That's the gist of a great piece in The New Yorker, which looks at falling profits at both Mattel and Hasbro and knows exactly where to point the finger. Rather than angling this as some kind of terrible omen, however, writer Ted Trautman takes the sensible approach, outlining just why kids are leaving dolls and action figures (both of which are experiencing a decline in sales) behind.
The short answer: video games are just better entertainment. Kids can play them by themselves, they've got a baked-in story (as opposed to toys like Transformers, which relied/rely on an external narrative) and are available everywhere they go, from their phones and tablets to consoles.
What's more, thanks to stuff like Skylanders and Disney Infinity, the lines between toys and games are even blurring; though huge sales of those series are a boon to the games business, not toy companies, since the figures count as games accessories, not action figures.
THE TROUBLE WITH TOYS [The New Yorker]