting. It seems like something that should work, to me. It’s not obvious yet, but if you imagine, for example, turning on your Samsung smart TV, and there’s a place for Skylanders on that screen. Just plug the portal in the side and play. Having a direct relationship with the consumer like that would be very powerful. But that’s a big risk. You now have platforms that are stronger. At minimum, the Wii U is stronger than the Wii by enough that we can approach the [existing console] platforms similarly. But then soon enough we’re going to have these more powerful platforms.

The question is, does our audience care? How important is toy innovation versus narrative versus high-tech graphics features? We know what you need to do to succeed in the first-person shooter market. But kids aren’t the same. They value things differently. Their parents value things differently, too. Making sure that we spend our time and energy innovating in the right space is a big challenge, and not an obvious one.

GamesBeat: The capability to buy the toy directly within the Kindle Fire tablet game is pretty interesting.

Reiche: It is. We talked about that for a long time. It’s an interesting experiment. In a way, we can’t make buying the toys too easy, or at least we run a risk. If you can snap your fingers and buy everything all at once, then that thrill of the chase is lost. They’re moderating that with the Kindle deal. It’s very interesting. There’s a cycle of toys that become available. I’m curious to see how that works out.

Some people have asked, “Well, now that this is successful, could you get rid of the toys and just make the game?” I have to shake my head and say, “Without toys there is no game.” This is that connection.

The development we’re making now is we’re looking at our new technologies. It’s as much an advance as what Skylanders was. With a longer schedule, we’re able to spend more time innovating, and time has elapsed, so technologies that weren’t cost-effective last year now are. Unfortunately, it’s going to be a while before we can show it to you, but there’s some cool stuff going on.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Paul Yan has to take Skylanders toys  and bring them to life as moving, 3D digital characters in video games. The animation director at Activision Blizzard‘s Toys for Bob game studio in Novato, Calif., recently showed us how it’s done.

The process is a complicated one, but it includes some old-fashioned stop-motion photography in addition to advanced computer modeling techniques. But it’s worth it, since consumers have purchased over 40 million of the Skylanders Spryo’s Adventure toys and several million copies of the the video games as well.

“Skylanders is an animators dream,” Yan said in an interview with GamesBeat. It has dozens of characters and they’re all far different from the typical space marines that video game artists have come to love and hate.

At Toys for Bob, the team creates a toy first, figuring out how it is unique and what makes it into a fun character for kids to play with.

They start with simple sketches. But once they have a good idea of what they’re doing, the artists can create the toy in a 3D computer program and then print it out using a 3D sculpture printer. They can adjust the pose of the character  (like Trigger Happy above from the original Skylanders: Spyro’s Adventure) and then print another toy sculpture, and keep on doing that until they have a whole set of figures. They can do that for every pose in an animation sequence and then capture the movement of the character on film. Then they can take the film and use it as the basis for animations for the final character to be used in the video game.

“There are so many different characters and body types,” he said. “Every single character has a unique personality and we have to do a lot of custom work to make them work.”

The task of creating the art for the characters is huge, taking months or years. Yan keeps pictures that show off the capabilities of each character on his wall. Each picture shows something unique that the character can do.

The team created all of the animations for the Skylanders Giants game in just 10 months.

“It’s all painstaking, but it’s all hand-crafted,” Yan said. “That’s the goal. The end result justifies it all.”

Here’s the video interview with Yan below:

Bringing Skylanders Giants toy characters to life from Dean Takahashi on Vimeo.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Nintendo wants to make the newly renamed Wii U Gamepad the center of your living room. Not only will the tablet-like controller be used to manipulate your games, but it will include a “TV” button which will make the device act as your cable box’s remote, even when the Wii U is turned off.

Previously, we noted that it looked like the Japanese-based corporation had made some revisions to its controller hardware. That is confirmed. On the left side of the Gamepad is a near-field-communication reader/writer tab. Users can swipe NFC-enabled items near the remote to activate wireless communication. Activision’s platformer Skylanders: Spyro’s Adventure used this technology to allow real-world toys to be placed in the game by setting them on “The Portal of Power” which was a NFC device that plugged into consoles via USB. Skylanders was a huge financial success mainly due to the merchandise sales. Nintendo likely hopes to implement a similar strategy by making the whole process easier with its built in NFC reader.

The company’s president, Satoru Iwata, unveiled the additional details about the Gamepad during a special pre-Electronic Entertainment Expo video that aired on Nintendo’s official website. Other news from the video includes details about Nintendo’s Miiverse online service and the Wii U Pro Controller. The presentation was sparse on new games, although the image at the top of this article looks like it may have a fuzzy image of a new Pikmin title on the TV in the background.

Iwata confirmed the Gamepad will use IR technology to speak with big screens and cable boxes, so it should be able to work with anything in your living room.

The Wii U is expected to launch this fall. We’ll have more information including a hands-on impression this week. Be sure to follow all of our coverage here.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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With Skylanders, Activision Blizzard has another big hit series on its hands. And it’s bigger than Angry Birds. Looks like their massive gamble paid off.

