Children tend and care for their Webkinz avatars much like adults coddle Sims. *

Screenshot: Courtesy of Jacob Ogles * The latest toy craze in North America are stuffed animals called Webkinz that blend the comfort of teddy bears with the addictive challenges of online role-playing games.

Webkinz look like Beanie Babies, but come with a code to unlock a digital doppelgänger children play with in a Sims-like digital world. The combination has proven as habit forming as the Tamagotchi phenomenon, but with a stuffed animal that sleeps in your child's bed. And it might be the ploy that saves the toy industry.

Sold only at specialty stores like Hallmark, more than 1 million Webkinz stuffed animals have been snapped up since their April 2005 debut, making the toy by Ganz a sensation. In February, the Toy Industry Association named Webkinz the Specialty Toy of the Year for 2007.

"Kids are on the internet at a younger and younger age," said Ganz communications director Susan McVeigh. "They are comfortable in an online environment, more so than their parents. It just feels natural to them."

Webkinz kick-started a trend in children's gaming that ties virtual environments to real-world merchandise. Online games for kids aren't new. Sierra Online had tot-focused games in the early '90s, and Neopets proved a hot product six years ago with a similar concept. But the unprecedented success of Webkinz is inspiring everyone from Barbie to Disney to get children invested in both the digital and the physical.

"This is now a very hot area," said Jim Silver, editor-in-chief of Toy Wishes magazine. "We will see more and more toys which have codes that interact with websites."

The strategy is coming into play as physical toy sales decline. Plush remains a $1.3 billion industry, according to the Toy Industry Association, but suffered a 4 percent decline in 2006. Indeed, the toy industry saw hardly any growth between 2005 and 2006.

Video games, meanwhile, saw a 19 percent increase in sales during the same time, and are now a $12.5 billion industry.

Marketed to children ages 6 to 12, Webkinz tries to marry plush with video game. The attempt has brought new relevance to Ganz, a family-run gift company based in Canada. High demand had the company dealing with supply shortages earlier this year, McVeigh said.

Ganz declined to give current sales figures – it stopped reporting Webkinz sales and online activity a year ago, when it had a million online accounts. But Silver estimates Webkinz raked in $100 million last year.

Retired Webkinz now sell for hundreds of dollars on eBay, and numerous fan-created sites have launched around the Webkinz community.

Ganz has expanded its product line with a range of supporting merchandise, including Pokémon-esque trading cards that come with unlockable goodies to use online. But McVeigh said Ganz, which also sells collectible decorations, is uninterested in selling code on its own.

Now other companies are aping the gimmick. Russ Berrie U.S. Gift launched its own Shining Stars line of soft toys in April. These plush toys come with an online avatar and the chance to name a star through the International Star Registry. Andy Gatto, the company's CEO, said a new Shining Stars account gets created every 22 seconds.

Disney also found success promoting real-world merchandise with virtual fun and games. Disney's Virtual Magic Kingdom is based on the company's physical parks, but is filled with minigames instead of rides. It now boasts 2.5 million users.

Like Webkinz, Disney's virtual world is the bait: The profit comes from real-world promotions and merchandising. Tourists engage in quests in Disney's real theme parks to earn digital exclusives online, and the parks sell some items, including a line of T-shirts, that come with online duplicates for avatars to use.

"We were interested in taking the concept of Disneyland or the Magic Kingdom and extending it online so this kids audience could have contact with Disney theme parks every day, all day long," said Paul Yanover, executive vice president and general manager of Disney Online.

When Expedition Everest opened at Animal Kingdom last year, for example, a month of events were launched at the Virtual Magic Kingdom, and several new virtual products tied to the ride were released.

Disney also has found success with Toontown, a world loosely based on a section of Disneyland. Geared toward virtual gaming, Toontown has a "velvet rope" model: Users can visit some areas for free but need a paid subscription, at $10 a month, for unlimited access. The site has attracted more than 17 million users since its 1998 launch, and a similar Pirates of the Caribbean game is in the works for next year.

Ultimately, each venture will succeed or fail on the quality of the website, according to Toy Wishes' Silver. But to some critics, child-oriented gaming sites bring concerns that sexual predators – like the sex offenders MySpace is trying to rid itself of – may sign into the Webkinz world.

Webkinz and Shining Stars fight creeps by limiting chat capabilities. While chat is widespread in the Virtual Magic Kingdom, Disney keeps numerous administrators eavesdropping at all times.

These concerns seem unlikely to stop evolution in the marketplace. Russ Berrie's Gatto said the toy industry has always been at the mercy of trends, and has been very responsive to the change in children's habits.

"This really represents a new play pattern, and it is a pattern in its infancy," he said. "Over the next few years, it is just going to get more prevalent in this business."

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