Eric Hirshberg, the head of Activision Publishing, is sitting pretty with a Call of Duty franchise that generates $1 billion every year and has a loyal audience of 40 million. Yet he plans to take a big risk with a big bet. The company skipped the expected plan of making Call of Duty: Modern Warfare 4 and decided to create a brand new version of the game dubbed Call of Duty: Ghosts. That game will debut on a number of platforms, including Microsoft’s just-announced Xbox One. The title, which will be out on Nov. 5, will feature exclusive downloadable content from Microsoft.

That’s a big commitment by Activision, and that’s why Hirshberg took the stage in the final minutes of Microsoft’s announcement of the Xbox One on Tuesday. He showed off a new game that will push graphics to the limit and feature other innovations, such as voice commands.

We caught up with him after the announcement. Here’s an edited transcript of our interview with Hirshberg.

GamesBeat: How are you taking advantage of these things in the Xbox One with Call of Duty: Ghosts?

Eric Hirshberg: We showed a lot of things I think are differentiating and exciting to us about what both our new engine and the next-generation hardware enable us to do. I hope you agree that the visuals are a step change in terms of realism and immersion and subtlety. It’s important for a game like ours, where every pixel matters and we’ve always run at 60 frames per second. Making that environment as immersive and detailed as possible will make the game better.

Also, one of the biggest things is the ability to connect emotionally with the characters. The more human and natural they feel, the more we can build real connections with the characters through the narrative. That’s why we’re focusing so much on story. That’s why we’re working with someone like Steven Gaghan. That’s why we’re focusing on a single squad for the entire campaign. Traditionally, Call of Duty has jumped around, and your identity changes from level to level. Sometimes that even happens multiple times per level. This commitment to going through the adventure and the journey with one band of brothers is going to be a nice shift for the franchise.

GamesBeat: That does look like an interesting convergence, where you need to hire the best writers to match up with what you can do visually.

Hirshberg: Exactly. They’re very related. And that’s not new. We worked with David Goyer on Black Ops. Having top talent involved with the story is not new. I will say, though, that we’ve gotten even more integrated between the creation of the story and characters and the creation of the game events than ever before.

GamesBeat: I came from the panel where they did the Kinect demo. They can apparently measure your heartbeat now by watching your face move. The controller gives you this heartbeat-like feedback as well. You can imagine that in a Call of Duty game, where that feedback makes the game more intense. Everything that you talked about on stage was on the visual side, but are you also excited about those features as well, like what a better Kinect can deliver?

Hirshberg: I made a passing comment that you’re going to see voice integration, voice commands via Kinect, which is something that we haven’t done in the past with Call of Duty. We think the improvements to Kinect really excite us because of the level of responsiveness and detail. I thought that the demo they did with the voice commands on television, the instant changing between games and music, was really compelling. You’ll see more of this coming from us as we get closer to the launch.

Obviously, we didn’t reveal that element today. We just mentioned it. But we’ve always made sure that we don’t just use new technology for novelty’s sake. We always make sure that it makes the gameplay better. In this case, we think it will.

GamesBeat: When you buy into some of these things, what do you think about, given that you have choices? You have Nintendo, Sony, or Microsoft here. If you’re buying into Microsoft’s platform, why do you choose that?

Hirshberg: I think that’s probably a better question for Microsoft. Obviously, we want all these platforms to be successful. We’re proud to be here to help reveal the new Xbox, and we want to provide some great content for the players.

They all have to be great game machines first. I think that’s the tip of the sword. Everyone’s trying to own the living room and own the entire entertainment experience, but it’s a game machine first and foremost. We’ve been pleased with Xbox’s approach.

GamesBeat: There is more entertainment stuff that’s going to happen, though, on this box in the future. Is that a good thing for everybody?

Hirshberg: I think it is. The only way it isn’t is if somehow that makes it a less potent gaming machine, but in this case, what we’re seeing in the next generation of hardware is giving us tremendous new tools to play with.

That said, I don’t think competition for different forms of entertainment in the living room is anything new. People can watch TV in their living rooms now. People can listen to music in their living rooms now. There’s a false divide that gets created in people’s minds sometimes, as though hardcore gamers don’t also consume other forms of entertainment and wouldn’t appreciate those things being made more seamless and more integrated into a more elegant experience. I think that’s all that you’re seeing here. To me, as a gamer, I’m excited by it.

