Activision, EA: Video Games' Volatile Year

NEW YORK ( TheStreet) -- It was a mixed bag this year for traditional gaming firms, which faced declining market caps and a big, new gamer demographic that's shunning expensive console systems to play free games on mobile platforms like Apple's ( AAPL) iOS and Facebook.

In turn, companies like Electronic Arts ( ERTS) and Activision Blizzard ( ATVI) started to feel pressure to transition their business models toward ones that are more digitally-focused.

Analysts are expecting total video game sales for 2010 to be between $18.6 billion and $19.6 billion, which is largely flat compared to last year.

The tepid forecast comes despite a stellar holiday season, which saw video game sales rise 8% last month, marking the strongest November in record, according to industry tracker NPD Group.

Read on for how four of the biggest video game firms fared so far this year, and how they're set up to take on 2011.

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Activision Blizzard hit gold last month when its Call of Duty: Black Ops title set a new video game record, selling 5.6 million copies for $360 million on the first day of its release.

Black Ops, a first-person shooter game that takes place during the Cold War, could generate more than $818 million in sales over the holidays, according to Janco Partners analyst Mike Hickey.

Activision has also scored success with its World of Warcraft: Cataclysm game released Dec. 7, which became the fastest-selling PC game of all time , passing 3.3 million copies in its first 24 hours of release.

While several of Activision's competitors have struggled to transition their business models towards digital distribution, the Santa Monica-based company has thrived. The company saw online revenue surpass games sold at retail stores for the first time ever in the second quarter of this year.

Activision predicts that 80% of its projected revenue for full year 2010 will come from growth platforms like Xbox360, PC and online.

But although Activision is looking to derive a majority of its revenue from digital, the company does not feel pressure to invest in social gaming like its peers have done. CEO Bobby Kotick dismissed social gaming during an earnings call with analysts last year, calling the category "characterized by unproven business models and a lot of clutter."

In the most recent quarter, adjusted profit rose to 12 cents per share, from 4 cents per share last year. Analysts had expected profit of 9 cents per share. Adjusted revenue jumped to $857 million from $755 million during the year-ago quarter. Analysts had expected revenue of $747 million.

Shares of Activision have climbed almost 13% this year.

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Electronic Arts has been hit particularly hard by industry-wide troubles in the video game sector, pushing its stock down more than 7% year-to-date.

In turn, EA has scaled back the number of titles in its development pipeline and is pushing further into digital through acquisitions of social gaming companies Playfish and Chillingo, the publisher of the popular Angry Birds title.

The video game publisher also announced this month that it had expanded its Pogo casual games business to include mobile apps for the iPhone and iPod touch. The move places Electronic Arts in direct competition with Zynga, which offers similar games for mobile devices.

In its most recent quarter, digital comprised more than 19% of the company's revenue, up from 12% during the year-ago quarter.

EA reported adjusted quarterly revenue of $884 million, easily beating analyst estimates, but down almost 30% over the same period last year.

In November, Electronic Arts produced two of the top 10 video games, including Madden NFL 11 and Need for Speed: Hot Pursuit, according to industry tracker NPD Group.

The company's upcoming Star Wars multi-player game, to be released in 2011, is expected to further boost its digital revenue stream.

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THQ ( THQI) is up almost 25% year to date, as the market reacted well to strong sales of its uDraw tablet. The device, a drawing accessory for the Nintendo Wii, is currently the eighth most popular video game on Amazon ( AMZN). It launched in late November.

THQ declined to specify how many uDraw tablets it has sold, saying only early reports looked "very promising." The video game publisher previously increased guidance for the uDraw from 1 million devices to 1.25 - 1.3 million for the fiscal year.

>>THQ CEO: Great Games Transcend Platforms

THQ, which has traditionally been dependent on licensed intellectual property like its star Ultimate Fighting Championship and World Wrestling Entertainment titles, is shifting towards developing its own content internally, which will cut down on external royalties the company pays out.

The success of Microsoft's ( MSFT) Kinect this holiday season should also positively impact THQ, which has released several games for the device.

THQ is also focused on expanding its titles, including UFC, to Facebook's platform.

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Take-Two Interactive ( TTWO) underwent a successful business plan shift this year, which sees the company releasing fewer but higher-quality games and more downloadable content to complement already-released games.

The change has helped push Take-Two's stock up more than 20%.

In October, CEO Ben Feder announced that he would step down Jan. 1, with Executive Chairman Strauss Zelnick taking the chief role.

Fourth-quarter revenue at the company grew 32% from the previous year to $374 million on sales of games like NBA 2K11, Mafia II and Red Dead Redemption.

Take-Two posted earnings of 58 cents per share, up from a loss of 30 cents per share during the prior year.

--Written by Olivia Oran in New York.

>To follow the writer on Twitter, go to http://twitter.com/Ozoran.

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