In a conference call today, Eric Hirshberg, CEO of the Activision Publishing division, made a surprisingly direct statement on the success of Skylanders, the new toy/video game hybrid for consoles and iOS devices. With 30 million toys sold and $100 million in revenue across toys and games in the quarter, said Hirshberg, Skylanders made more money than the entire business of Rovio’s Angry Birds franchise. Rovio announced today that Angry Birds has been downloaded more than 1 billion times, across both free and paid versions.

In a press release earlier today, Activison said that in North America and Europe, including accessory packs and figures, Skylanders: Spyro’s Adventure was the No. 3 best-selling game overall in dollars across all platforms for the first quarter of 2012 and the number 1 selling kids’ title in dollars in the quarter.

Hirshberg noted that he could not comment on the split in revenue in toys versus video games. He also stated that while Skylanders did have some early issues with high demand and low supply, the company has increased capacity as of now and has made plans for a higher demand come the holiday season. The publisher has not made any decisions on changing prices for the coming year.

The numbers were further bolstered by the release of Skylanders Cloud Patrol, a game based on the franchise for iPhone, iPod touch, and iPad users that features the Skylander characters as well as the ability to type in web codes to redeem and collect new characters in the game. Activision is also looking forward to Skylanders Giants, an expansion that will include larger scale toy characters and new gameplay.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Here are some of the stories that ran on GamesBeat this week. We’re running more articles exclusively in the GamesBeat section of VentureBeat, particularly when they’re mainly of interest to our game readers. The broader-interest posts will continue to run on VentureBeat as well. Please visit the GamesBeat section to catch up on the latest game news. We’re ramping up our game coverage, so you’ll find a larger amount of deeper news at GamesBeat.

Here are the best stories that appeared exclusively on GamesBeat this week:

Anomaly: Warzone Earth successfully reverses tower defense (review)

Game of Thrones painstakingly recreated in Minecraft (video)

Shadowrun Returns Kickstarter surpasses $400k goal—Mac version coming, too

Borderlands 2: Four potential problems (and what the developers are doing about them)

Kingdom Hearts boosts 3DS in Japan while PS Vita lags

Multiplayer beta details for Tom Clancy’s Ghost Recon: Future Soldier

Stung by fans, EA/BioWare will create new content to clarify ending of Mass Effect 3

Seasoned developer MunkyFun launches Bounty Bots on iOS (exclusive)

Pokemon Conquest gets a Summer release in US (gallery)

Game publisher Electronic Arts is voted the “Worst Company in America”

League for Gamers takes stand against warning-labels on games (exclusive)

Porn network Brazzers will sponsor a pro fighting-game team

Kinect Star Wars fails to live up to its potential (review)

Wii U reportedly launching on November 18 in North America

A sick April Fools message from Batman: Arkham City’s Calendar Man

Xenoblade Chronicles redeems the Xeno name (review)

Rovio to launch Angry Birds cartoon series this fall

And here are some of the big game stories of the week:

The DeanBeat: How developers can avoid a bloodbath in fighting for new users

Retro revival: PC games raise $6.7M and counting in Kickstarter campaigns

Major tech and gaming companies unite to purge sex offenders from online games

Kontagent launches its kSuite DataMine analytics tool for monetizing mobile games

Final Fantasy characters showcase Prada’s 2012 collection

Activision embraces freemium monetization strategies with Skylanders Cloud Patrol for iOS

TwitchTV launches iPad and Android apps to stream game tournaments

Draw Something hits mobile game record as it passes 50M downloads

Ghost Recon Commander will be a “gamer’s game” on Facebook

BigDoor raises $5M for gamification platform

The Tap Lab raises $550K to fund location-based mobile games

Israel’s Dragonplay raises $14M for free-to-play mobile social games

Can we panic now? — Core gaming has a problem

OMGPOP CEO tweets that only employee not to transition to Zynga was the “weakest” one (UPDATED)

After 17 years, Sony closes SOCOM studio Zipper Interactive — with a tweet

GamesBeat 2012 is VentureBeat’s fourth annual conference on disruption in the video game market. This year we’re calling on speakers from the hottest mobile, social, PC, and console companies to debate new ways to stay on pace with changing consumer tastes and platforms. Join 500+ execs, investors, analysts, entrepreneurs, and press as we explore the gaming industry’s latest trends and newest monetization opportunities. The event takes place July 10-11 in San Francisco, and you can get your early-bird tickets here.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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The new app signals a major departure for the company, which has always focused on selling paid games rather than giving them away for free. It shows that the world’s largest video game publisher is embracing change when it comes to new business models in the era of mobile games. It is now taking the No. 1 new kids game of 2011 and moving it onto a platform where content can be given away for free.

“It is Activision’s first ever freemium, microtransaction game,” said Greg Canessa, vice president of mobile at Activision Publishing. “It is a part of a larger strategy and a significant move. You’ll see more of this to come. Activision as a company is looking at this space very carefully.”

The game costs 99 cents, with no free version, but it features the ability to purchase additional goods during the course of gameplay. Other free-to-play vendors usually make a free version to entice players to buy the full version. So for now, this is free-to-play without the free part, but it capitalizes on the strategies of free-to-play games. For instance, in a twist on freemium, you can purchase Skylanders content on one platform and use it for no extra charge on the iOS platform.