GamesBeat: One thing that seems difficult for these guys to walk the line on is these consumer-rights issues that are popping up, about [digital rights management] and the constant connection and used games and so on. It seems like a sharper conversation to me than it’s been in the past.

Hirshberg: There’s certainly a lot of passions around it all. I think that it’s on the first parties to make sure that the benefits are compelling enough to attract people to that feature. But again, this is probably a better question to ask Microsoft. I know they’re considering that element carefully. I don’t want to just weigh in with my opinions. This is one of the things they’ve got to get just right with their launch. I think that a great experience is the way to the promised land.

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Skylanders: Swap Force will debut this fall as the third in the series of game-toy hybrid products that have sold more than $1 billion worth since 2011.  The new game has interchangeable body halves of Skylanders: Swap Force toys, allowing kids to mix and match their collections to create new kinds of game characters. Activision hopes that will lead to more repeat business at a time when it will face significant competition from Disney’s upcoming Infinity toy-game hybrid products launching in August.

In this market, Activision is the smaller company, but it has the advantage of having sold more than 115 million Skylanders toys.

The challenge for Activision’s marketer’s — Josh Taub (left) senior vice president of product management, and John Coyne (right), senior vice president of consumer marketing — will be to grow the franchise at a time when Disney attacks the same market using famous entertainment brands such as Toy Story, The Incredibles, Monsters Inc. (and the upcoming Monsters University), and Cars. Activision Blizzard chief executive Bobby Kotick said in a recent earnings call that the company will face significant competition in the second half of the year, making financial performance less predictable. Activision is going to spend more money marketing its titles later this year, and that means there’s going to be a lot more pressure on Taub and Coyne to execute.

Here’s the edited transcript of our interview with Taub and Coyne.

GamesBeat: You’ve built up something pretty big in a couple of years here.

Coyne: Yep. We’re very proud of the growth that we’ve seen for Skylanders in about 18 months. We’re now over a billion dollars. For myself, I’ve been involved with the franchise now for more than four years. It’s been a great project, seeing everything come to fruition.

GamesBeat: You have competition coming from Disney Infinity. What does that mean for you?

Taub: It means that we have to continue to focus on where we started and where we’re going. We’ve innovated a category, bringing toys to life. We’re focused on what we’re doing. We’ve sold more than 115 million toys to date. We have kids playing on nine-million-plus starter packs. We’re focused on providing them with an innovative experience in the franchise, and we’re focused on doing what we do best, which is bringing a great video game experience and a great toy experience together.

GamesBeat: Obviously you have a really good margin for add-on sales after the base pack, especially with your great relationship with retail. The setups in Toys R Us are amazing. But there are 60 new toys coming out this season. That’s a significant amount of product. Is there a point where you worry that you’re going to get pushback from consumers when it comes to the number of toys being released?

Taub: I think what’s happened is that the consumers are actually telling us that they have an appetite for things that feel special to them, and the ways of interacting that are unique to the game. What they’re doing through buying the toys is having different engagements with the franchise as a whole. We’re not seeing at it as “there’s a saturation point.” We’re seeing it as there’s place where kids want to continue to come back through the year, and rather than buying the next game, they’re buying what is in a sense add-on content to experience the same game in a different way. Each time they put a new character on and have a different weapon or a different play pattern, it gives them a unique experience that they’re not getting anywhere else. We’re not seeing saturation as an issue. In fact, our attach rates are up from the first game to the second. We anticipate that will continue.

GamesBeat: Can you give us any specifics on what those attach rates are?

Taub: At this time, we can’t.

GamesBeat: Has the demographic shifted any since launch? It does seem like, just anecdotally, as it’s become a bigger deal, more people have come in from a broader audience saying, “This isn’t just a game for my eight-year-old.”

Coyne: I think there is a core still, but I do think it’s something that gamers are enjoying — the toys coming to life, the characters. Families enjoy it. Girls as well as boys enjoy the game. It really is quite a broad demographic that we’re seeing enjoy the game. I hope that, with the new game, we’ll see that trend continue.

GamesBeat: What about the spread between the people who buy a few and the people who have to collect ‘em all?

Coyne: I’ve worked on a lot of toy franchises, collectible franchises. You’re always going to have people that choose very carefully the characters they buy, and then you’re going to have some kids and gamers who want to get everything that they can. The game is equally enjoyable either way. We always make sure that you can play through the game with the starter pack toys.

