Video games are becoming more valuable thanks to favorable industry shifts like the drive toward digital purchasing. These changes have helped produce market-thumping gains for shareholders lately. In fact, industry leader Activision Blizzard (NASDAQ:ATVI) is the second best-performing stock on the S&P 500 in 2017 as of this writing, with a 53% spike so far. Its rival Electronic Arts (NASDAQ:EA) isn't far behind, at a 35% increase on the year.

Below, we'll take a closer look at the top developers that might make the best bets for long-term investors.

Biggest video game companies

Company

Market Capitalization

Price-to-Earnings Ratio

Activision Blizzard

$40 billion

40

Electronic Arts

$31 billion

35

Take Two Interactive

$7 billion

411

Data source: Yahoo! Finance.

Activision Blizzard

Activision Blizzard is a collection of development studios that each dominates its respective segment. The Blizzard business focuses on PC gaming with hits like World of Warcraft and Overwatch. The Activision side, meanwhile, owns the Call of Duty franchise, which has consistently been the most popular console game in the industry for the last decade. Also, the publisher's King digital segment tops the mobile download charts with Candy Crush.

Two friends playing a console game.

Image source: Getty Images.

Activision Blizzard's business is shifting in two positive ways right now. First, the move toward digital downloading has cut costs while also allowing the company to extend the lifecycle of its titles. Rather than collecting nearly all a game's profits around its launch window, for example, Activision is increasingly using content updates to keep players engaged throughout the year, making for a more profitable operation.

Second, the company's deep portfolio is lowering the risk of a flop in any single franchise. Last year, its biggest four titles accounted for 75% of revenue. Back in 2013, just three franchises, Call of Duty, Skylanders, and World of Warcraft, were responsible for 80% of sales and an even greater portion of earnings. 

Electronic Arts

Electronic Arts frequently clashes with Activision Blizzard at the top of sales charts. Its Battlefield franchise is one of the most popular shooters on consoles, and it enjoys a strong PC business led by intellectual property like The Sims. EA also covers the sports segment well through FIFA, the world's biggest sports gaming franchise, along with Madden and other professional sports titles.

The company generated $1 billion in profit over its last fiscal year through $4.3 billion of revenue. Activision Blizzard booked nearly the same amount of earnings, although from a much larger sales base of $6.6 billion.

EA's financial performance has been spectacular over the past four years as gross profit margin improved to 75% of sales from 62%, and annual operating cash flow jumped to $1.5 billion from $800 million. One of the most promising trends investors are watching for in its future is the trend toward subscription services, like EA Access. Platforms like that boost recurring revenue while pushing profitability higher.

Take Two Interactive

Take Two's (NASDAQ:TTWO) biggest video game hits include BioShock, Borderlands, NBA 2K, and Red Dead. But the publisher is best known for Grand Theft Auto, which is among the industry's most iconic franchises with over 240 million unit sales over its life to date.

Take Two hasn't been able to translate that solid portfolio into consistent earnings, though. Its deep dependence on the GTA franchise, for example, helped produce a 53% revenue slump in 2015, and the publisher has generated a net loss in three of the past five years, too. Take Two isn't quite as well positioned to take advantage of the stampede toward digital as its bigger rivals, either. E-commerce sales represented less than half of its business last year, compared to 54% for EA and 74% for Activision Blizzard.

While they wait for Take Two to build up a more diverse business, investors should focus on Activision and EA as the best vehicles to gain exposure to this industry. Sure, neither is particularly cheap right now, at over 35 times the past year's profits. But for my money, Activision represents the better bet even though EA is likely to have a stronger 2017. Over the long term, the leading publisher is ideally positioned to profit from any number of positive trends in the industry, including digital sales, mobile advertising, eSports, and game broadcasting.

Demitrios Kalogeropoulos owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard and Take-Two Interactive. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.