This article by Bryan Jensen was first published on LinkedIn earlier this week and has been reproduced here with permission. It's a fascinating read if you have an interest in toys-to-life games:

Last week Disney suddenly announced an end to its Disney Infinity toys-to-life (TTL) video game products (only three years old in the market) together with closing another of its subsidiary studios in the Disney Interactive family: Avalanche Software in Salt Lake City.

What initially shocked the gaming industry is that Disney has made over three billion in sales with this franchise. Yet their recent loss of stock value can show that even with three recent movie blockbusters in Star Wars: The Force Awakens, Zootopia, and Captain America: Civil War—with YOY quarterly growth of 2% and $2.1 Bn in profits—not making as much money as analysts predicted demonstrates the cliché that no good deed goes unpunished.



Before we merely accept a story of the creators of these Disney Universe mash-up products as the victims of the Hulk of corporate greed, I offer this unfortunate news as an opportunity to think about the challenges of integrating brand promises, product value, and user experiences. We might then see that there is some logical rationale (shortcomings to Disney's corporate-management-by-profit-center choices aside) driving why the House of Mouse is taking their battle damage now—and what we can learn from it.

Brand Promises in a Crumbling City

What "promise" does Disney stand for? Disney built its brand reputation around owning two strong concepts: magic and family experience. The Walt Disney Co describes itself as having "technology powered storytelling at the core".



Disney Infinity 1.0 was built on properties instantly recognizable as Disney's likeToy Story, Monsters Inc., Cars and Pirates of the Caribbean. Though not the first TTL video game system to require the purchase of extra toys and add-ons to then digitally import into enhancing the video gaming experience, Infinity was the first to leverage highly recognizable IP brands. As Activision created a billion-dollar market with its first-to-market Skylanders, Disney entered the fray with over $100 million development to deliver gorgeous mini-sculptures of their property characters envisioned in a fresh kind of Japanese-like soft-and-sharp-edged design. Beside high quality production, this also helped the different character properties look unified. In addition to console gaming, Infinity crossed over to grab those users who wanted to engage via tablets— and eventually Apple TV— which seemed brilliant. Infinity also upped the quality ante and made Appleraise the size of files their iOS platform supported.



Yet like the city of Sokovia in Avengers: Age of Ultron, the ground has been crumbling around video game console sales. And for more crumble: In March of this year, buyers of the new Infinity Marvel figures found none of them working on AppleTV.



Add that Euromonitor was predicting that 2015 would be the toys-to-life segment's peak, followed with a slowdown in 2017, and stagnation setting in by 2018, and you can begin to see some explanation. In terms of the BCG Matrix—one of the ways of considering the life cycle strategies for a product line— even though Infinity was a big cash cow it was headed towards becoming a dog, not a star. Why? Because the overall market wasn't growing enough to allow their loss of market share quickly to a new market entrant.





LEGO Dimensions Conjuring New User Experience Magic

Disney had continually gathered complaints that their universes didn't really cross-over. Sure, you could buy characters and mix them up in a Toy Box environment where Wreck-It Ralph could rough it out against Rapunzel. But interactive stories were contained to specific sub-universes. As Marvel joinedInfinity in 2.0 and Star Wars in 3.0 these walls became more rigid. Your daughter might love Merida (from Brave) but Merida couldn't lead Iron Man against Darth Vader within a Toy Story-themed story-level. Disney's internal licensors wanted users not to co-create story experiences but consume them within these boundaries.



Yet when LEGO Dimensions debuted in fall 2015, it was built around cross-over teamwork. You could mix and match any character you wanted. Dr. Who could help Gandalf and Wonder Woman complete a Wizard of Oz story-level. And all characters had multiple cross-over powers. If you don't have Bennie the astronaut from The LEGO Movie to solve an in-game puzzle, you possibly might have Doctor Brown from Back To The Future with the same powers. Depending on what characters the user mixed and matched the game is replete with easter egg surprises from unexpected, funny dialog to hidden bonus worlds (like the city of Bedrock from the Flintstones).





