The recession is hammering the video game industry.
Marking the sector's fourth consecutive monthly decline, sales of video games and consoles in the U.S. fell 31% last month to $1.2 billion, down from $1.7 billion in June 2008, according to a report released Thursday from market research firm NPD Group Inc.
It was the largest monthly decline since September 2000, when industry sales slumped 41%, said NPD analyst Anita Frazier.
"This level of decline is certainly going to cause some pain and reflection in the industry," Frazier said.
Consumer jitters about the economy, combined with a lackluster slate of game releases, led to a 38% drop in sales of game consoles such as Sony Corp.'s PlayStation 3, Microsoft Corp.'s Xbox 360 and Nintendo Co.'s Wii and DS in June. Hardware sales fell to $383.6 million last month, from $617.3 million in June 2008.
Games took a slightly smaller tumble, falling 29% to $625.8 million in June, down from $875.8 million in the same month a year ago.
For the first half of the year, the industry's overall sales in the U.S. were down 12% to $7.3 billion.
Among the top performers was Electronic Arts Inc. in Redwood City, Calif., which claimed four out of the top 10 titles last month. THQ Inc. in Calabasas, which hung its financial turnaround on two titles -- UFC 2009: Undisputed and Red Faction: Guerrilla -- saw both games in the bestselling list.
Industry analysts had entered 2009 confident that the recession would leave games unscathed because of its perceived value in offering dozens of hours of entertainment per title and because of people's tendency to stay home during hard times instead of spending money on big vacations.
Some industry watchers still have hope that the industry could pull out of its current tailspin.
"You have weak hardware sales and you have weak software, so it's prudent to be concerned about the rest of the year," said Colin Sebastian, an analyst with Lazard Capital Markets. "But there's still a chance for the industry to show growth for the entire year."
Much depends on two factors, Sebastian said. The first is a possible price cut for one or all of the game consoles, which could spur sales.
"Sony certainly needs to cut the price of the PS3, and it's widely anticipated at this point that they will do so," he said.
That expectation leads shoppers to delay purchases until the price drops, which could also explain the slowdown, he said. Sony has said it has no plans to lower its $400 price tag for the PlayStation 3.
The second, more critical factor is the fall lineup, which ramps up to the Christmas shopping season, when game publishers reap the bulk of their revenue. Right now, it's easy to panic because summer months are typically very slow for game sales, Sebastian said.
"The rubber will meet the road when the fall titles hit the shelves," he said.
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Top 10 video games sold in June
Prototype (Xbox 360) 419,900
UFC 2009: Undisputed
(Xbox 360) 338,300
EA Sports Active
Tiger Woods PGA Tour 10 (Wii) 272,400
Wii Fit (Wii) 271,600
Fight Night Round 4
(Xbox 360) 260,800
Fight Night Round 4 (PlayStation 3) 210,300
Mario Kart (Wii) 202,100
Red Faction: Guerrilla