Toca Boca’s Hair Salon Games Challenge Disney in Kids’ Apps

Jul 30, 2014 1:09 am ET

(Updates with comment from Disney in fifth paragraph.)

July 30 (Bloomberg) -- If you’re wondering why a preschool science app is eating your iPhone battery, you probably have Toca Boca to thank.

The Swedish studio was the second-ranking publisher of children’s paid downloads for the iOS system on Apple Inc.’s App Store in June, according to App Annie, an application tracking service. With 30 employees, the upstart maker of Toca Labs and hair salon games was beat only by Walt Disney Co. in revenue from that category for that month. The Stockholm-based company’s apps have been downloaded more than 70 million times.

The studio, owned by Sweden’s closely held media company Bonnier AB, has kept preschool kids busy since releasing its first games, Helicopter Taxi and Toca Tea Party, in 2011. The unit is one of Bonnier’s smallest yet more profitable ventures as the two-century-old media company, which publishes Swedish financial newspaper Dagens Industri and Denmark’s Boersen, adds more digital businesses to offset a slump in the print advertising market.

“We actually take the games to schools in the area so kids can try them,” said co-founder Emil Ovemar, with a stack of hand-drawn storyboard sketches from one of the games still under development scattered across the table at his Stockholm office. “Adults may not understand why the games are fun, but children know what they want.”

The market for children’s apps is growing. About 72 percent of U.S. children up to age 8 had used a mobile device or tablet in 2013, compared to 38 percent in 2011, according to Common Sense Media. Brian Nelson, a spokesman for Disney, said the Burbank, California-based company doesn’t comment on competitors.

Virtual Scissors

The preschool app offerings include Toca Labs, in which kids can perform science experiments such as freeze-drying cartoon characters, and Toca Pet Doctor, in which a knotted-up earthworm needs untying. In Toca Hair Salon Me, kids can wreak havoc with virtual scissors and blow-dryers on pictures of their loved ones.

Founders Bjorn Jeffery and Ovemar were working at Bonnier developing touchscreen functions when they had the idea to create a company focused on what they call “digital toys,” games which don’t have points and where the goals are more open- ended, such as experimenting or exploring. Bonnier provided their initial funding in 2010 and a year later they were profitable.

“Apple’s App Store has helped us build our brand, but we can’t rely on it for revenue growth,” said Jeffery, on a video chat from his office in San Francisco, which he opened to be closer to Silicon Valley. “There is huge value in the level of trust we’ve built up and we’re now looking at ways to use that to help us move into new areas, maybe with books, moving imagery, physical products.”

Kid-Tested

Toca Boca’s games are designed with a kid’s mindset in view. They’re simple and colorful, without any spoken words or text, and are gender-neutral to keep the audience as broad and international as possible. They also don’t have any so-called in-app purchases, functionality that games sometimes include that can lure kids into unwittingly plunking down mom or dad’s cash.

Adding digital revenue is crucial for Bonnier, whose revenue slipped 8.5 percent to 26.7 billion kronor ($3.9 billion) in 2013. Toca Boca is part of the company’s Bonnier Growth Media unit, which had about 3.25 billion kronor in sales from activities such as digital marketing and software.

Profitable Unit

The game studio had earnings before interest, taxes and amortization of 13.5 million kronor as sales doubled to 64.4 million kronor last year. That gives it an Ebita margin of about 21 percent, compared with 3.8 percent for Bonnier.

To reinforce its brand and gain more users, Toca Boca is adding physical products. Last year it teamed with Swedish clothing maker Happy Socks AB to sell colorful stockings with characters such as Gomez the kitchen monster on them.

Successfully tapping into consumer items can boost earnings. Finland’s Rovio Entertainment Oy, the studio behind the Angry Birds mobile games, has formed agreements to sell stuffed animals, bedsheets and T-shirts.

“We’re considering what we do next in terms of extending our brand, bringing our digital products into the physical world,” Jeffery said. “Rovio has done a great job at this with Angry Birds, so going physical might mean that we need to find the right partners to work with.”