In 2008 the NPD Group would release each monthly measurement of retail video game sales in the U.S. and most subsequent discussion would center on the extraordinary growth rate and the billion dollar monthly take. The latest figures for July and 2009 overall show a very different industry, and conversations focus on how far the revenues may yet fall, and whether the total sales for the year will be flat compared to 2008.

The silver linings this month are very company-specific. For Microsoft, the year-to-date Xbox 360 hardware sales are still up over sales in 2008. Electronic Arts is in the midst of a very strong summer season, led by its sports franchises. Nintendo's evergreen titles continue to do well on the Nintendo DS and Wii. And we shouldn't forget that the Nintendo DSi has achieved an installed base of 2 million units in just over four months.

For each bright spot, however, there are some dark signs elsewhere. We'll look at the drop in third-party software sales for the Xbox 360 as well as the contraction in EA's NCAA Football franchise. And along with other pricing discussions, we'll examine whether the Nintendo DSi may well be in line for a price cut sometime this year as its sales have reached parity with the Nintendo DS Lite.

Industry At a Glance

According to the NPD Group, total retail sales of video games, video game hardware, and accessories totaled nearly $850 million in July 2009, a drop of 29% from the same month in 2008. The hardest-hit sector was hardware, down 37% to $281 million. In terms of dollars, software makes up a larger portion of video game product sales at retail, and it fell to $437 million during the month, a decrease of $155 million from last year's sales.

Year-to-date, the U.S. video game industry's retail sales are down 14% compared to the same point last year. However, a growing installed hardware base helps drive software and accessory sales, and therein lies some of the worst news: year-to-date hardware sales are down an even greater 16% year-on-year. Slowing hardware sales now could have a dampening effect on software and accessories later this year.

To get a feel for just how much slower the market is this year compared to last, we can look at the annual revenue totals segmented by month.

As the graph above clearly shows, the total revenue from the first seven months of 2009 is approximately equal to the revenue from the first six months of 2008. Falling behind incrementally has finally put 2009 an entire month behind by this measure.

Looking two years back, we're at the same point now at the end of July 2009 (in terms of overall revenue) as the industry was at the end of August 2007.

While retail sales are still the largest share of video game industry revenues, online sales and distribution – as well as subscription services – are an increasing segment of the available market, one not covered by the retail data provided by the NPD Group.

Regrettably, sales figures for games and content distributed through channels like Microsoft's Xbox Live Arcade, Nintendo's Wii Store and WiiWare, and Sony's PlayStation Store are still mostly kept private, although we expect more transparency in this market as publishers and distributors begin to tout concrete sales data to investors and the press.

For example, Electronic Arts' DICE-developed Battlefield 1943 sold 600,000 copies in its first two weeks on Microsoft's Xbox Live Arcade and Sony's PlayStation Network. If even half of those sales were in the United States, and such sales were ranked alongside retail sales by the NPD Group, at least one or both versions of the game would have made the top 10 list in July 2009.

Industry revenues would look better if we could include sales of games on Microsoft's, Sony's, and Nintendo's online storefronts, but those figures are not comparable to the figures reported by the NPD Group. Retail figures include retailer markups and clearance discounts, concepts that don't have obvious analogues in the online market.