“Disney Infinity” Versus “Skylanders”: Can Activision Blizzard, Inc. (ATVI) Meet This Challenge?

“…we expect the competitive landscape to be challenging for the remainder of 2013. Call of Duty : Ghosts will face a more crowded slate of titles from the same genre in its quarter of launch later this year than it has in the past and our Skylanders franchise will face more direct and substantial competition than it has before. The competitive landscape will likely require us to further increase our sales and marketing investment in our key franchises and could impact revenues.”

If you’re an Activision Blizzard, Inc. (NASDAQ:ATVI) investor or thinking about taking the plunge, the question to ask is whether or not the competition, especially against Skylanders, will be too much for the company to overcome. Let’s dig in and see what we can learn.

The House of Mouse moves in
Skylanders has generated more than $1.5 billion in sales for Activision Blizzard, Inc. (NASDAQ:ATVI) in just under two years, and is a big reason that the steady decline of World of Warcraft subscribers hasn’t had the negative impact on revenue and net income that many were predicting. However, The Walt Disney Company (NYSE:DIS)‘s  Disney Infinity is the first competitive entrant into this new category of game.

Where The Walt Disney Company (NYSE:DIS)’s advantage lies is obvious. In 85 years, Disney has created some of the most memorable and popular characters in the world, both animated and live-action, that it can draw on to create interest among kids. Activision Blizzard, Inc. (NASDAQ:ATVI), on the other hand, is relying on new characters that it is creating specifically for the game. And while its two-year first-mover advantage–and the more than 125 million toys already sold–do give it an existing base of both brand awareness and sunk costs by parents and kids alike, Disney Infinity will likely be one of the “must have” game and toy requests this holiday season.

And Activision will pay the price?
Not necessarily. The Walt Disney Company (NYSE:DIS) isn’t moving into this space so much to take business away from Activision Blizzard, Inc. (NASDAQ:ATVI) as it is to get into a growing and lucrative new niche.