"It is a shrinking slice of the shrinking pie, " Kelter said.

He also expects sales of Hasbro's boy toys — which include Transformers, Beyblades, and Nerf and account for about 40 percent of Hasbro's sales — will decline in this year and next.

Although those brands have been big sellers for Hasbro in recent years, Kelter expects that streak may be coming to an end. Searches, for example on the word "Beyblades" have fallen about 30 percent year-over-year, suggesting the product may have run its course, Kelter said. (Read More: Hot Holiday Toys for 2012 .)

Mattel on the other hand has been helped by strong girls' brands, such as Barbie and Monster High. Sales of dolls have been basically flat, he said.

Mattel's "Achilles heel" is Fisher-Price, Kelter said. Toys for preschoolers is Mattel's biggest segment, with about 35 percent of its sales, he said. But collectively, the preschool segment is now about $1 billion smaller segment than it was 10 years ago, he said.

Mattel has invested on a new brand campaign for Fisher-Price, but there aren't any signs that the investment is paying off, according to Kelter.

Both Mattel and Hasbro have worked to give their brands some presence in the digital world. Hasbro, for example, sells a version of Monopoly that interacts with an iPad, but the profits are not nearly as rich in the digital world as they are in the physical one.

Kelter estimates that when Hasbro sells a Monopoly board game for $15, it generates $5 in profits give the estimated 33 percent contribution margin for their games business. But an app for the iPad or iPhone only generates $1 to $2 in profits, he said. So while the percentage made from an app may be greater, the revenue is so much lower it will be tough for app sales to compensate for the decline in sales of traditional games. (Read More: Gen App: Toys, Tech and Tablets .)

Already, Kelter estimates sales of digital games accounts for about 10 percent of a super-category he has created that encompasses video games, digital games and traditional toys and games. Less than 10 years ago, it had less than 1 percent share. What's more, the digital game category is growing at more than 20 percent a year.

-By Christina Cheddar Berk, CNBC.com News Editor

Questions? Comments? Email us at consumernation@cnbc.com. Follow Christina Cheddar Berk on Twitter @ccheddarberk.