Taub: The last piece on the expanding demographic is that they’re seeing that we’re not setting out to make a game that is just a kids’ game. It’s a triple-A game in every way, from graphical fidelity to development time to the studios that are involved. It’s a meaningful gaming experience. While kids may be the place where it started, you’re starting to see an appreciation for the quality of gameplay and the replayability and the enjoyment factor.

Coyne: That’s also true when you see families play together. It’s the type of game where dads and moms enjoy playing with their sons and daughters. It’s an easy game to enjoy.

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Fight or flight. Those are the two options we have when faced with conflict. Activision, confronted with stiff competition, is choosing to fight … with its checkbook.

During a conference call with investors today, Activision executives voiced concerns that some big competition could draw consumers away from its games during the upcoming holiday season. Infinity Ward’s Call of Duty: Ghosts will go head-to-head with EA’s Battlefield 4, Skylanders: Swap Force will have to fend off Disney Infinity, and Blizzard All-Stars must try to find its way into a market crowded with Riot’s League of Legends and Valve’s Dota 2.

“The competitive landscape will likely require us to increase our sales and marketing for our three largest franchises,” Activision chief executive Bobby Kotick told investors. “This year we expect a number of well-established game franchises and well-capitalized new entries to compete directly for our consumers’ time and attention, particularly as some of our competitors have moved their titles to the back half of the year.”

Activision seems particularly concerned about Battlefield 4. That first-person shooter from developer DICE and Electronic Arts has brand recognition and is coming off its most popular release in its franchise history, 2011′s Battlefield 3.

In response to that, Activision is planning a giant ad campaign for the Infinity Ward title.

“We plan to continue building Call of Duty momentum with Call of Duty: Ghosts on Nov. 5 for Xbox 360, PlayStation 3, and PC,” Activision Publishing chief executive Eric Hirshberg told investors. “Ghosts will also be available for next-gen platforms and will be supported by one of the largest sales and marketing plans in the brand’s history.”

Ghosts introduces a new world with new characters for the Call of Duty franchise, but it also has a new graphics engine and a new subtitle. Activision might worry that fans will skip this game while waiting for a Modern Warfare that will never come.

“Console transitions are an opportunity to reestablish franchises, so we want to do that,” said Hirshberg. ”We’re going to keep our ability to defend our market share vigorously.”

As Battlefield threatens Call of Duty, Disney Infinity targets Skylanders.

Infinity is Disney’s take on the interactive toys that Activision developed in the Skylanders series. Skylanders is now a $1 billion franchise for the publisher, so naturally it wants to defend that place in the market from the behemoth Disney. Infinity will offer players the chance to bring their toys into the games, only it’ll be able to capitalize on Pixar and other beloved Disney brands.

Activision won’t just have to fight Disney for games sales but also for precious shelf space at toy retailers.

Finally, on the PC, Blizzard is losing ground in terms of player engagement. Gamers are shifting from World of Warcraft to free-to-play MMOs and multiplayer online battle-arena titles like League of Legends and Dota 2.

WOW lost 1.3 million subscribers, and gamers are spending more time with those free-to-play competitive games. Blizzard has its own MOBA in the works, Blizzard All-Stars, but it’s going to face an uphill battle once it finally debuts.

Activision is still in a strong position. Call of Duty will likely still outsell Battlefield 4, but this is the first time in a while that Activision’s three billion-dollar franchises have faced competition this strong. That means you should probably get your DVRs ready, because the publisher is going to hit you in the face with as many ads for its games as you can stand.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Earnings season is that special time when video game publishers reveal if they are actually making money. Starting today and continuing through next week, Activision, Electronic Arts, and Take-Two will all report their results for the last fiscal quarter.

We checked in with a few analysts to see what they are expecting from these three major publishers. Will first-person shooter BioShock Infinite push Take-Two Interactive over its expectations? Is the Call of Duty military first-person franchise still powering Activision’s growth? Will the Star Wars video game license have an immediate impact on EA’s outlook?

Let’s take a look.

Electronic Arts

Let’s start with Electronic Arts, which reports its earnings today after Wall Street’s closing bell.

The Madden publisher is still looking for a permanent chief executive officer since John Riccitiello stepped down from that position in late March. That hasn’t stopped EA from making big moves under the direction of executive chairman Larry Probst.

