Should Activision Blizzard Inc. Fear Time Warner Inc.?

By Demitrios

Activision Blizzard finished last year as the dominant video game publisher in the industry. It won three of the top five spots on U.S. sales charts, including a No. 1 finish by Call of Duty: Advanced Warfare.

Destiny was the biggest new property launch in video game history. Source: Activision Blizzard.

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Its Destiny title, at third place overall, was the most successful new property launch in history. And Skylanders,Activision's kids gamefranchise, dominated the profitable toys-to-life category for the third straight year.

Slow start to the year Yet there's a different publisher boasting about its leading market position lately: Time Warner's Warner Bros. Interactive. That company is behind two of the biggest releases of the year in Batman: Arkham Knight and Mortal Kombat X and is "beating established publishers like Electronic Artsand Activision Blizzard at their own game," according to a recent article in The Wall Street Journal (subscription required).

Sure, the division ranked as the top publisher in the U.S. through the first six months of 2015. "We all know Warner Bros. is the gold standard in television and film production," Time Warner CEO Jeffrey Bewkes told investors in July. "But its growing video game business is also an industry leader," he bragged.

But that early positioning will change as we close out the year, simply because it doesn't include the major launches clustered in the third and fourth quarters. For Activision, that means new installments in the Destiny and Skylanders franchises, both of which released last month. And then there's a new chapter for Call of Duty,this past decade's champion video game franchise, with Black Ops III launching in early November. After the dust settles on a likely record holiday season for video game sales, Activision will probably have dominated again.

A kid-sized brawlWarner Bros. best chance at hurting the world's biggest publisher is in stealing market share in the toys-to-life category that Activision created with Skylanders. Time Warner just released Lego: Dimensions, its first entry into that segment. That title comes packaged with popular toys from across Time Warner's licensed franchises, including Batman, The Simpsons, and Lord of the Rings.

Source: Warner Bros. Interactive.

Yet if an army of recognizable characters were all it took to knock Skylanders off of its top spot in the industry, Disneywould have already done the deed with Infinity in 2013 or its Marvel-powered Infinity 2.0 sequel last year. But that's not what happened. Skylanders outsold Infinity by a large margin in both years, which suggests it can do so again in 2015, even when stacked up against a Star Wars-themed Infinity 3.0.

Why Activision isn't worriedActivision executives believe they've been able to hold that big lead because popular toys can't make up for an underwhelming gaming experience. "We've shown that established characters from other mediums are not the shortcut to leading this category," CEO Eric Hirshberg said.

Still, Activision isn't just relying on its dominant Skylanders position from the past. This year's installment includes a major expansion to the genre that adds vehicles into the mix. That addition should increase the size of the market opportunity by $3 billion while keeping rivals a step behind. Executives think they'll stay on top this year because, as they told investors in July, "[W]e make the best games in the category, we consistently deliver the best innovations in the category, and our characters are built for interactive entertainment."

That quick pace of innovation, along with bold development investments into its games, has kept Activision on top of the sales charts even as its biggest franchises age and as new competitors like Disney or Warner Bros. Interactive try to crack into the many video game segments that it dominates.

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Demitrios Kalogeropoulos owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool recommends Time Warner. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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