NEW YORK (CNN/Money) - This could be the breakthrough year that redefines the image of a toy.

Toymakers are getting their playchests in order as they prepare to unveil their hottest creations at the industry's biggest annual event next month, the American International Toy Fair in New York.

Sure, there is already plenty of buzz and nervous energy in the air as companies' fingers are tightly-crossed in hopes that they hit the jackpot this year with the hardest-to-please consumers -- kids.

While industry observers concede that 2004 probably turned out to be yet another snoozer for the industry, with annual sales expected to be flat to slightly lower year-over-year, the mood appears to be suspiciously upbeat that things will be much "different" from here on.

"The biggest trend in 2005 is the growth of the tech toys," said Jim Silver, an industry analyst and publisher of the Toy Book and Toy Wishes magazines.

Case in point: LeapFrog (Research)'s revolutionary "FLY pentop computer", a computer pen that can translate words into other languages or help with math and spelling homework.

Is this a toy or a gadget?

"Companies are really pushing the boundaries with innovation. We'll see things that you might not typically consider to be a toy," Silver said. "That's because the whole shape of what kids are playing with now has changed dramatically."

Chris Byrne, an independent toy analyst, agreed with Silver.

"In the 70s, 80s and 90s, toymakers created the demand by putting out a new toy and advertising the heck out of it," said Byrne. "But now companies are responding to the changing needs of kids."

Added Byrne, "The No.1 product last year for kids between the ages of eight and 11 was the iPod mini. That's not a toy at all. What does this show? The iPod is a banner of 'I'm cool.' These sort of cultural markers are just as important to kids as they are to adults. Toy manufacturers are finally recognizing that fact."

Both Byrne and Silver singled out No. 2 toymaker Hasbro (Research) as the company to watch out for. "I can't get into the details but Hasbro will lead the charge in terms of surprising consumers. They really are going to blur the vision between toys and electronics."

Hasbro declined to offer any details about the company's new product initiative, which Byrne said centers around a "lifestyle" concept with a heavy electronics component.

While Hasbro's being tight-lipped, other companies such as Mattel (Research), Radica Games (Research) and Bandai offered a sneak peek of their toy line-up.

No. 1 toymaker Mattel (Research) is again banking on its marquee brand Barbie to charm little girls all over the world. The company's latest offering is the "American Idol" Barbie doll and playsets. The company will also unveil and new Barbie in the fall based on the release of an original Barbie princess fairytale movie.

Said Byrne, "Mattel's story is that it is trying to innovate within its traditional rubric."

Hot off the success of the "20Q" game, the first hand held game that uses artificial intelligence for the classic game of 20 questions, Radica Games is introducing two new updates -- the Big Screen 20Q Deluxe and the 20Q Challenge.

The 20Q Challenge has a 360 degree display format that lets multiple users play the game at the same time.

"20Q was one of our best-selling product last year and we expect it to continue to do very well," said Patti Saitow, vice president of global marketing services for Radica.

"With the newer versions, we've extending the data assimilation by almost 15 months. The longer that 20Q learns, the more intelligent it gets," she said. "We think users will be amazed by how much smarter 20Q is now."

Also to be watched:

-- A digital camera creativity kit from Sakar International. The "KidzCam Digital Camera Kit" comes with its own software is an all-in-one center that lets pint-sized photographers do a lot more than point and shoot. The camera takes up to 152 pictures, while the software allows kids to edit, create slide shows as well as photo-based games.

If a kids' digital camera isn't good enough, the toymaker is also giving them their own "BlueBerrys", "GreyBerrys", "Grapeberrys" and "StrawBerrys." The Blackberry look-alikes are functional landline phones as well as organizers for storing phone numbers, email addresses and calendars.