Under Probst, EA cut 1,000 jobs. It severely downsized its EA Mobile operations in Montreal. It also cut staff at Army of Two: The Devil’s Cartel developer Visceral Montreal. The publisher secured the rights to the Star Wars franchise. Oh, and it also won the title of Worst Company in America from the Consumerist blog for the second year in a row.

EA also had a spate of game announcements that include two new Plants vs. Zombies titles, The Sims 4, and rumors that Respawn (former Call of Duty team) will show its shooter at Microsoft’s Xbox event later this month.

That’s a lot to fit into a single financial report.

“EA has already preannounced results ‘at or below the lower end’ of [expectations],” Sterne Agee analyst Arvind Bhatia wrote in a note to investors. “For EA, the key will be fiscal-year 2014 guidance, which is likely to be conservative given the company doesn’t have a permanent chief executive officer and new chief financial officer Blake Jorgensen appears to have a mindset of under-promise and over deliver.”

With the huge news that EA has secured the Star Wars license, however, investors may want to see a forward-looking guidance that factors in that gigantic property. That’s unlikely to happen.

“Star Wars won’t impact earnings next year,” Wedbush analyst Michael Pacther told GamesBeat. “It’s going to take a while to make a game.”

As for The Sims 4 and PopCap’s new games, those will factor into the guidance, but EA will have had them in the works for a long while.

EA seems like a company trying to reboot in order to offer a fresh start to whoever takes over as CEO. For that reason, expect an underwhelming guidance that will give the new chief executive the chance to overdeliver, just as Bhatia suggests.

Activision and Take-Two

Conflict and hardship makes for a good story, which is why EA is the big story. The other two publishers, Activision and Take-Two, are in much sturdier positions.

Activision still has Call of Duty generating huge numbers, although we’re curious to see if Black Ops II kept up with previous entries in the series.

Take-Two had critical and commercial success BioShock Infinite to push it through its last quarter.

“We believe Activision and Take-Two will likely exceed March quarter expectations,” Bhatia wrote.

Take-Two is flipping over to its fiscal 2014, so we will get a look at some annual guidance. In the past, the publisher expected Rockstar’s Grand Theft Auto V to bring in around $600 million before delaying it to September. Expect the publisher to roll out some major expectations for the next year.

Activision just announced a new Infinity Ward Call of Duty game that will anchor its holiday lineup. The publisher will also get help from a new Skylanders game that has its own line of physical, interactive toys, which retailers struggle to keep on the shelves.

Activision is also publishing the next game from Halo developer Bungie. The first-person shooter, titled Destiny, isn’t due out during calendar year 2013, which coincides with Activision’s fiscal year, so don’t expect that game to factor into any guidance.

Finally, any guidance through the spring quarter will likely tail downward for all three publishers. The release slate from April through July is devoid of many major releases. That’s due to the typical swing of the release schedule, but many developers are probably busy producing products for the upcoming next-gen consoles.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Disney Infinity is skipping Pixar’s next movie in exchange for more shelf space at retail.

The company is delaying Disney Infinity from June to August based on feedback from retailers, according to the New York Times. Disney Infinity, a Skylanders-like digital playground that works with physical toys based on popular Disney properties (like the upcoming Monster University), will now hit U.S. stores on August 18.

While August is normally a back-to-school month for children and parents, retailers were willing to give the game and its toys more display space if Disney launched the product closer to the holiday shopping season.

“The date because an issue in terms of them asking ‘Is there a better opportunity here?’” Disney Interactive co-president John Pleasants told the Times. “We could deliver in June if we wanted to.”

Pleasants said the developers will use this extra time to ensure the game “sings and pops.”

Meanwhile, Nintendo is planning a similar title for its Pokémon franchise, which it just recently introduced in Japan, and Acitivion will unleash the third Skylanders game, Swap Force, sometime this fall.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Activision makes a lot of money from a few properties, and it just added another franchise to its billion-dollar club.

The company revealed that the Skylanders series generated more than $1 billion since its debut in 2011. A huge chunk of that revenue comes from the over 100 million Skylanders toys the company has sold.

“The Skylanders franchise became the first kids’ video game intellectual property to cross the $1 billion mark in just 15 months, and I think we are still just starting to realize its potential,” Activision Publishing chief executive officer Eric Hirshberg said in a statement. “We knew that the simple, but magical, idea of bringing your toys to life in a video game could change both the video game and the toy industries and, more importantly, change the way kids play.”