The arcade-like shooting game is based on the Skylanders Spyro’s Adventure franchise that Activision Publishing launched with great success in the fall, with more than 25 million toys sold. In console or computer games, the Skylanders series has integrated a line of action toys with interactive entertainment. Kids can plug a Skylanders portal into a game console then set their toy character on top of the portal, and it would magically appear inside the video game. After finishing playing, the child can take the figure off the portal and take a save file and character with them wherever they go.

The great promise of the family-oriented Skylanders is that you can take the same toy and game across a bunch of different platforms. That now includes the iPhone, iPad and iPod Touch devices, too. More than 30 characters from Skylanders Spyro’s Adventure will work in the Skylanders Cloud Patrol game. If you bought one of the toy characters, you can enter the serial number of the action figure and unlock that character in the new game. Otherwise, you will have to use some of your virtual currency, gems, to unlock the character. And these cost real money. You also can earn coins in the game, and those can be used for power-ups.

While iOS may not generate as much revenue as the console or PC game, this is an important move that will enable players to become familiar with the brand for a much lower price.

The developer designed the game itself to be a brand new experience, Canessa said. It is set in a new region of Skylands, known as Kaos, that the evil minions of Portal Master have overrun. You take command of a sky-ship and use your favorite Skylander character to fight the bad guys. You control the game with touch gestures, such as tap-and-shoot or swipe.

“It’s a very casual game and conducive to the iOS audience,” Canessa said. “You’re either touching or swiping as you try to defeat the trolls.”

Activision created incentives for you to swap out Skylanders and use them all in the course of the game. There’s a daily challenge where you can use a certain Skylander to get double experience points. The idea is to get users to re-engage with the game frequently.

Cloud Patrol has social features, such as Game Center leaderboards and achievements, as well as a 3D character view that allows players to browse through their entire collection of avatars. The game has randomized levels for virtually endless play.

Vicarious Visions, a 20-year-old Activision studio based in Menands, N.Y., developed the game. More improvements will come in the future, including ways to make the interaction between toy and mobile devices more “magical,” Canessa said. The team supporting Cloud Patrol is doing so as a live operation, meaning they will continuously update the app over time. The game is instrumented with metrics so that Activision can learn how to improve it.

While the company is entering a crowded mobile market with more than 500,000 active apps in the App Store, it is banking on getting noticed because of the well-known brand, its own marketing around the Skylanders property, the innovative integration with toys, and the investment in gameplay, Canessa said.

Activision has had other iOS games before such as its Call of Duty Zombies and World at War Zombies games. But those were paid apps, which are rapidly becoming a rare commodity on the App Store as free-to-play takes over.

“We are pretty excited about this,” Canessa said. “We are students of the very rapidly evolving mobile space.”

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Eric Hirshberg was an experiment when Activision Blizzard‘s chief executive hired Hirshberg as CEO of the Activision Publishing division about 18 months ago. Hirshberg was an art-school graduate who rose through the ranks of the creative side of advertising and eventually became CEO of billion-dollar ad agency Deutsch LA. Most video game CEOs rise through the ranks of finance or game development. But Hirshberg was a lot more comfortable with a paint brush in his hands than a spreadsheet. But under Hirshberg, Activision Publishing has launched some of its most successful games in history, including Call of Duty: Black Ops and Call of Duty: Modern Warfare 3. At the DICE Summit in Las Vegas, Hirshberg talked about the experiment of an advertising creative person rising to the top of one of the world’s biggest video game companies.

The marketing campaigns for those games helped them rise above hardcore gaming enthusiasts to mass audiences. Under the tag line, “there’s a soldier in all of us,” Black Ops commercials billed the game as one that any weekend warrior could play. The Modern Warfare 3 TV commercials promoted the  game as playable by both veterans and newcomers, or “noobs.” These ads showed that creative marketing could elevate a game to the level of a cultural phenomenon. Modern Warfare 3 generated more than $1 billion in revenue in its first 16 days on sale, and Call of Duty had 40 million monthly active users in 2011.

Hirshberg said that, based on his background, he believes that great video games are not products. They’re brands. While people buy products, they “buy into brands,” he said. That is what Activision was counting on when it decided to launch Call of Duty Elite, a social network for hardcore Call of Duty fans. It was an attempt to keep gamers engaged in the product year round, rather than just for a few weeks a year. The tough sell was that Activision wanted to offer a premium version of Elite for the hardcore fans. The hint of the subscription fee caused a fan revolt by bloggers such as Neils Hansen (pictured on screen), of the Gunn Shop report.

After a summer of criticism, Activision threw a fan appreciation event, Call of Duty XP, where it announced the fee for the premium version of Elite would be $4.99 a month, which was a bargain considering subscribers would get free access to content such as map packs that would ordinarily cost more than $60 a year. After that, bloggers such as Hansen decided that Elite wasn’t a “douche move” after all. Call of Duty Elite got more than 7 million subscribers, including 1.5 million who paid, making it one of the fastest-growing premium subscription services ever.

We sat down and talked with Hirshberg after his DICE talk. Here’s an edited transcript of our exclusive interview.

