Every picture tells a story, but it's even better if it inspires a toy

Spin-off toys from successful films are now crucial to movie industry profits. Guy Adams reports from Glendale, California

In a very large building, in the shadow of a Californian mountain range, several hundred toy designers are quietly going about the business of trying to relieve the world's parents of their hard-earned money. Some stand at easels, sketching plastic action figures. Others make technical diagrams of toy cars. A man called Alex shows me a pencil-drawn animation of some tiny robots, which are apparently going to be very big in Japan.

It's an untidy business, creating the next must-have kids' accessory. Desks are laden with Winnie the Pooh teddies, and dismembered Barbie Dolls. Racks of branded T-shirts and sparkly princess outfits line the corridors. Inflatable pool toys dangle precariously from the ceiling. And, as if to prove that old gender stereotypes still haven't died, about 50 per cent of the plastic clutter – the stuff that will be sold to little girls – is a shamelessly lurid shade of pink.

The building, which sits on an industrial estate in Glendale, a satellite city just north of Los Angeles, is the global headquarters of Disney Consumer Products, the division of the entertainment conglomerate charged with inventing tie-ins to Disney films and TV shows. It houses the guys who invent everything from Mickey Mouse pencil cases, to Hannah Montana hair clips, to cuddly replicas of that strange orange fish from Finding Nemo.

"There's one word we always use here: 'toyetic'," says Luis Fernandez, the division's creative chief. "If we say a film is naturally 'toyetic' that's good, because it means it's the sort of project that can inspire lots of toys."

Being "toyetic" represents an increasingly important part of the film industry's commercial future: last year, Disney Consumer Products made $27bn (£18.6bn). In the next five years, they aim to almost double that figure, to $50bn (£34.5bn).

Helping them on their way, in the short term, at least, is the imminent return of perhaps the most "toyetic" film franchise ever invented. Toy Story 3, which opens in the US next week and hits British cinemas in July, has inspired a range of more than 250 branded products from Lego sets and video games, to special-edition plastic potato heads.

The range includes 25 dolls modelled on the star of the show: a plastic spaceman called Buzz Lightyear. Some are a couple of inches high, and made of immobile plastic. The swankiest, an 18-inch remote controlled "Programmable Robot" can walk, talk and high-five. He costs $150 (£101) in the US. In rip-off Britain, he'll set you back a cool £200.

Buzz is the symbol of a creeping trend that is changing the way Hollywood goes about creating and marketing its new films. Put bluntly, commercial tie-ins have become more valuable than the movies. The first two Toy Story films, for example, made roughly $800m at the box office. But they helped sell 35 million replica Lightyears (and countless other toys), netting at least $8bn.

In years gone by, the economics of movie-making were relatively straightforward: if a flick generated more cash via the box office, DVD and TV than it cost, the company behind it turned a profit. If it didn't, the company made a loss. But now, that paradigm has shifted: as Toy Story shows, a movie which inspires successful ranges of branded toys and clothes, is far more valuable on the high street than it ever can be in cinemas. And next week, the entertainment industry's biggest cheeses meet in Las Vegas to exploit this trend at the Licensing International Expo, a vast annual event dedicated to helping wring profitable sidelines out of films. With studios gambling on ever-higher production budgets, stakes are high. Sales of film-related toys rose 41 per cent between 2004 and 2008, and now represent a quarter of the entire US toy trade.

Your average action movie now costs $200m, and toys are an increasingly important part of their business model. Look at this summer's high-profile new films, and the rest of this year's box office charts, and you'll see a plethora of "toyetic" titles, from Shrek and Iron Man, to Alice in Wonderland, Clash of the Titans, and, of course, Avatar. They are not just movies, but branding opportunities.

Disney's big launch for next year is Tangled, an animated reworking of the Rapunzel myth which has inspired a range of girls' dolls with extremely long hair, which is made from special fibres that glow and twinkle, exploiting traditional play patterns that have been around since the invention of Barbie.

"The best films, for us, give you toys for boys and girls," says Fernandez. "That's not easy, because they want different things. Boys want to create play patterns that involve a narrative of good versus evil. They also like ray guns, weaponry, and toys that allow them to change costumes. Those are boy-specific things. Girls? They love the colour pink, they always like dolls that allow hair play. Their demands are very different."

Adults also come into the calculations. Since the 1970s, when the oil crisis prompted the makers of Star Wars to launch a range of comparatively small plastic figurines which fans could collect as well as play with, film-makers have also worked to create new projects that cater to the so-called "fanboy" market. If a film doesn't tick these commercial boxes, it will now struggle to get green-lit, however exciting its plot may seem.

Making fresh toys requires considerable foresight. Disney's designers typically begin work on a new range two years before a film comes out. At that stage, scripts are still not finished and even the existence of the film is often top secret (they sign heavy confidentiality agreements).

Chris Heatherly, vice president of the consumer products unit, explains that they work from storyboards and sketches of the principal characters. Creating the right toys is often about gut feeling. "You try to understand what a kid is going to want to go home and recreate after walking out of that theatre," he says. "You're looking for key moments in the plot, which preferably have action, and at key characters."

After that, Heatherly organises lengthy "brain storming" sessions. Drawings are sketched, and prototypes modelled. An "inventory" of products is compiled. The film-makers are asked what they think of them, and the range is further refined. Eventually, a year before the film hits cinemas, plastic moulds are made and production lines in China start churning out the kit.

If they take too long, disaster beckons. For the 1997 film Hercules, which underwent late rewrites and only went ahead with a few months' notice, Disney released only a tiny range of ill thought-out toys, and took a financial hit as a result. Since then, major studios have lengthened their production schedules, and become more collegiate about their creative process – a development which some critics say tends to beat the originality out of new movies.

Not every film that sounds "toyetic" works. In Heatherly's office, next to mounds of Toy Story merchandise, are some forlorn-looking products inspired by Prince of Persia. That movie, itself inspired by a successful video game, had toy-makers smacking their chops, but it opened last week to appalling box office results.

A toy has to do the same thing as a good film: to entertain, and spark a user's imagination. "When people make what we call a 'watch me' toy, kids just don't want to play with it," says Heatherly. "I've spent my life watching kids in toy stores. They may watch a flashy toy once, but then get bored. The most advanced technology a kid has is their imagination." And, it seems, the most valuable.