Skylanders did ambush the market with technological  innovation. Each figure comes with a special “portal” for the player to place toys on. Those toys then instantly manifest within the game. So instead of creating a game and separate line of toy merchandise, Activision’s Toys For Bob studio created a product that requires both to fully function.

That business model propelled Skylanders action figures to outsell Star Wars and Transformers toys at retail.

A new Skylanders game is due out in 2013. It would make the third game in the series in three years.

“This fall, we’re looking forward to delivering to fans our latest break-through innovation, Skylanders Swap Force, which lets kids customize their own characters, bringing toys to life to a whole new level,” said Hirshberg.

Players can use Swap Force to mix and match the legs and bodies of various new action figures. It debuts this fall for major gaming platforms.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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If you follow VentureBeat but don’t regularly check our GamesBeat site, here’s a list of the best video game stories we ran over the last seven days that you may have missed.

This week, the 2013 D.I.C.E. (Design, Innovate, Communicate, Entertain) summit took place in Las Vegas, Valve founder Gabe Newell argues for PC gaming in the living room, Journey dominates the D.I.C.E. awards, and Star Wars director J.J. Abrams and Valve announce they’re working on a game.

You’ll also find a breakdown of game investments for 2012 from GamesBeat’s Dean Takahashi, reviews of Ni No Kuni: Wrath of the White Witch, Sly Cooper: Thieves in Time, and Dead Space 3.

D.I.C.E.:

• Journey dominates the 2013 D.I.C.E. Awards (full winner list)
• An interview with Jenova Chen: How Journey’s creator went bankrupt and won game of the year
• Qualcomm is ready to deliver mobile users a real gaming platform (interview)
• Gearbox Software’s Pitchford on being a magician & the importance of offering choices
• Borderlands 2 developer: Raising the level cap could break our game (interview)
• Valve’s Gabe Newell argues for PC gaming in the living room — but Apple is scary
• Ubisoft’s Xavier Poix spells out lessons from Wii U launch games (interview)
• Words With Friends co-creator Paul Bettner starts a studio to focus on Ouya console games (exclusive interview)
• Why the creation of ‘transmedia project’ Defiance terrified game developers and TV show makers
• Heavy Rain maker argues that games need to grow up — and offers nine ways to make that happen
• Sledgehammer Games’ Glen Schofield on using everyday inspirations for making games
• ‘Star Wars’ director J.J. Abrams and game maker Gabe Newell: We’re working together on a game
• David Ko puts up the ‘guard rails’ at Zynga to keep costs under control (interview)
• Zynga to close CityVille 2 as it shows no mercy for weak games

News:

• The DeanBeat: After Zynga’s crash, game investments dive 42 percent in 2012
• Never-ending Xenomorphs — Get the Aliens: Colonial Marines Season Pass for $29.99
• Ouya planning for yearly updates for its Android-based console
• The ECA names troubled HipHopGamer as the ‘voice’ of gamers
• Director Brett Ratner (the anti-J.J. Abrams) adapting Farmville for television
• Activision CEO: Slow Wii U sales a ‘challenge’ for Skylanders
• Activision Blizzard beats earnings expectations as Call of Duty and Skylanders blast rivals
• Shocking: Ubisoft releasing new Assassin’s Creed this year with hero and setting
• Ubisoft now bringing Rayman Legends to Xbox 360 & PlayStation 3 — Wii U version delayed until Sept.
• Assassin’s Creed III ships 12M, Far Cry 3 ships 4.5M — Ubisoft has $1B quarter
• Steam quietly fixes bug that makes your private game info public
• Game industry pros list their most-wanted games of 2013
• Analyst: ‘Highly unlikely’ that Microsoft blocks used games on next Xbox
• Bethesda update adds HD textures to Skyrim’s three expansions on Steam
• Goodbye, Zaeed: Mass Effect voice actor Robin Sachs dead at 61
• Ex-People Can Fly developers reveal their new horror game, The Vanishing of Ethan Carter
• Chumba World Kickstarter wants to bring online gambling to the MMO crowd (exclusive)
• Jon Shafer’s At the Gates: New strategy studio Conifer Games is starting small but has huge ambitions
• Take-Two CEO confident about publisher’s outlook despite industry obstacles
• New physical video game sales account for less than 50% of a $14 billion market in 2012
• Take-Two boss claims the Grand Theft Auto V delay has nothing to do with the next-gen consoles
• XCOM: Enemy Unknown leads publisher Take-Two to strong fiscal third quarter
• EA (‘the worst company in America’) was the best-reviewed publisher of 2012
• Zynga gets its mojo back with higher-than-expected sales and a small Q4 profit
• Sony ditches ad agency responsible for ‘Michael’ commercial — hires Google Chrome marketers
• Atari secures financing to stay afloat while it evaluates strategic options
• The biggest game releases of 2013
• Exclusive: Minecraft’s Notch no longer funding Psychonauts 2
• Pikmin 3 will let you play while your significant other watches TV (updated)
• Madden NFL 13′s prediction for the Super Bowl was scary accurate
• IGN gets a new home under new owners Ziff Davis
• In the nick of time, American McGee’s Akaneiro hits Kickstarter funding target