Gamesbeat: I didn’t quite connect all the dots in the talk. What turned around bloggers like Hansen in particular? The bloggers turned around on Elite because…?

Eric Hirshberg: What I described was, the first impression we made was during the beta. We told people who there was going to be a paid subscription part of the service, but we didn’t tell them about everything you were going to get, because we didn’t want to talk about things that we couldn’t yet show. It was a no-good-options situation. What turned them around was when we got to Call of Duty XP. We got the chance to finally show Elite and all of its features working in the game, and tell everybody what they were going to get. So once he heard the whole list, it turned him around.

GB: He seemed to latch on to the value proposition.

EH: Yeah.

GB: It was as if $60 for four different content drops, or $4.99 a month, and I get the maps for less money than I would otherwise spend during the year. So the value proposition is what sold him. Everybody’s going to come around to the value of that deal at some point, right? But is there also something more that you guys accomplished there, where you convinced them to go from, say, buying one product a year, to staying with it for the whole year?

EH: Well, if you rewatch the video, he did latch on to the value proposition, but he also talked about all the other services that we’re baking into Elite. It was way beyond just what other services were offering. So yeah, I think that the value of the product and the vision of the product won people over. The story was really about how we had to make this Sophie’s Choice between doing the beta and making the best possible first impression. We couldn’t do both.

GB: I guess the experience of creating the brand and promoting the experience seems to help with this message. The task you wanted to do was convert from product-only purchases to year-round engagement, I guess?

EH: As I said, I think both Call of Duty Elite and Call of Duty XP, if looked at through a certain lens, are sort of experiments with how willing people are to enter into a real relationship with a game that they like. To think of it differently than something you buy once a year, to think of it more as something you do all year round. Or do, in the case of XP, as a sort of lifestyle piece of entertainment. So I think that both of them show a greater potential than people might assume that games have, to become those kinds of brands in people’s lives.

GB: Is this a case of the games industry hasn’t come to truly realize this yet? That games are brands, that they’re not just products?

EH: I don’t know that it’s the games industry hasn’t come to realize it so much as, it’s almost very emblematic of how all entertainment industries promote their products. But as I said in my comments, games are different, because they’re not disposable, they’re not one-time. They really are relationships. The way you interact with a game has much more in common with the way you interact with a sport that you love, or a hobby that you love, that’s ongoing and long-lasting, than with how you watch a movie. Which you do for two hours and then you move on. So I think all we’re trying to do is look at that behavior and change the way we talk to people about games.

GB: It makes sense, that (game industry) people should start thinking this way, especially if they’ve figured out what their powerful properties are. That seems to explain all of Activision’s behavior for the last few years, focusing on the brands that are really the hottest.

EH: Well, not just the hottest properties. I got a lot of questions in the run-up to Skylanders: Spyro’s Adventure about why we were choosing to enter the kids category when others were exiting it. When the strength of the Wii sales were slowing down. There were a lot of reasons that, if you just looked at them on a spreadsheet, you would think that might not be a great idea. But the magic of the idea doesn’t fit on a spreadsheet. Where Activision has chosen to make the big investments and take the big risks are the places where we feel that we have something special to contribute and something that sets our game apart. In the case of Call of Duty, I think it’s the strength of the brand itself, and the strength of the developers behind it. In the case of Skylanders it was the idea of toys coming to life. In the case of Bungie, it’s the strength of that developer. In the case of Call of Duty Elite, it was the behavior of our gamers — the fact that they were sticking around all year and buying up every piece of downloadable content (DLC) we could release. We had the resources to make a really big investment, to try something new. So we definitely have a strategy not to just compete in every category, just because we don’t compete there, but to only compete where we feel like we have something special to bring to the party.

GB: And if people buy into a brand, that becomes just more valuable, and you can extract more value from it?

EH: It’s a matter of a shift in mindset. People don’t have any problem thinking about products in other sectors this way. I don’t think anyone would say that when you buy an Apple product, you’re just buying a piece of consumer electronics. You’re also buying a little bit of the Apple belief system, an emblem of your creativity, your design aesthetic. Same with Nike shoes or different soft drinks or beers. There are all kinds of brands that have meaning beyond the product in other categories. That hasn’t been historically true of games, but I think it can be, and some of the work we’ve done on Call of Duty and some of the approaches we took on Skylanders show that.

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That includes both free and paid memberships, and it represents a sizable chunk of the overall numbers of consumers who bought the game. About 1.5 million of those users have chosen to pay $4.99 a month for the privilege of getting the latest content for titles such as Call of Duty: Modern Warfare 3, which was the biggest-selling game of 2011. A subscription to Elite costs less per year than getting all of the downloadable content coming over the next nine months at full price.

Digital revenues, such as downloadable content or the social network subscriptions, added up to $1.6 billion for all of 2011. That was more than 34 percent of the Santa Monica, Calif.-based company’s revenues for all of 2011.

Call of Duty: Modern Warfare 3 players have logged more than 639 million hours of game time through Dec. 31. The total number of unique online gamers playing the game was 12 percent greater than the number for last year’s Call of Duty: Black Ops. (I’m one of those Modern Warfare 3 players, with a ranking of 71, or Major General II, on multiplayer).