Brand Equity, Pricing Strategy, and Core vs. Critical Integration

In a price competitive space like toys-to-life Disney has priced single 4" figures around $14–15 MSRP. They routinely have been sold at 30% off, which is common for sales promotions in the space. Even 50% off promotions were not rare. Such price-promotion strategy is okay for maintaining incremental sales with buyers who already have a habitual buying pattern or for short-term promotion to users of competitive products. Disney's difficulty in maintaining high price points for a specialty product vertical without attracting enough new players to TTL showed that their character brand equity was not as strong as needed. With the tech requirements of a chip inside the figures, coupled with their high expectations of production quality, Disney ended up gold-plating a quality level scaled above a market not growing enough to help offset the reduced margins. Furthermore they leveraged their brand power to make retailers buy high inventories—so when Infinity 2.0 figures began plugging shelves, it reinforced an impression that it wasn't popular.



Disney may have made gorgeous Infinity figurines—which I loved collecting—but toymaking is not its core competency. (Now they are taking a $147 million charge for inventory, knelling the death for Disney video games except as licensed properties.) Meanwhile LEGO already has toy production verticality mastered.Dimensions fully complements their core manufacturing and play system: Kids upgrade little vehicles for the figures by earning in-game rewards, but they can actually play and create things with the toys apart from the game.

One thing about branding is that the more one's product is vertically integrated (i.e., owning control of the process from inception to manufacturing), the more that user experience is a strong driver of the core brand expectation. LEGO in its video games and movies —critical drivers of extending and supporting the core brand promise and experience— is not focusing on the critical, but their core of wide property licensing and producing toy awesomeness. For critical measures they are trusting close partnerships with the Warner media family to still make sure the user experience fits together.



Thus when LEGO entered toys-to-life gaming late with base figure sets (that also included a miniature themed Lego vehicle) for $13 MSRP, they had the integrated toymaker power to deliver more core product value and better absorb the competitive discounting that the video game space requires.





Hulkbuster: Customers with Experience Expectations.

One thing that has commonly dogged the toys-to-life space is the high ongoing participation expense. Where buying upgrades for in-game improvements is not new to video games, parents didn't always immediately perceive the value of buying a new toy for each new character a child wanted to play with in-game. Especially a shock to Disney's potential share of parents's wallets if they had, or were, already buying into another TTL system for their children.



Thus LEGO anticipated and delivered on tremendous cross-over IP power, and allowed it to more fully reflect a different kind of storytelling and play experience. If anything, LEGO, now the world's largest toymaker, owns the words "play" and "fun" and "create with your imagination". Not only that, The LEGO Movie that they had teamed with Warner Bros to release in 2014 set the cross-over universe storytelling stage for their partnership on Dimensions. Though serious risks still remain in the TTL category, for user experience LEGO-Warner has functionally captured the ownership of "magic" and "technology storytelling" away from Disney.



Combined with the expanded physical product play value, and facing retail discounts they were better prepared to absorb by also having a strong direct-to-consumer relationship, LEGO competed powerfully for the 2015 holiday season to outsell Infinity 3.0 software. While the quality of the actual in-game graphics ofInfinity garnered higher praise, LEGO appears to have delivered the better value curve: They won strong launch position to the space even though Disney still appeared to have the majority of market share. When retail facings were shrinking this spring, and Marvel Civil War Infinity releases failed to be implemented for AppleTV, the writing was on the wall that Disney had lost much mojo in 2015.

This month's release of Disney-themed LEGO Collectible Minifigures —which have been selling out at retail— presages a strong possibility for a successful introduction of licensed Disney properties to Dimensions, especially since LEGO already licenses Star Wars. Meanwhile DC Comics has established a competitive TTL foothold to Marvel in the LEGO-Warner team. However, Disney's withdrawal from TTL could signal that Euromonitor's prediction for stagnant growth in a round-about way may become a self-fulfilling prophecy.



Whether the licensee is LEGO or Electronic Arts, Disney has the brand equity to assure revenue for itself, and indirect customers because of the brand and reputation strength of those licensees. Yet for Disney's reputation not only are there limited lingering damages to face depending on how they help the people who have lost jobs through their Disney Interactive studio closures; but with parents, kids, and the "family" and "technology" that their brand promise has stood for, they have given up trust, control and resources to shape the customer experience directly in video gaming. And they have cut off the direct customer relationships these fun experiences add for multi-generational brand loyalty.