Game sales hit lowest point since October 2006

The video game industry suffered a serious blow across the physical retail channel last month, NPD reported yesterday.

According to the research firm, industrywide sales on hardware, peripherals, and software hit $707.7 million in July, down 26 percent compared to the same month last year when the industry generated $961.3 million in sales.

Last month, the industry saw sales hit their lowest point since October 2006, NPD analyst Anita Frazier said in a statement.

Hardware revenue was especially disappointing last month, reaching only $223 million. That figure was down 29 percent compared to July 2010 when hardware companies generated $313.8 million in revenue.

Frazier said that "the average selling price for console hardware was essentially flat to last year," but overall, there was "a decrease in unit sales," causing the decline.

Microsoft was especially affected by that decline. Although the company's Xbox 360 beat out the Wii and PlayStation 3 for control of the console market with 277,000 units sold in July, the company experienced its first year-over-year sales decline since December 2009. However, Frazier doesn't believe that drop is cause for concern.

The decline "is more of a reflection of robust sales last July, which was the biggest month for unit sales of the 360 in 2010 outside the holiday months (November and December)," Frazier said. "Last year's sales of the 360 hardware platform were driven by the introduction of the Kinect-ready slim form factor SKU."

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Neither Sony nor Nintendo announced what their unit sales were on the month. Sony did, however, comment on its PlayStation Move peripheral, saying that its sales were up 18 percent year over year.

That said, total game accessories sales were down 8 percent from $138.1 million last year to $127.8 million last month.

Nintendo did not immediately respond to CNET's request for comment on how it fared in July.

On the software side, sales were down 17 percent from $403.3 million last year to $336.2 million this year. According to NPD, NCAA Football 12 scored the top spot in game sales in July, followed by Cars 2 and Call of Duty: Black Ops. Lego Pirates of the Caribbean: The Video Game came in fourth, while Just Dance 2 for the Wii took the fifth spot.

However, the research firm's reports on software should be taken with a grain of salt. NPD's monthly report only included physical sales, which means all the digital game content sold, including full games and add-ons, is not included in this report. Earlier this year, Frazier said that digital sales now account for 40 percent of game sales.

Game publisher Electronic Arts has been especially outspoken about the impact digital sales are having on the industry. Earlier this year, an EA representative said that NPD's decision to leave digital sales out of its monthly reports is like "measuring music sales and ignoring something called iTunes."

Frazier acknowledged the importance of digital content in a statement yesterday, saying that digital sales will actually help push the game industry up by the end of this year, even though physical sales could continue to slide.

"We have measured some remarkable growth in other ways that consumers are acquiring content, including digital sales of full games and add-on content, mobile games, and social network gaming," Frazier said. "Growth in these areas, combined with a flat to modest decline in new physical sales should result in 2011 showing growth over 2010."

Looking at August, NPD isn't seeing better times ahead for one major reason: Madden. The wildly popular football game accounted for 28 percent of retail software sales last August. But this year, the game isn't coming out until August 30, which means its impact won't be felt until September.