The release of Star Wars Episode 7 was the central story in traditional toys and games for much of 2015. The highly-anticipated feature has precipitated an unparalleled array of licensed products spanning toys, apparel, housewares, even jewellery. Licensing has been a growing force within toys and games over the last few years, and the success of Frozen in 2014 made licensing the focal point for toy manufacturers worldwide. Sales of Star Wars-licensed toys are expected to remain strong throughout 2016, with sales in the second half of the year supported by the release of Rogue One: A Star Wars Story.
In today’s hyper-connected world, people have unprecedented access to entertainment media and interact with it on a wide range of devices and mediums. This has given rise to the dominance of entertainment ecosystems, of which toys are a growing part. Successful entertainment franchises like Star Wars and Transformers span films, TV shows, merchandise, and video games, as well as traditional toys and games. Building these ecosystems has become increasingly lucrative and companies are working to internalise as much of the value chain as possible. Toy manufacturers like Spin Master have even opened content production studios.
Most notably, Disney, which owns many of the world’s largest licensed properties, has been expanding its own toy manufacturing capabilities. 2016 will see a continuation of vertical integration, especially on the part of Disney, which will be looking to lessen its reliance on license revenue by producing more toys in house.
Internet of toys
By integrating more of the value chain, Disney also gains greater control of toys being produced and the freedom to experiment with new toy types and concepts. Licensing has emerged as an important demand driver, offering a safety blanket for new toy concepts that non-licensed toys do not have. Disney Playmation will generate more sales than the same concept not based on the Marvel Avengers franchise would. Licensed content provides the company with greater experimental freedom, giving it an edge in the smart toy race, which will be a growing force over the long term.
Since the launch of Skylanders in 2011, toys-to-life that give video games a physical play element have become a growing success, but traditional toys and games that incorporate elements of virtual play have not gained mainstream popularity. 2015 saw the release of Hello Barbie, an interactive version of the iconic doll, as well as the release of Disney Playmation. Over 2016 and beyond, we expect similar concepts of increasing complexity to have a growing presence in the global toy market.
Non-licensed toys to feel the squeeze
Even though Frozen made gains in 2014 and Star Wars toys took over aisles in 2015, global demand for non-licensed toys did not see significant declines; this is set to change in 2016. Deteriorating macroeconomic conditions across major emerging economies foreshadow a slowdown in growth across those markets in 2016. While slowing growth in China is a concern, economic conditions in Brazil and Russia have the potential to deteriorate to a point where declines in toy sales in 2016 are the most likely scenario. At the same time, the popularity of licensed toys is expected to rise drastically and start to eat into sales of non-licensed toys.
Construction toys is expected to remain the fastest growing category, driven primarily by LEGO. Demand for licensed LEGO sets, combined with the company’s own properties like LEGO Movie and Ninjago, ahead of the release of the second LEGO movie in February 2017, will make for another successful year for the company.