Eric Hirshberg, chief executive of Activision Publishing, said in an analyst conference call, “We have grown the Call of Duty franchise every year for the past eight years.” Modern Warfare 3, Black Ops, and Modern Warfare 2 are the top three most-played games on Microsoft’s Xbox Live online gaming service for the Xbox 360.

Hirshberg said that a new Call of Duty game will debut in 2012, repeating a pattern that has taken place every year in recent history. There are 40 million monthly active Call of Duty users, with more than 20 million for Modern Warfare 3 alone. Call of Duty China will also launch sometime soon.

Meanwhile, the company ‘s new Skylanders: Spyro’s Adventure hybrid toy-game was a big success, with more than 20 million toys sold. Skylanders has more than 1 million registered users for the online version. A new version called Skylanders Giants is coming this year.

Bobby Kotick, chief executive of Activision Blizzard, said in an analyst conference call  that World of Warcraft continues to maintain its status as the No. 1 MMO in spite of EA’s heavily promoted launch of the Star Wars game on Dec. 20.

The Santa Monica, Calif.-based company is the largest independent publisher of video games, buoyed by franchises such as Call of Duty: Modern Warfare 3, World of Warcraft, and its new hybrid toy-game Skylanders: Spyro’s Adventure.

Activision Blizzard plans to strike back against EA and rivals such as Trion World’s Rift by launching a new expansion for World of Warcraft, dubbed Mists of Pandaria.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Citing NPD Group data, Activision says Spyro’s Adventure was the most successful kids’ IP launch last year. It became a Top 10 seller in North America and generated the greatest overall single-year sales, inclusive of software and accessories, of any new children’s IP.

By any account, Skylanders was a massive bet on a new entertainment property that combined technology innovation, toys, and video games in a creative way. It turned out to be the biggest bet that Activision made in the video game business last year on a brand new property.

“Skylanders Spyro’s Adventure’s success in 2011 validated an exciting idea — that with the right technology, and the creative minds to support it with engaging characters and story, we could define a new model for children’s play,” said Activision CEO Eric Hirshberg.

Skylanders Giants will mark the evolution of this core concept, Hirshberg says. It will feature eight new collectible figurines that will be twice the size of the original Skylanders, both physically and virtually. Some of them will include a new integrated light technology that will cause them to light up when near or on the game’s “Portal of Power” peripheral. The latest installment of the franchise will also feature an all-new story-driven adventure and advanced integration across console, handheld, mobile, and online.

Fans of Spyro’s Adventure will also be happy to know that their characters will be 100 percent compatible with Giants and will keep their leveled-up stats and customizations.

Retailer Toys”R”Us says it will continue to support the Skylanders franchise with a comprehensive, global marketing program. “While it was still in development, we recognized the potential that Skylanders had to connect with our customers due to its unique merging of physical and digital play,” said  Toys”R”Us Chairman and CEO Jerry Storch. “The game was an enormous success last holiday shopping season, and the toys seem to evaporate as soon as they arrive on our store shelves.”

Skylanders Giants is being developed by Toys For Bob, an Activision studio located in Novato, California. Toys For Bob previously spent 2.5 years toiling on a brand new cross-platform video game that married the world of collectible toys with video games through a unique wireless technology that beams data back and forth between the toy and the game.

The idea of melding toys and video games wasn’t new. Toy companies created titles such as U.B. Funkeys that also came with toys. But doing a good job with a very ambitious game is rare. And tying together the products in the way that Activision Blizzard has done is unprecedented. Toys For Bob was able to move forward only because it knew that it could handle the task of making a high-quality video game.

The project took shape a few years ago as Activision Blizzard was pruning back on its investments. Reiche and Fred Ford started Toys For Bob in 1989 and they built a number of video games. Activision bought the company in 2005 and gave it responsibility for developing the Spyro game franchise.

But then Activision Blizzard killed off a lot of game properties so that it could invest more heavily in the really big ideas. Of the top 20 games, only the top five were really selling well. That meant that there was no point in creating a game that might be ranked No. 20.

As the idea moved up the executive chain, it became bigger and bigger. Toys For Bob built up its team for the Wii game to more than 100 developers. Another 100 developers from other Activision Blizzard studios also helped out. Vicarious Visions made the Nintendo 3DS version and Frima built the web, iPad, and iPhone versions.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Not only are family games simple for all to enjoy, in recent years some of the world’s most recognizable brands have gotten in on the fun. While that doesn’t always spell success in the video game world, 2011 has seen the likes of Sesame Street and Disney get in on the fun with some worthwhile family titles of their own. Which are the ten best of the year that was? Here’s our definitive list.

