Figures of fun: How Skylanders is changing the way children play

Skylanders combines a video game with collectable toys.

In the Nintendo Store in midtown Manhattan a woman is asking if they have any Skylanders figurines. "Sorry ma'am, we're all out," comes the reply. "Not even under the till?" the customer pleads, "I know some stores are keeping them back."

After being patiently reassured that the $10 (£6.35) plastic toys aren't being stashed like contraband, she gives up, but not before explaining the struggle she's had getting them elsewhere.

So far, so annual toy fad – a tradition that dates back to queues for Christmas "must-haves" such as Buzz Lightyear, Furby and Tickle-Me Elmo. But, unlike the rest of the plastic delights on show at this year's New York Toy Fair, Skylanders are a bit different. Different because they combine two parents' pocket-straining items: the collectible plastic toy and the computer game. The game itself is a standard (but critically praised) platform game, written by Toy Story's Joel Cohen and Alec Sokolow. It's available on all major consoles.

The 30-plus different figures sold separately (at £7.99) from the game allow users to play as different characters. They do so by placing the characters on top of a portal (which comes with the game's £49 starter pack, as do three figurines). The portal then brings each character to "life" on screen and picks up the figures' previous achievements on the game.

As one reviewer put it eloquently: "If I was eight years old, I would be losing my flippin' mind over Skylanders."

Activision-Blizzard, the games giant behind the Call of Duty and Guitar Hero franchises, debuted the first Skylanders game, Spyro's Adventure, at last year's New York Toy Fair – the industry-defining February showcase. A year on, it's so far been responsible for a chunk of its publisher's bumper $1.1 billion operating profit, with 20 million Skylanders toys and accessories sold to date.

If you're a parent, you're probably aware of the game's pull already. If you're not, you will be soon. In the days leading up to this year's Toy Fair, Activision's CEO Eric Hirschberg gathered colleagues and journalists to show off a new title in the franchise, Skylanders: Giants, coming this autumn.

It's no wonder Hirschberg is smiling as he speaks about previous successes. The scene I witnessed in the store wasn't a one-off. "We simply can't produce the toys fast enough to keep them on the shelves," he admits.

Activision took a risk with Skylanders, as it's a relatively unknown bit of intellectual property (Spyro the Dragon's name is attached but he's not the main character) – a risk that involved huge investments in the toys themselves as well as taking on the established toy firms. Activision made some key new hires, including marketing executive John Coyne, who was recruited from industry leaders Mattel. But it seems to have paid off revenue-wise.

That has been a problem for some. Despite the enthusiastic response from children – YouTube is full of fan tributes – the game could potentially cost parents upwards of £250. Presuming they can get their hands on the figures.

But the company is keen to make it clear that you don't have to buy all the figures to complete the game. And yes, it's certainly not as cynical as it first sounds: you can also take your Skylanders figures round to a friend's house and play them on any console. The new game will be backwards compatible too.

The hope – at least for parents – is that children will pick a couple of characters they like and that will be that.

So why is it such a hit? Certainly the gimmick of placing the toys on the portal plays a part. But is it deeper than that? Paul Reiche III, co-founder of the game's developer Toys For Bob, thinks that the rapprochement of physical play with digital technology is key: "People relate to physical objects, particularly on an emotional level," he tells me after the launch event. "I have very tangible physical memories of toys, I can remember the slickness of a Hot Wheel, or how GI Joe's hair felt. Those memories are strong – the toys were alive in my head, but they weren't alive for real. The strongest thing we've done is bridging that emotional tie. That's what drives parents to go to stores in the middle of the night."

Tellingly, Toys R Us chairman Gerald Storch agrees with the hypothesis and has high hopes for the franchise as a whole. "The combination of the physical world and virtual world is something so powerful that's almost unexplainable," he told reporters in New York. "I think it's going to become one of the largest toy franchises of all time." (The retailer has a series of deals with Activision to sell exclusive characters.)

And what of the technology behind the game – is it something other firms could nab? It's not a brand (though it's obviously protected by Activision), Hirschberg tells me later – the "toys to life" concept used existing technology. So why has no one else done it? He identifies a previous Activision hit, the Guitar Hero franchise, as something that gave Activision the leap on other games and toy firms: "The guitars and the drums weren't toys per se, they were controllers," he explains, "but the manufacturing, the supply chain, the distribution and the unusual footprint at retail it takes to make a property like this a success was something we did have experience in."

It's now up to other companies to catch up on a lucrative idea. Indeed, other physical takes on digital games are starting to enter the market, if not via major game franchises. For instance, UK puzzle firm Jumbo has recently launched a series of games for the iPad which bring physical parts to iPad games, such as air hockey and fishing.

Having established the technology of a game/portal/figurine combo, the possibilities for expansion – provided the "magic" doesn't tire on kids, a notoriously fickle demographic – are almost limitless. You could have a wrestling game with different fighters to collect; or footballers; or additions to existing Activision-Blizzard properties such as World of Warcraft.

Hirschberg is coy about future plans but Paul Reiche is convinced the future of the toy industry will be in smart technology like that contained in Skylanders: "The tech we can use is changing so fast ... The idea that your toys know that you went to a certain national park; the ability to maybe text your toys; have your toys know what the weather is like. It will create a magical reality, but one that is grounded in the digital world. That's where things will go."