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Retail video game industry suffered abysmal sales slump in May

Both software and hardware sales in the US retail market plummeted last month.

The Witcher 3: Wild Hunt was the best-selling game at US retail stores in the month of May. CD Projekt RED

May marked another dark spot for the US retail video game industry.

Sales of game software on discs resumed a downward spiral, falling 25 percent year over year to $212.3 million and dampening the few brief moments in the last six months when software sales were up year over year thanks to a popular new game release, according to industry watcher the NPD Group.

Hardware sales, after months and months of keeping the retail industry afloat, fell 18 percent to $153.6 million due to a continued steep drop-off in sales of older gaming consoles, like the Xbox 360 and PlayStation 3.

Overall, industry sales fell 13 percent to $507.6 million. The top selling game at retail stores was The Witcher 3: The Wild Hunt, developed by Polish studio CD Projekt RED, followed by Warner Bros. Interactive's fighting game Mortal Kombat X and Take Two Interactive's crime title Grand Theft Auto V. Video game accessory sales were the one bright spot, jumping 20 percent year over year to $149.3 million.

Since the introduction of new game hardware from Microsoft and Sony in November 2013, the retail game industry has been struggling to stabilize itself as it fully transitions away from old hardware and onto the new platforms. Sales of these new consoles have been strong, but software sales have fluctuated and, on the whole, have tended to fall year over year. That's due to a lack of enthusiasm for new games, at least those titles that are purchased from US retail outlets like GameStop and Amazon, which is the only segment NPD tracks.

"The decline in May 2015 is attributed to poor comparisons to a strong release slate in May 2014, specifically the launches of Mario Kart 8 and Watch Dogs," said NPD analyst Liam Callahan.

Sony played down the news, saying in a statement that it would like to "thank gamers for making PlayStation 4 the top selling console and the leader in software sales in the US in May." A Microsoft spokesperson, when reached for comment, said, "Xbox One sales in the US were up 81 percent over May 2014 and active global Xbox Live members were up 20 percent."

The weak retail sales can also be attributed to a structural change in how games are both purchased and make money over time.

The console video game industry, like music and television before it, is moving away from selling a physical disc, placed in a box and wrapped in plastic. Instead, game makers are seeing sales shift to the Internet, where players connect their credit cards to online marketplaces like Sony's PlayStation Store, Apple's App Store and Valve's Steam marketplace. There, you can buy full games outright or spend money incrementally on titles that are increasingly being designed to last months to years thanks to supplemental add-ons.

SuperData Research, which tracks sales of games and game add-ons delivered over the Internet, said the digital market grew 11 percent in May to $979 million.

Though console games still make an overwhelming majority of the industry's sales, game makers have apparently seen the writing on the wall.

Companies like Electronic Arts, makers of the popular FIFA and Madden sports games, and Activision, which owns the best-selling military shooter series Call of Duty, have begun expanding each game they make through additional story lines and other add-ons.

One such game, Activision's online space shooter Destiny, is proving the viability of these new business models. Executives at Activision say Destiny, which cost $60 at retail, will receive support for up to 10 years and the title has already seen two large updates, which cost $30 to $40 depending on when you purchased them. Destiny will also see a new update later this year that is rumored to retail for $40, meaning players that stick with the game will have spent around $130 after just one year of release.

Now, instead of releasing a new game every fall, as the console industry has become reliant on, game makers may choose to follow Activision's approach and earn more from a customer with one game than if it were to sell that same person two brand new titles at $60 each.

The strategy is working. Of EA's $4.3 billion in sales last year, a record $2.2 billion came from Internet sales of both full games and add-ons. Activision said a record 76 percent, or $538 million, of its total revenue came from sales over the Internet of full-game downloads and in-game adds-ons.