Kinect Disneyland Adventures
Developer: Frontier Developments/Disney Interactive Studios
Publisher: Microsoft
Platform: Xbox 360 (Kinect)
Release Date: November 15

If you’ve never taken your kids to Disneyland or never had the chance to go yourself, Kinect Disneyland Adventures is the game for you. It’s structured to deliver similar experiences to what you’ll find in the park itself, but without those annoyingly long lines. Many of the rides that you know (or at least have heard of) are represented in virtual form as mini-games for one or two players. When you’re not racing through Splash Mountain you can take some time to visit with one of the many hallmark Disney characters wandering around the park. Using the Kinect camera sensor you can take pictures with Mickey, Goofy and the gang and interact with them with some pretty interesting ways. All while never leaving the safety confines of the living room. Not only does Kinect Disneyland Adventures deliver the sights and sounds of the park, it truly captures the spirit of Disney while also delivering fun and simple game play mechanics for players of all ages. See VentureBeat’s review.

Sesame Street: Once Upon a Monster
Developer: Double Fine Studios
Publisher: Warner Bros. Interactive
Platform: Xbox 360 (Kinect)
Release Date: October 11

Few franchises are more identifiable in the eyes of children than Sesame Street and no game has captured the essence of those lovable furry character in the way that Double Fine managed. The game’s Creative Director, Tim Schafer, is more known for sculpting original off-the-wall characters and eccentric worlds, but Once Upon A Monster showcases the talents of Schafer’s development studio in a slightly different light. With plenty of mini-games that utilize the Kinect camera sensor in simple, intuitive ways, there’s plenty for the whole family to play together. See our interview with Schafer and co-creator Nathan Martz.

LittleBigPlanet 2
Developer: Media Molecule
Publisher: Sony Computer Entertainment
Platform: PlayStation 3
Release Date: January 18

One of the very best in family gaming came to us very early in 2011 in the form of Media Molecule’s sequel to one of the best PlayStation 3 games of all time. Thankfully, LittleBigPlanet 2 did not disappoint as Sackboy’s second adventure delivers a more fully featured bag of tricks. While players can still hop into the game’s lovable story mode and play through Mario-style levels, expertly crafted by the developers, what truly sets LittleBigPlanet 2 apart is its creation mode. It’s extremely rare for a game to deliver both accessible action as well as the ability to exercise one’s creativity. With the creation mode people can cobble together levels and even entire games of their own, then upload them for others to check out. While youngsters might find the abundance of creative options daunting, sitting down with them and watching their amazement as ideas from their mind turn into a (virtual) reality on the screen is a great way to pass the time this holiday season.

Dance Central 2
Developer: Harmonix
Publisher: Microsoft
Platform: Xbox 360 (Kinect)
Release Date: October 25

While dancing like a fool in your living room might sound like more of an embarrassment than a way to enjoy some time with the rest of the family, Dance Central 2 does a great of making you feel like a superstar, no matter how red your cheeks get. The second game in the promising series from the development studio that brought the world the original Guitar Hero and Rock Band has plenty for both veterans and newcomers. For starters, the series gets its first simultaneous multiplayer mode so two people can hop into the action and dance cooperatively or in a head-to-head dance battle. And if you’re not so confident in your moves on the dance floor, never fear, Dance Central 2 has a great teaching mode called Break It Down that will have you busting a groove in no time.

Just Dance 3
Developer: Ubisoft Paris
Publisher: Ubisoft
Platform: Wii
Release Date: October 7

Not to be left out of the dance party, Just Dance 3 on Wii delivers some wonderful game play for up to four players, provided you have the requisite number of Wii Remotes and Nunchuks. The third game in the series follow the standard set by the first two entries as players swing their controllers around their body, keeping the beat and following the on-screen cues to more than 40 tunes that span a solid breadth of genres. Not only will Just Dance 3 improve your abilities on the dance floor, but it also presents players with a new Just Sweat exercise mode to help fight the turkey, pumpkin pie and egg nog that inevitably come with the holiday season.

Kinect Sports Season 2
Developer: Rare/BigPark
Publisher: Microsoft
Platform: Xbox 360 (Kinect)
Release Date: October 25

While not quite as well received by critics as the first entry in the series that was released alongside Kinect last year, Kinect Sports Season 2 still brings plenty of fun for the family to enjoy together. Six sports are aptly represented. There’s golf, tennis, American football, darts, skiing, and baseball. All of them feature accurate motion controls thanks to the Kinect camera sensor and up to four players can take part in the fun. Some sports – like football, baseball and tennis – are slightly more enjoyable than the other activities, but that doesn’t mean the other parts of the package won’t bring enjoyment to you and the little ones alike. VentureBeat’s review here.

Fruit Ninja Kinect
Developer: Halfbrick Studios
Publisher: Halfbrick Studios
Platform: Xbox 360 (Kinect)
Release Date: August 10

One of the greatest games on iPhone and iPad made its way to Xbox Live Arcade earlier this year. For ten bucks you get a familiar experience, but instead of a touch-screen and using your finger to break apart all of the fruit on-screen you’ll be flailing your arms around as the Kinect camera sensor tracks your every move. Not only do you get the standard challenge mode, but there’s also a party mode where two players can work either cooperatively or competitively. Fruit Ninja Kinect may not be the longest of the ten games on our list, but there’s no arguing with the fact that it’s both instantly accessible and immediately fun for gamers of any age.

