Toymakers vs. the Wii

Recognizing that kids at a younger age are exposed to computers, Fisher-Price has created a keyboard specially for preschoolers. The "Computer Cool School" connects into a computer and comes with age-appropriate learnings games.

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Hot toys for 2008: Keyboard for toddlers, Wallcrawler Spiderman

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Take a sneak peek at Hasbro's hottest toys this season. Play video

NEW YORK (CNNMoney.com) -- The toymakers' motto for 2008: If you can't beat 'em, join 'em.

Toy companies, eager to grow sales in a stagnant $22 billion market, are on an all-out offensive against the iPod, Wii, PlayStation and other hot gadgets with new sophisticated tech toys of their own.

These new tech toys will be unveiled at the annual American International Toy Fair in New York that kicks off Sunday.

"Electronics and the Internet. That's what kids are obsessed about today," said Jim Silver, editor and co-publisher of Toy Wishes magazine. "They have an iPod, they are on Facebook and some are e-mailing by age five."

Although Mattel (MAT, Fortune 500) and Hasbro (HAS), the No. 1 and No. 2 toymakers, jumped on the electronics wagon a few years ago, the trend is even more pronounced this year as these companies strive to win back market share they've lost to electronics sellers.

The concern for parents is that some of the latest gadgety toys come with a hefty pricetag, which could be a problem at a time many Americans aren't willing to spend lavishly.

For example, Mattel's Fisher-Price preschool division will unveil a $180 "Kid-Tough" portable DVD player specially designed for a three year old.

Another new product Fisher-Price product is a $60 "Computer Cool School," a keyboard specially designed for toddlers that plugs into the family home computer.

"Wall Crawler Spider-Man" is a standout innovation from Hasbro. The remote-controlled Spider-Man toy, which incorporates vacuum-pump technology, actually crawls ups and down walls.

Neil Friedman, president of Mattel Brands, told CNNMoney.com that about 80% of the company's total product portfolio now consists of an electronic component. That's up significantly from just 10% of the mix in 1996.

"Kids today like tech toys. That's where the action is," Friedman said. "A big piece of our target market is playing with computer and other interactive gadgets."

Innovation carries higher price tag

Toy industry analyst Chris Byrne said companies are doing the right thing by pushing technological innovation in classic play toys. However, he is concerned about the higher prices.

"The one critical thing parents are going to look for this year is play value for money," said Byrne. "How long will my kid play with this pricey toy?"

Although he likes the the Kid Tough DVD player, "for $150 the screen is small compared to DVD players in cars," he said. He said parents already can buy a bigger screen DVD player for their kids at discount stores such as Wal-Mart (WMT, Fortune 500).Friedman countered that compared to the hundreds of dollars parents are spending on videogame systems and games, Mattel's new tech toys are still "relatively inexpensive."

"We have 3,000 toys in our portfolio," he said. "Our lead items are higher priced but we have many toys that are 99 cents."

Still, Friedman and other industry executives acknowledged that retail prices for toys will see some increases as companies try to offset escalating oil, labor, resin and transportation costs.

Additionally, Soren Torp Laursen, president of Lego Americas, said the toy industry's new safety guidelines could also push up production costs for manufacturer and retail prices for consumers - especially if they include mandatory safety checks.

On Friday, Wal-Mart and Toys "R" Us separately announced guidelines which, among other things, require manufacturers to cut the amount of lead used in toys sold in their stores..

The Consumer Product Safety Commission (CPSC) was expected to announce the guidelines Monday. The industry worked on the guidelines in response to public criticism of the 25 million toys recalled over the summer, which took a toll on overall toy sales last year.

However, the toy industry has weathered the cost of the recalls surprisingly well, according to the NDP Group, a leading consumer and retail information group.

According to research firm NPD Group, U.S. retail sales of toys slipped 2% in 2007 to $22.1 billion from $22.6 billion in 2006, although strong demand for action figures and toy vehicles helped offset some of the downtrend.

Besides the economy and safety, some companies are betting that concern about the environment will drive more parents to pick eco-friendly toys for their tots.

To that end, Planet Toys has a line of plush toys made from recycled bottles.

Other "green" toys hitting store shelves this year include a Monopoly Planet Earth edition made from recycled material that lets players buy, sell and trade natural resources.

Mattel has a line of Barbie girls accessories made from re-used fabric, and Corgi is using fuel cell, which combine hydrogen with oxygen from water, to power its line of environmentally friendly toy cars.