Mobile News:

• Educational app dev Intellijoy finds success in casual gaming with Rescue Roby (exclusive)
• Green Throttle makes it easy for developers to add controller support to Android games
• Wikipad’s 7-inch Android gaming tablet will hit retailers in spring for $249
• The Force in your flippers: Star Wars Pinball coming soon for iPad and Android tablets
• Amazon launches its own virtual currency for Kindle Fire: ‘Amazon Coins’

Interviews:

• Can live speedruns compete with e-sports? (interview)
• Veteran designer returns to online games with Camelot Unchained (interview)

Reviews:

• Sly Cooper: Thieves in Time saves this capable raccoon from becoming history (review)
• Dead Space 3 is a disturbing ride from beginning to end (review)
• Ni No Kuni: Wrath of the White Witch: Stupid combat mars a poignant tale (review)

Previews:

• Skylanders: Swap Force is Activision’s next big bet on hybrid toy-games (preview)
• Brave female survivors break stereotypes in The Last of Us (hands-on preview)
• Mirror of Fate brings some humor back to the Castlevania series (hands-on preview)

Pieces of Flair:

• You forgot Luigi’s birthday (again), but this one’s a 30-year milestone
• All-new images from The Art of Dead Space

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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The Wii U is having a bad day. First, Ubisoft announced that it is delaying Rayman Legends and releasing it on Xbox 360 and PlayStation 3 as well. Then Activision chief executive officer Bobby Kotick said he is disappointed in the new Nintendo console’s performance. Not angry … just disappointed.

In a conference call to investors to report the company’s annual earnings, Activision’s top executive said that the slow adoption of the Wii U would pose a challenge for its Skylanders gaming franchise.

Skylanders is Activision’s action-game series aimed at children that combines physical toys with a virtual in-game world.

During a question-and-answer session with investors, Kotick elaborated about Nintendo’s newest home console.

“We were somewhat disappointed with the launch of the Wii U,” he said. “It’s a challenging environment. One of the things we’re worried about is what the install base will be for 6 to 12 year olds.”

Combined, the PlayStation 3 and Xbox 360 — both at the end of their console life cycle — sold over 100 million units. The Wii U is only just getting started and is still under 10 millions units sold. The same thing will happen to the next Sony and Microsoft systems, and Activision is aware of the difficult transition.

“It’s something we’re concerned about,” said Kotick.

But Activision Publishing CEO Eric Hirshberg is confident that Skylanders will push through the slim early months of the shift to new hardware.

“The [properties] that do the best on new consoles are the ones that finish out the best [on the last systems],” said Hirshberg.

Since its 2011 debut, the Skylanders franchise generated more than $1 billion in revenue and sold over 100 million toys. Activision is planning to release the third game in the series this year, Skylanders Swap Force.

And what about new competition from Disney Infinity, which combines the toy-based gaming model of Skylanders with the brand power of The Walt Disney Company?

“We take every competitor seriously, but Skylanders is a proven force,” said Hirshberg. ”If the response we’re seeing from toy fairs is anything to go by, we expect to increase our presence at retail [this year].”

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Activision Blizzard is unveiling a new Skylanders game today that shows how it continues to innovate with its extremely successful hybrid toy-video game franchise. The interchangeable body halves of Skylanders: Swap Force toys are the new gimmick that the company is using to get kids to buy even more Skylanders and push the franchise to a billion dollars in sales.