Skylanders: Spyro’s Adventure
Developer: Toys for Bob/XPEC
Publisher: Activision Blizzard
Platform: Xbox 360, PlayStation 3, Wii
Release Date: October 16

While video games and toy action figures are a common pairing in the minds of most children, but never before had they appeared in quite the same manner as in Skylanders. Players are able to scan different action figures directly into the game, perform missions in the story mode (either solo or with a co-op partner), and then take those action figures to a friend’s house and put them into their version of the game. Cooler still is the fact that characters can be ported into any version of Skylanders, regardless of platform. The price tag of $70 is undoubtedly steep for a title that will be enjoyed mainly by children, but being able to live out the fantasy of putting physical action figures into a virtual world and trade them with other kids in the neighborhood just might be worth the cost. See VentureBeat’s story on the making of the game.

Cars 2
Developer: Avalanche Software
Publisher: Disney Interactive Studios
Platform: PlayStation 3
Release Date: June 21

Movie franchises and video games typically don’t mesh well together with most virtual representations of the silver screen being relegated to the bargain bin of a video game store within a few weeks of release. Thankfully Cars 2 is a good example of how to leverage a Hollywood property while still delivering worthwhile game play. Those who’ve experienced the joys of playing Mario Kart with the family will feel right at home here with cute characters, fast action, power-ups and more right at their fingertips. Not only that, but the PlayStation 3 version is the only edition of the game that will allow up to four players to play in split-screen mode while taking full advantage of that swanky new 3D TV you bought during the holiday season.

Nintendogs + Cats
Developer: Nintendo
Publisher: Nintendo
Platform: Nintendo 3DS
Release Date: March 27

There’s no doubt that this sequel to a Nintendo DS classic doesn’t reinvent the wheel when it comes to innovating on the game play of the original, but it still excels in being a fantastic time waster for kids. Kids are charged with caring for their virtual pets and competing goals every so often. It’s not the most difficult game in the world and is instead more about playing with the cute and cuddly animals represented on-screen. So maybe this isn’t the best game for the whole family, but you’d be hard-pressed to find something more appropriate for young children during those long, trying family road trips.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Bring your toys to life. That was the big idea that drove Activision Blizzard and its game studio Toys for Bob to place a huge bet on a new idea: A massively cross-platform videogame that’s tightly integrated with collectible real-world toys.

That kind of risk-taking is especially unusual in a video game industry that is drowning with clones and sequels. And it represents a huge risk for Activision.

Based in Novato, Calif., Toys For Bob spent 2.5 years toiling on a brand new cross-platform video game that married the world of collectible toys with video games through a unique wireless technology that beams data back and forth between the toy and the game.

The result is Skylanders: Spyro’s Adventure, which will debut on Oct. 16 on the Nintendo Wii, Xbox 360, PlayStation 3, PC, 3DS, the web, the iPad and the iPhone. This kind of multiplatform launch with a new technology is almost as big as launching a giant new game franchise or a new console.

Paul Reiche, head of Toys For Bob, said in an interview that team knew what kinds of risks it was taking, but it decided to step up to the challenge anyway. The story of how they did so says a lot about how to innovate in an industry with so much prior art and risk aversion.

Asked if Skylanders was as big a bet as a Call of Duty game, Rieche (pictured) replied, “Fair enough.” He added, “There were many points where we suggested something very radical. There is an unfair perception that (parent company) Activision Blizzard is risk averse. This shows that when there is a good opportunity, they go for it.”

The idea of melding toys and video games isn’t new. Toy companies created titles such as U.B. Funkeys that also came with toys. But doing a good job with a very ambitious game is rare. And tying together the products in the way that Activision Blizzard has done is unprecedented. Toys For Bob was able to move forward only because it knew that it could handle the task of making a high-quality video game.

The project took shape a few years ago as Activision Blizzard was pruning back on its investments. Reiche and Fred Ford started Toys For Bob in 1989 and they built a number of video games. Activision bought the company in 2005 and gave it responsibility for developing the Spyro game franchise.

But then Activision Blizzard killed off a lot of game properties so that it could invest more heavily in the really big ideas. Of the top 20 games, only the top five were really selling well. That meant that there was no point in creating a game that might be ranked No. 20.

“That was the way the whole industry was moving,” Reiche said. “They said they wanted us to reinvent Spyro and the game he appears in. They said they needed something entirely new to generate the return on investment that Activision needed to be competitive.”

So Reiche’s team began toying with toys. They explored how to create toys that could be used directly in games. One of the team’s developers, Robert Leyland, experimented with wireless technology and found something that would work fast. So when you set a toy on an electronic “portal,” the data stored in the toy’s flash memory could be instantly transferred wirelessly into the console and then into the game world.

That way, a toy character could be inserted into the game world simply by placing it onto the surface of a portal. The toy could glow upon contact. RO Design, a technology arm inside Activision, helped with the design of the hardware. They added touches such as the toys having the ability to automatically save their data when they were added to a platform.

“They took it and turned it into something with low power consumption and a mass market design,” Reiche said.

Meanwhile, a senior artist at the company, I-Wei Huang, began the work on the toys. Instead of creating them as 3D animations first, Huang sculpted the characters as physical objects.

Once they had these elements together, they started building the game. They recruited Toy Story film writers Joel Cohen and Alec Sokolow to craft an adventure story for the game. They decided to target the Wii at first.

