Didn't Portal 2 and Mortal Kombat come out April 2011? They were very big multi-platform releases if memory serves.

Yes, compared to last year there was fewer and smaller releases of games this year than last, hence lower sales numbers. No meaningful analysis can be made from these numbers, move along!

"These aren't the numers you are looking for"

"These activities include photo/video sharing and social gaming, all of which are activities that the current consoles and new handhelds do not support effectively."

I really wanted the reason to be related to outdoor activities. Not FB impersonations. I also find it odd that the games mentioned were released months ago, or have not been released at all.

I'm sure things will change once DiabloIII is released.

Yeah, that omission of Diablo III is a biggie. I'm not familiar enough with the Tom Clancy or Sniper Elite series to argue against the prediction for MP3 sales, but the prediction seems reasonable. I was really looking forward to Dragon's Dogma but have been disappointed by the demo (though I've only played one of the two offered quests so far (Prologue)). Graphics and combat mechanics both seemed outdated, plus I've never been a fan of having to share combat with NPCs. I've never seen anyone do that to where it didn't feel like I was having fun gameplay taken away from me. I don't begrudge it on boss fights so much, but against regular enemies I wonder why I would want the computer to steal some of that fun.

As for the fundamental analysis of the overall decline drivers, I'm not sure I see the evidence for "gamers...exiting the market for alternative forms of entertainment and leisure activities." Definitely those other consumer pulls are exploding, but I'm not convinced it's materially siphoning off gamer activity. I don't see a need to make that reach. There seems to be enough reasons just in the game industry itself to explain the protracted slide.

I know this is a summary of a report that hasn't been released yet, but there seems to be a big leap in logic. Are we supposed to believe that players that usually purchase games such as Mass Effect are now too busy photo sharing and playing Facebook games? That just sounds silly to me.

While the numbers aren't going to lie, you can tell by the wording that the report is focusing on retail sales. Retail sales historically omit digital download (and used game) sales. If I am correct, this report is pretty much worthless. Why? Because publishers want as little to do with retail as possible. PS Network, X-Box Live, Steam all offer digital download games in an effort to cut out the retail middle man. This is convenient for the consumer and saves in manufacturing, shipping and other costs. Everyone wins except retail.

In case you feel a tinge of regret for retailers, consider the horror stories from the perspective of the publisher: retailers refuse to pay up for units sold until a reorder is needed or the next title is published and they want it on their shelves. And while many consumers frequently use GameStop to purchase used games, this irritates the publishers to no end because no part of that resale makes it back to the publisher.

Isn't this just a case of more and more companies and consumers going digital? I think retail sales numbers are becoming less a representation of the health of the industry as a whole, and really more of a reflection of just the retailers themselves. If anything their decline could indicate more profit for developers and publishers.
On a side note, as far as Diablo 3 is concerned. I would imagine that a very large percentage of their sales are going to be digital since Blizzard's fans for the most part are always connected, and will have to be to play.

Well there might some truth here. I mean a lot of games nowadays focus so much on the graphics at the expense of making an interesting game.

And if consumers as a whole start to figure that out then consoles might have to change because smaller devices will be able to provide enough cpu/gpu power.

Still consumers like their online fps games and I don't see anything comparable except on the console and pc. They also like their Madden or, if you aren't in the US, their FIFA.

Then there is the Elder Scrolls and Mass Effect type games.

"Gamers are exiting the market for alternative forms of entertainment and leisure activities," states the report. "Consumers are increasingly demanding interactive media experiences that are social, mobile and free to play."

Of those, I do play Mobile. I won't go to social anything, and Free to play are just pay to win or grind games with no hope of ever achieving anything so I don't bother with those either. However, mobile, yeah I do that. That and digital download. Retail is out because most of them require activation or call backs to DD services anyway (EA, Activision, etc).

For the most part though I don't think you are losing gamers to these other avenues entirely - I think the losses come from the fact the console cycle is too long and you have lost hype of the 'latest and greatest'. That and we are sick of buying DLC and piece-meal games...

I think a few things are going on here:

1. The biggest blockbusters are Skyrim and Mass Effect 3. They are 100+ and 40+ hour games. For the audience that can afford to purchase $60 games regularly, the reason why they are not purchasing other titles is that regardless of their financial situation, their time budget was exhausted.

2. Devaluation of product is coming back to haunt publishers. Day-one DLC only available to new purchasers, locked characters, multiplayer lock-outs -- all are serving to lower the used value of the game. The customer base is like a ecosystem. Some of the $60 large animals in the food chain have the resources to not be impacted. But other $60 large animals are also predators that in turn feed on the smaller used game animals to be able to purchase new games. In trying to take a piece out of the retailers margins the publishers/devs at the top of the food chain ended up starving part of their customer base. After time, those customers doesn't have the funds to support sales. Instead they move on to alternative ecosystems (FTP, Indie, and reserving play for huge time sinks like Skyrim, ME3, and MW3 multiplayer) instead of supporting the $60 churn of a 10-hour single player campaign.

3. Bad PR & game design - I'll just mention them instead of go into detail. Origin. Day-one DLC. Required but non-functional authentication. Bad endings. Rushed releases. Inadequate content for MMOs. Frustrating DRM. War on used games. Bad mouthing part of your customer base because they are not point-of-sale purchasers. Firing or failing to retain key creative personnel. Part of any sale is making the customer WANT to buy FROM YOU. If an industry leader's short-term outlook has so maligned the company's goodwill that it is voted the worst company in America, the industry will suffer as a whole.

4. Increased competition by embracing digital distribution - Apple is the largest company in America. Its game ecosystem is thriving. Google is doing quite well with Android. Most of mobile's success stories are new players. PC Indie developers are becoming so successful that EA decided to promote its own "Indie Bundle." The reason for these competitors success is digital distribution. It lowers competitive barriers to entry and thus negatively impacts profits. Instead of trying to kill off natural allies like Gamespot, etc. in favor of Steam-lite offerings, the publishers should be looking at how they can make physical media a technical requirement to play the best AAA games. In addition to the physical nature providing the inference of value over digital, it increases barriers to entry for serving the most discerning customers. Getting gamespot or Walmart to carry your game is a lot more difficult that getting a url from GoDaddy and Amazon cloud support to run a digital distribution hub. Possible solutions are looking at next gen optical media. Digital distribution hasn't won, yet, because moving 50GB of data takes a long time and the IP providers have or are imposing data caps while physical media provides instantaneous gratification upon purchase.