Skylanders: Swap Force features toys that can be split in half and then mixed with other toys, giving characters inside the video games new amalgamated features. You can, for instance, combine the legs of a fast Skylander with the upper body of a brawny beast to create a fast character that has a lot of firepower. The 16 new characters in Swap Force can be combined into more than 250 unique combinations.

In Swap Force, players will find a new adventure in the Cloudbreak Islands, or floating lands in the sky that are home to a mystical volcano that erupts once every hundred years. During a battle, a group of Skylanders were caught in a volcano eruption, which blasted them apart and sent them to earth. They now have the ability to swap halves. But the evil Kaos is back with a new plan to attack the Skylands.

It’s not a huge change from the past games, which included Skylanders: Giants (released in October 2012) and Skylanders: Spyro’s Adventure (released in October 2011). But it is different enough to give something new for kids who have purchased more than $500 million worth of Skylanders toys and games in the past two years. The big idea with Skylanders is to “bring toys to life” by enhancing them with video games.

With the launch of Skylanders: Swap Force this fall, Activision is doing what it does best: taking a blockbuster game franchise and milking it for all it’s worth on an annual refresh cycle. Most big games come out once every two or three years, but Activision has put enough developers on the Skylanders property to release one every year. In fact, this game isn’t being made by the Toys for Bob game studio in Novato, Calif., that made the two previous versions. Instead, Vicarious Visions studio is developing. (That means Toys for Bob is probably working on something else.)

Santa Monica, Calif.-based Activision is unveiling the products at the Toy Fair show next week in New York City. In a short time, Activision has made Skylanders into one of the top-five best-selling franchises of 2012, moving more toys in a quarter now than Star Wars or Harry Potter. On the video game front, Skylanders was such a threat that Disney just launched its similar toy-hybrid product family, Disney Infinity, based on its own characters. Such franchises are huge “transmedia” efforts, or those that cross different media.

“With Skylanders, we didn’t just create a beloved new franchise — we actually created an entirely new category that brings the world of physical toys and video games together like never before. And now with Skylanders Swap Force, we are pushing the genre we created forward with another big innovation: customization,” said Eric Hirshberg, chief executive of Activision Publishing, a division of Activision Blizzard. “The idea that kids can customize their own characters in the physical world and have their unique combinations recognized in the virtual world is an idea as big as the concept of bringing toys to life itself.”

With Skylanders, you plug a portal (pictured right) into a video game console. When you put a toy on the portal, it lights up and transfers the character and its saved status into the game. You can swap characters whenever you need to make a change. And now you will be able to swap the halves of the 16 new characters as well. The existing Skylanders toys will work in the upcoming Swap Force game.

In a demo, Activision producer Chris Wilson showed me that the company is also making tweaks to the video game. The new imagery will be in high definition, with much more crisp art work. Skylanders characters will also be able to jump for the first time, allowing them to scale walls that they couldn’t in the two previous games.

One new character is Magna Charge (pictured below), as a Skylander with tech capabilities, such as a magnet. He can engage in bursts of speed. Another character is Countdown, who is a walking time bomb. He can toss his head at enemies. If you combine Magna Charge’s lower half with the upper body of Wash Buckler, a close-range fighter, then the combined character is faster and good at close-range fighting.

The game will also have 32 new core Skylanders characters (16 completely new Skylanders and 16 new versions of fan favorite characters from previous games) and eight new Lightcore characters. After Swap Force launches, kids will have more than 100 characters to choose from. That gives the games endless replay value.

“Skylanders Giants was named to our 2012 Holiday Hot Toy List for good reason — it extended the franchise’s breakthrough gameplay, and its performance at retail has been incredible. We’re continually impressed by the originality that Activision delivers in bringing toys to life,” said Jerry Storch, chairman and CEO of the Toys “R” Us retail chain. “The innovation of allowing kids to customize their toys in the real world and then send them into the Skylanders Swap Force game is sure to raise the bar for the franchise.”

Vicarious Visions, which has worked on parts of Skylanders since the beginning, is making the Wii U, Xbox 360 and PlayStation 3 versions of Skylanders: Swap Force. The Beenox studio is making a Wii version, while n-Space is making a 3DS version.

“Toys for Bob is not developing this one, but they are providing input,” Wilson said.

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