VR, SVOD & BB-8: Spelling out the future of kids entertainment

With two decades under its belt, Kidscreen looks at where the kids entertainment industry is headed next with the help of industry analysts, a little number-crunching and some nifty VR headsets.
February 5, 2016

They say hindsight is 20/20, but with the help of industry analysts, a little number-crunching and some nifty VR headsets, a very clear picture of the current state of the kids entertainment industry—and what the next number of years may bring—emerges. (Are we all destined to be experiencing Star Wars, on Netflix, via Oculus headsets?) In true Kidscreen fashion, as we celebrate our 20th anniversary, we take a closer look at the most pressing topics affecting the children’s digital, television and consumer products landscapes now, and forecast a bit about what’s in store.

Digital: Here comes the VR boom

Now, this is what you call a tipping point. And bending point. And reaching point. The components that make up the virtual reality (VR) business have spent the past year gaining significant traction. The kids digital space has been a particularly active conduit for the evolution of VR, which if data forecasts and billion-dollar investments bear fruit, is finally crossing the threshold into the mainstream.

The development of, and investment in, advanced tech and content this past year saw a rise in consumer VR that’s only whetted the appetites of young, eager gamers and investors—all of whom are expected to help make the mobile and experimental VR industry worth US$5.1 billion by next year’s end, according to SuperData Research, which also predicts that global VR hardware sales will swell to US$15.9 billion by 2019.

Connecticut-based TouchStone Research has been tracking the ascension of VR for several years, but its president Aaron Burch believes the launch of the Oculus-powered Samsung Gear VR this past fall, and the impending arrival of the Oculus Rift next month, have helped usher in an era of breakthrough tech that dispels prior concerns over the segment’s sustainability.

“VR has been around for a long time, with lots of disappointments. We are now seeing the tech working at a consumer level in a full 360-degree immersive way. Prior issues like nausea have been eliminated, and content developers are now interested in writing for this platform,” says Burch. “It’s shaping up to be one of the most disruptive techs, akin to when social media and smartphones first came out. And VR is both mobile and social by nature, so it will be the biggest thing in 2016. I can’t image anything that will outshine it.”

His predictions are backed by some telling stats. Touchstone’s recent VR Consumer Report, which was researched in collaboration with San Francisco-based business intelligence firm Greenlight VR, finds that today’s tech-savvy kids and teens—otherwise known as Generation Z—are most likely to embrace virtual reality when it becomes readily available, with 79% of those surveyed saying they “love/like” VR. This cohort of kids has a predisposition for gaming, says Burch, which is why there’s a particular interest in the field.

Facebook’s US$2-billion purchase of Oculus Rift in 2014 helped to drive mainstream momentum, and while the PC-based plug-in tech is expected to finally launch in the coming weeks, the next 12 months will also be defined by less expensive head-mounted displays (HMDs) and accessories, most of which will be released by the second quarter of this year.

“VR is both mobile and social by nature, so it will be the biggest thing in 2016. I can’t imagine anything that will outshine it.”

- Aaron Burch, TouchStone Research

The Rift is expected to offer a high level of immersion and VR experience, but it is an expensive option. It will sell for US$600, and it requires a compatible PC, which will also put consumers roughly US$900 out of pocket. Sony’s PlayStation VR may cost less, but a PlayStation 4 console is also required. HTC and Valve will take on both of these products with their upcoming Vive, which starts taking pre-orders later this month.

Mobile VR opportunities available via the aforementioned Samsung Gear VR, the US$20 Google Cardboard and the kid-friendly Mattel View-Master present plenty of opportunities within themselves—and for a lot less money.

Clifton Dawson, Greenlight VR’s CEO, who provides research to companies that are positioning products for VR and emerging tech landscape, anticipates that VR tech across the board will be used largely for family entertainment purposes over the next few years.

“Just like families purchase a PlayStation console as a unit, you’ll see them using VR in a similar way in terms of enjoying games and movies,” he says, adding that large platform opportunities reside within both VR and augmented reality (AR). To be sure, VR is a completely immersive and mediated experience, where the user believes he or she is in a different place. AR, meanwhile, takes information and brings it into a user’s actual environment, meaning there is a lower level of integration. Thanks to high development costs, AR is still behind VR in consumer penetration. (But that’s not stopping a whopping US$3.7-billion valuation of Google-backed AR startup Magic Leap, which has yet to release any product.)

