The present invention relates to toys and game applications that are enhanced with digital watermarks. In one embodiment, a character card includes a unique identifier in the form of a digital watermark. The identifier is used to link to a database record, which can be updated to reflect changes in game attributes. Some such game attributes include life, character type and name, health, strength, and power levels. The data record can be updated or modified to reflect changes in attributes due to activity or events during a computer software game. The database record can be used by the computer software game to alter or enhance the game. In another embodiment, a toy interacts with toy components or cards via digital watermarks. Digital watermarks enhance games, toys and books in still other embodiments.