Happy Action Theater was originally announced in October 2011 as Double Fine's next project after their Kinect-based
Sesame Street: Once Upon a Monster project. Schafer had found that in playing Kinect games with Lili, his 2-year-old daughter at the time, that her patience and behavior would often cause havoc with the Kinect system, caused by both limitations of the Kinect systems and the hard rules of the specific game. Schafer envisioned the concept of
Happy Action Theater as to create the simplest playing experience possible such that his daughter could play it without help. Schafer's idea for the approach to
Happy Action Theater was partially inspired by interactive advertisements at malls which would react to people passing in from them. Several additional modes were brainstormed in this manner, including modes designed to a specific number of players, but were not further developed. Further ideas were dropped when they encountered technical limitations of the Kinect hardware, such as placing fog in the augmented reality. Double Fine performed internal playtesting, leaving the game running in a conference room to allow anyone passing to try it, and brought in friends and families with young children to try it out. Despite the aim for children, the Double Fine team found the game to appeal to "three-year-olds or college dorm rooms full of drunken 20-year-olds".
Happy Action Theater was developed by only six people at Double Fine, compared with their four "Amnesia Fortnight" projects which had around 12 members per team. ==Reception==