Dawson also says 2016 will bring more marketers into the VR space through sponsored, branded experiences that incorporate consumers. But caution remains, both with advertisers and discerning consumers. And there’s reason for that.

There are, of course, VR naysayers—ones who believe the fad will share a similar fate to that of 3D TVs. Their arguments are upheld by the fact that VR headsets are relatively heavy and expensive, which pose two crucial barriers to the kids market. But analysts like Burch contend that the potential for new storytelling supersedes any concerns over hardware. And he believes areas such as travel and exploration, in particular, are perfect subject matters for the platform. “First-generation devices may not be hugely successful,” Burch says. “But they will usher the industry in.”

TV: Catch up if you can

The video distribution side of the kids entertainment industry has evolved in many ways over the past five years, but nothing has impacted the business quite like the arrival of subscription video on demand (SVOD) services. “The biggest thing that will impact kids TV and entertainment in 2016 is probably the leveraging of kids content to promote and market streaming and OTT services to drive subscriptions,” says David Tice, SVP of media and entertainment at global research firm GfK.

Less than two months ago, Amazon launched the Streaming Partners Program, an OTT streaming subscription initiative that gives Amazon Prime’s estimated 50 million US subscribers (and 60 to 80 million worldwide subscribers) the ability to add subscriptions to other discounted VOD services—including Showtime and Starz at US$8.99 per month—on an à-la-carte basis to their Amazon accounts.

Among the curation service’s numerous benefits to viewers are free trials on all subscriptions, special Prime member pricing from US$2.99 to US$8.99, self-service cancellation of any subscription at any time and the ease and convenience of one simple account. Besides giving video providers—including initial launch partner Broadband TV (Hooplakidz Plus)—access to a much larger audience, Amazon takes full responsibility for subscriber acquisition and manages all customer service, billing, device compatibility and tech support.

By launching the program, Amazon expects to grow and retain its Prime membership—an important revenue driver for its overall business. Once a consumer becomes a Prime member, according to a report from website traffic management firm Millward Brown Digital, he or she is less likely to purchase from any other etailer.

Despite the fanfare, Tice isn’t entirely convinced the program will win over new customers for Amazon. “It’s certainly an important move, but not unique if you consider consumers can create their own bundles from just switching between apps or websites without paying an extra fee for Amazon Prime,” he says. “For consumers who do invest in an AP membership, and are too confused or too lazy to ‘roll their own’ SVOD or streaming subscriptions, it serves a purpose. But most Americans aren’t AP members, and this is unlikely to create a rush to join.”

While there’s no denying that consumers want easier ways to manage their streaming subscriptions, the program also raises a number of questions about the future of a crowded and competitive content market. For example, does the new service mean Amazon is taking a step closer to potentially offering live programming, a move that could ruffle more than a few traditional broadcaster feathers? And with Hooplakidz looking to benefit, will any of the smaller, niche kids SVOD services in the market step up to better compete with the likes of Netflix and Hulu? If it happens, would Amazon worry about the performance of its own original kids shows? Given that

Amazon won’t reveal any details around its cut of subscription fees, it will be interesting to see how quickly the program grows and who gets on board.

Netflix will expand to 130 more countries this year

Netflix, on the other hand, continues on its path toward global domination, following January’s announcement that the SVOD has tripled its worldwide reach by expanding into an additional 130 countries (excluding China).
The streaming giant also plans to release 30 new original kids series in the coming year, on top of the 35 that it has already released, and the company expects to spend more than US$6 billion in cash on programming overall.

However, with a worldwide subscriber base of nearly 70 million and a share price that rose by 135% in 2015, there is concern that the company won’t be able to sustain its current pace. According to Tice, Netflix could face new challenges as it expands internationally.

“Netflix certainly has a strong lead on its competitors. In the US, as far as streaming goes, its position is likely safe for the foreseeable future. Globally, there may be different stories, as Netflix competes against strong local competitors that may have cherished children’s programs to which Netflix doesn’t have access,” says Tice. “Netflix’s rights to certain key programs can be different in different countries, and they may run up against ‘local origin’ content laws that could impact what they offer.”

