Both Activision Blizzard, Inc. (NASDAQ:ATVI) and Electronic Arts Inc.(NASDAQ:EA) are leading gaming companies. They are, however, confronted by several challenges. I recommend looking particularly at company diversification in Internet gaming and performance. This is because, first, the console gaming industry has been on the decline, and, second, the recent collapse of THQ has put many investors on edge. Gaming is without doubt going to change. The ability to understand the shifting demand will determine the success or failure of any company in this industry. Below, I review Activision and Electronic Arts with this in mind.

Activision's  Opportunities & Threats

Activision Blizzard (NASDAQ:ATVI) is one of the leading developers of video games, and it ranks second in the world after Nintendo Co., Ltd (ADR) (PINK:NTDOY). What really impresses me about the game maker is its ability to release one hit title after the next. The release of Call of Duty Black Ops II reached the $1 billion mark within 15 days. The results of the third quarter were made a little better by reduced tax rates. Revenues of $751 million was $42 million more than what had been predicted.

While Activision's performance has impressed me, the company should look towards Nintendo as a case study of what may come. At its peak around the end of 2007, Nintendo was an $84 billion company. In a half decade, the company erased nearly $70 billion in value, a staggering sum for what was long regarded as an invincible market leader. Zelda, Mario, Donkey Kong, and Metroid--all Nintendo. Nintendo really brought us to modern gaming, so to see it fall like this is a strong indication that trends come and go.

Activision has seen a lot of momentum in connecting users to Internet options, but it faces significant competition, particularly in the area where tablets and mobile phones are concerned. The last rumor--not really a rumor anymore, since technical data has been leaked--is that Microsoft Corporation (NASDAQ:MSFT) , the owner of Xbox, is developing a tablet that is primarily focused on gaming. It will be called "Xbox Surface" and feature a 70'' display on a 720 HD resolution. This tablet is also likely to have some sort of connectivity with the upcoming "Xbox 720" system. So, while you may be tempted to cast aside "Xbox Surface" due to poor Surface sales, you should also consider the other part of its name that has been anything but a failure: "Xbox."

Though the market for console games is certainly not stable, Activision has the advantage of scale and many years of experience. Activision must adjust to the new trends in the market and reconsider the $12 or $15 charged for WoW monthly access. Even still, the introduction of mobile and tablet games on shareholder value in at least the short-term should not be underestimated.

A Look at Electronic Arts Inc.(NASDAQ:EA)

Electronic Arts ranks third among the world largest gaming producers. The company’s growth can be attributed several acquisitions it has made in the past. For the financial year ending March 2012, EA generated $4.1 billion in revenues. But the gaming industry has faced challenges that have led to a general decline in sales. Hardware sales have dropped by 30% while those of software have dropped by 23% in 2012.