“We saw no competitors there,” Reiche said. “We thought of how to integrate toys directly into the game play. You play as your toy, and you have an avatar inside the world. You can take your toy to school, and it had a revenue model that worked. It was a blue ocean.”

Reiche said that Toys For Bob could keep it simpler by creating a Wii game for Spyro, without the toys. Dave Stohl, the Activision executive in charge of development, told them to take the bigger bet and go with the toys. As the idea moved up the executive chain, it became bigger and bigger. Toys For Bob built up its team for the Wii game to more than 100 developers. Another 100 developers from other Activision Blizzard studios also helped out. Vicarious Visions made the Nintendo 3DS version and Frima built the web, iPad, and iPhone versions.

About a year ago, the project stood at a critical decision point. Activision Blizzard chief executive Bobby Kotick had to weigh the options for launching the game as it was originally scheduled or pushing it back. He decided to postpone the project by a year, adding a huge amount to the overall budget.

Eric Hirshberg, president of Activision Publishing, a division of the parent company, reviewed every part of the project in fine detail. Reiche had to explain details like why every toy had a certain kind of pose. Hirshberg said the company would bend its marketing plan to support exactly what the creative team wanted to do.

“We had a complete functional game and a set of toys,” Reiche said. “But we all felt we could make this a whole lot cooler. So we went back to polish it. We had to decide that we were going to treat it like other top-tier products like Call of Duty. We chose to put out something awesome.”

Toys ‘R Us got behind the game in a big way, taking the stage with Toys For Bob in a major unveiling at the Toy Fair show in New York in February. The Skylanders toys have been named “top toys for the holidays” a number of times, alongside products from regulars such as Nerf, Hasbro, and Mattel.

“We’ve never shipped a toy before, but we are already in the top tier,” Reiche said.

The extra year gave Activision Blizzard plenty of time to come up with a big marketing plan with a big budget.

The resulting design was for a fighting game where players could stick their toys on a portal, instantly adding them to a game world. They could then play through the adventure, fighting hordes of enemies. Then the players could swap out characters as they wished. When they took the characters home, the toys would retain the memory of what they had done in the game. When you put one of these toys on a portal again, the character will have the same kinds of capabilities that it had recently earned at your friend’s house.

Not only that, but you could level-up a character on the PlayStation 3 and use that same character in a Wii game. You can have a similar experience if you play it on the web or an iPhone or the 3DS.

The game has more than 30 characters. Each one has a “brain” for retaining data and can be used in the adventure story where the goal is to defeat the evil Portal Master, Kaos, and his many minions. The game world is full of monsters, treasures, quests, puzzles, and mythical lands and creatures. You can use the characters in your own game or take them to your friend’s Portal of Power. Players can play cooperatively, or fight each other in a multiplayer arena.

In the meantime, rivals such as Smith & Tinker’s Nanovor hybrid toy-games have crashed and burned. Nukotoys is still aiming to do something similar in the toy-game hybrid market. And Disney Mobile has just launched toys that can be used with a Cars-themed iPad game. The whole idea of hybrid toys is gathering more steam.

The toy stores are lining up racks of the merchandise for Skylanders and they’re promoting them in interactive kiosks. Commercials are starting to run on TV and on YouTube. Activision Blizzard has lined up a considerable inventory of the toys, which will sell for $7.99 a piece.

It’s going to either be a big success or a big crater. But there is no question that the game is innovative and that Activision Blizzard and Toys For Bob are swinging for the fences. That kind of measured gamble is what we all want to see more of in the game industry.

“People should be watching this,” Reiche said. “We are not going at it half-cocked at all.”

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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The integration of toys and games is a natural one, but it has never been handled well. Activision Blizzard’s game is an attempt to crack a hard problem. If it succeeds, the company may have another major money-generating franchise on its hands.

The Wii video game debuts this fall with a little wired device that is like a battle arena, hooked into your console. You set a toy such as Trigger Happy on top of it, and the character will immediately jump into your Wii game as an on-screen character. You can then play with the character, until you take the character off and replace it with another one.

The game will eventually have connections to PCs, smartphones and any mobile gaming device. First unveiled in February, Activision Blizzard recently showed it to a small group of press. I played the game with one of the cute characters. It worked as advertised, though the game itself was not very inspired. It reminded me of a normal hack-and-slash fighting game.

But when you have a strong, leveled-up character, you can be more effective in attacks against big enemies. You can also swap characters in and out of your game as needed to handle the obstacle at hand.

The cool thing about the integration is that the toys have a little bit of memory too. So when you achieve certain things with the particular toy, the advancements are written into the memory of the toy. That’s a pretty cool feature. They’re toys with brains.

We’ll be exploring the most disruptive game technologies and business models at our third annual GamesBeat 2011 conference, on July 12-13 at the Palace Hotel in San Francisco. It will focus on the disruptive trends in the mobile games market. GamesBeat is co-located with our MobileBeat 2011 conference this year. To register, click on this link. Sponsors can message us at sponsors@venturebeat.com. To participate in our Who’s Got Game? contest for the best game startup, click on this link.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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