Consumer products: Are we all ears?

At the moment, there are arguably two equally strong forces slugging it out for kids licensing supremacy in the US marketplace. With the original Star Wars cast reunited on the big screen for the first time in more than 30 years, related merchandise sales are naturally dominating across all categories. On the flip side, the US$4-billion (and counting) toys-to-life category finally hit its stride in 2015. And it is now seeing more than its fair share of licensed characters zapped into video games via platforms like LEGO Dimensions and Disney Infinity.

Considering both trends, one question continues to loom in the minds of those in the consumer products world: Is there life after Disney? The short answer is, yes—the rise of hybrid games alone merits optimism. But the consensus is that most emerging IPs will hail from other major Hollywood networks and studios, with big tentpole movies being backed by far-reaching consumer products programs.

In 2012, Disney bought Lucasfilm for a little over US$4 billion and promptly announced a new Star Wars trilogy was underway. Now, more than three years later, Star Wars Episode VII: The Force Awakens is tracking to become the highest-grossing film of all time. Throw in the clever marketing ploy that was Force Friday, and Disney is already raking in a significant return on its investment.

“This is a property that in the toy aisle this past year alone shipped more than US$1 billion in goods worldwide,” says Jim Silver, CEO and editor-in-chief of New York-based product review website TTPM. “When you go outside of toys, that number is much bigger. And it does affect other properties and property owners, because retailers are going from 30 or 40 feet of Star Wars to 100 feet—that means something else has to come off from the shelf.”

StarWarsretail

The December debut of The Force Awakens brought Star Wars’ retail power to new heights

According to the CEO of Vermont-based market research organization Klosters Trading, Lutz Muller, the multi-generational appeal of Star Wars merchandise alone caused sales of licensed toys in the US to rise to 33% in 2015, up from 31% the previous year. And New York-based toy analyst Bob Friedland contends that any company, regardless of size, can succeed in the kids licensing space as long as it knows where to find consumers. “They just need to figure out that magic of how to get to the right kids at the right time in the right way,” he says. Friedland argues that kids could care less about whether a character belongs to Disney or not. They like what they like. However, what separates the Mouse House from the rest is its ability to create great characters and bring old ones back into consciousness.

Muller adds that while he predicts three of Disney’s four key business segments—Media Networks, Parks and Resorts, and Studio Entertainment—may suffer setbacks in the coming years, the company has already decided to put its money on its newly merged Consumer Products and Interactive division. It could also soon be bringing more of its own properties and brands in-house, like it did with Disney Infinity, rather than licensing them out.

“For the first time, Disney took a packaged consumer good from manufacturing to supply chain to selling to the majors, all by themselves rather than licensing it out,” Muller says of Disney Infinity. “So it’s going to become a major player in manufacturing, and that is going to have repercussions, particularly on Hasbro, which is already dependent on Disney licenses. This will be even more apparent this year, now that Hasbro has taken over the Disney Princess range.”

While Friedland does not necessarily deny the power of the force, he does see more big things coming in the hybrid toys-to-life realm following a breakout year. “We saw Skylanders take off and become one of the hottest brands out there almost immediately, which was amazing because these were characters kids had never seen before. And then it expanded to Disney Infinity with core Disney characters, to Nintendo amiibo and LEGO Dimensions, which gave it that extra layer because now you have these licensed characters interacting with the video games,” he says. “LEGO Dimensions, with its breadth of characters, really crystalizes that idea because it takes a toy that adults and kids love, as well as the video games they already have, and turns it into this magical universe.”

For Friedland, the toys-to-life category has mid-level sustainability, but it has at least another five years left in the tank. Plus, it is only a matter of time before we see entries from the likes of Hasbro and Mattel.

“It’s only been around for about four years now, but it is already changing and evolving, and you’ll find different companies come into this category and bring their own perspective, which will help with growth,” he contends.

Muller, meanwhile, says the proliferation of artificial intelligence in the coming year could fundamentally change the way children play and interact with toys and games. Mattel’s new Hello Barbie, which can hold conversations with kids as well as learn and adapt to their unique personalities, is already offering a glimpse into this world. “Hello Barbie is as much as game-changer as the hybrids (toys-to-life) initially were, and still continue to be,” he says.

 

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