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When it comes to videogames, it has truly become a battle of the bands.

In one corner is Activision Blizzard (nasdaq: ATVI - news - people ), which swooped onto the scene first with its "Guitar Hero" series. However, Electronic Arts (nasdaq: ERTS - news - people ), the 800-pound gorilla in the videogame world, was not about to be outdone by anyone. So the game producer soon launched its "Rock Band" series, helping to keep gamers in rock nirvana.

Today, we're going to examine the two sides and try to determine an investment winner.

On Halloween, Electronic Arts marched into the earnings spotlight to reveal that its fiscal second-quarter net loss had widened. What's more, the firm announced plans to slash 6% of its workforce amid a slowdown at the retail level. The videogame maker, best known for its "Rock Band" and "Madden" franchises, reported a net loss for the quarter of $310 million, or 97 cents a share. Excluding items, the loss came in at 6 cents per share on revenue of $894 million, excluding a deferred revenue benefit from online-enabled packaged goods games and digital content.

Including the benefit, revenue was up 20% to $1.13 billion. Overall, analysts had predicted an adjusted loss of 6 cents on revenue of $1.08 billion, excluding the deferred-revenue benefit.

In addition, Electronic Arts slashed its adjusted per-share earnings expectation to a range of $1 to $1.40 from the previous projection of $1.30 to $1.70. The company still expects revenue according to Generally accepted Accounting Principles of $4.9 billion to $5.15 billion. Wall Street expected per-share earnings of $1.42 on revenue of $5.04 billion.

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Technically speaking, it's been a rough year for Electronic Arts. The shares have dropped more than 60% since the start of 2008 and are now hovering at their lowest levels since October 2001. In fact, it appears the security is still struggling to put in a bottom, as it drops under resistance at its 10-day and 20-day moving averages. While the stock is clinging to support in the 22 region, ERTS could be pressured through this level as it continues its long-term downtrend.

From a sentiment perspective, investors are surprisingly optimistic when it comes to ERTS. The Schaeffer's put/call open interest ratio, which compares put open interest against call open interest among near-term options, stands at 0.51. This low reading indicates that call open interest nearly doubles put open interest among near-term options. What's more, this reading is lower than 77% of those taken during the past year, indicating that investors have been more pessimistic just 23% of the time.

ERTS is also vulnerable to potential downgrades. Zacks reports that nine of the 13 analysts following the stock rate it a "buy" or better. Any downgrades from this smitten bunch could spell trouble for the shares. To take advantage of this unwinding of optimistic sentiment, traders should consider the equity's January 2009 22.50 put.

Meanwhile sales remain strong at Activision Blizzard, home of the popular "Guitar Hero" and "World of Warcraft" series. Earlier this week, the company said total revenue rolled in at $717 million, up from its year-ago levels of $610 million and the Street forecast for revenue of $632.1 million. Activision also posted a profit of $92 million, or 7 cents a share, beating the Street estimate for a profit of 4 cents per share. In addition, the company reaffirmed its full-year forecasts for an operating profit of $1.2 billion on sales of $4.9 billion.

In an interview with Dow Jones Newswire, Activision Chief Executive Robert Kotick warned, "There's not much visibility on what consumer spending will be." However, he continued to say that "we don't see any indication that the retail environment for these products is changing. Given all economic uncertainty that exists right now, the fact we can continue to have confidence in our product portfolio is saying a lot."

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Shares of ATVI rallied sharply on Thursday following the positive earnings news, while shrugging off a pair of price-target cuts from brokerage firms. The security has settled into a sideways channel along support in the 10.50-11 region.

What's more, the stock is clinging to support in the 12.25 area, which marks a 50% retracement of its rally from its July 2006 low to the July 2008 high. This area could now serve as a point from which the shares could stage their rebound following the consolidation of the stock's losses. Furthermore, one other thing to keep in mind is that ATVI has held up better than its peers in this rough market, as the shares are down less than 25% since the start of 2008.

However, one concern with ATVI is that sentiment toward the shares is relatively optimistic. Zacks reports that 15 of the 17 analysts following ATVI rate it a "buy" or better. If consumer spending comes in weaker than expected this holiday shopping season, ATVI shares could easily be hit with a round of downgrades.

Options players are also optimistic when it comes to the videogame maker. Looking at the front-month open interest configuration for the stock, we find that peak November call open interest rests at the out-of-the-money 17.50 strike, with more than 11,300 contracts, while the November 15 calls has open interest of 11,200 contracts.

Meanwhile, peak November put open interest sits at the 15 strike, with fewer than 10,900 contracts. This preference for calls over puts indicates that investors aren't expecting the shares to break through support in the 11 region.

Overall, traders will want to keep a close watch on ATVI. A strong holiday shopping season could send these shares soaring, justifying the optimism on the shares. Investors may want to wait for a weekly close above resistance at the stock's declining 10-week trend line as a sign that the security's winning ways are here to stay.

A cousin to the videogame maker, but no less important, is the videogame retailer. At the top of the heap is GameStop (nyse: GME - news - people ), the largest retailer of new and used games, hardware, entertainment software and accessories through more than 5,550 stores located in 16 countries. The company also operates e-commerce Web sites (GameStop.com, ebgames.com) and publishes Game Informer, a videogame magazine that reaches more than 2.9 million subscribers.

The company is slated to report earnings before the market opens on Nov. 20, with the Street forecasting a profit of 37 cents per share. Historically, the company has surpassed the consensus estimate in each of the past four quarters.

Heading into the earnings report, Wall Street is extremely optimistic when it comes to the retailer. Zacks reports that all 12 of the analysts following the firm rate it a "buy" or better, leaving ample room for downgrades should the company post less than stellar results.

Another concern is the stock's technical performance. The shares have dropped more than 60% since the beginning of the year and have fallen under resistance at their 10-day and 20-day moving averages during the past couple of months. The security is now struggling to hold on to support at the 24 level. From a longer-term perspective, the stock has dropped below key support at its 10-month and 20-month trend lines, pulling them into a bearish cross.

To take advantage of a potentially sharp move following the stock's earnings report later this month, traders may want to consider playing a December 25 straddle on the security.

Electronic Arts proved that an economic downturn can impact the "recession proof" videogames industry. Despite the release of the company's highly anticipated "Spore" in September, the gaming giant reported a wider-than-expected second-quarter loss on Oct. 30 and said it is cutting 6% of its workforce to reduce costs by $50 million as retail sales slowed in October.

Activision (nasdaq: ATVI - news - people ) Blizzard, EA's main rival, is expected to fair much better in its second-quarter earnings Wednesday. Analysts polled by Thomson Reuters expect Activision Blizzard, which formed last July from the merger between Activision and Vivendi-owned Blizzard Entertainment, to report second-quarter net income of $55.4 million, or 4 cents per share, on revenues of $632 million.

And there are indications that the company will have a very merry third-quarter, thanks to the holiday-timed release of updates to its core blockbuster franchises. In addition to the recently released "Guitar Hero: World Tour," updates to other hits are arriving in the next few weeks. "Call of Duty: World at War," the followup to the 2007 worldwide best-seller "Call of Duty 4," hits shelves Nov. 11. "Wrath of the Lich King," an expansion game of the massively popular "World of Warcraft, " launches on Nov. 13.

Analysts expect Activision Blizzard to provide an update on "Guitar Hero: World Tour" sales so far. "It comes down to the performance of specific titles," says Cowen & Co. analyst Doug Creutz. "That's what people are going to be focused on."

In terms of weathering the tough economy, Creutz says Activision Blizzard is better positioned than EA because it has more cash and less exposure to overseas markets.