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Video game sales in free fall

For the fifth consecutive month, industry sales are down, and in July, sales were off 29 percent from a year earlier. So much for recession-proof.

In a stark reversal of the trend on display just a few short months ago--when general retail sales were plummeting even as the video games industry was still showing growth--cautious optimism in retail is now being offset by many losing months in video games.

In July, according to industry analyst the NPD Group, video game sales fell for the fifth straight month, and the year-over-year numbers are striking: In July, the video games business posted sales of $848.9 million, down 29 percent from $1.1 billion a year earlier. Year-to-date sales, reported NPD, were at $8.16 billion, down 14 percent from the same time period a year ago.

And things are only getting worse. While the industry's June numbers were down a full 31 percent from a year earlier, they still topped nine figures, coming in at $1.17 billion in June. But that means that in July, sales were down 27.4 percent from just a month earlier.

It wasn't that long ago that many people were making the argument that video games--because of their relatively low cost and many hours of entertainment value--were seen as close to recession-proof. But now, it would be hard for anyone to make that case.

Indeed, NPD analyst Anita Frazier wrote in a report Thursday that, "In order for the industry to come in flat or slightly up for the total year, the back five months of the year have to come in 11 percent (or more) higher than the last five months of last year."

That would seem to be a near impossible task, given the recent trend. But Frazier did throw the industry a bone: "While year-to-date results are weak, there are some big titles set to be released over the next several months, including Madden (10, from Electronic Arts) this month, which should help spur sales. The worst...should be behind us, and looking beyond August, we have The Beatles: Rock Band, Halo 3: ODST, and of course, Call of Duty: Modern Warfare 2 to look forward to."

Not to mention Guitar Hero 5.

One thing was also made clear in NPD's July report: sales weaknesses in the industry are being seen across the board. However, hardware led the charge, with a drop in sales of 37 percent ($280.94 million in July, 2009, as opposed to $447.71 million a year earlier). Software and accessories were down 26 percent and 12 percent, respectively.

Microsoft was quick to jump on what may have been the only bright spot in NPD's report: that its Xbox 360 was the only console to deliver growth over a year earlier. In its own report, trumpeting NPD's numbers, Microsoft pointed out that the Xbox has turned in 17 percent growth for the year over the same period in 2008.

And while Nintendo's Wii still leads the pack among the big three consoles (the Xbox, Sony's PlayStation 3, and the Wii), its lead has shrunk considerably. In July, consumers bought 252,200 Wiis, versus 202,900 Xboxes and 121,800 PS3s.

All in all, it's hard to be optimistic about the industry's prospects, though, as Frazier pointed out, there are a slew of big titles coming down the pike that could drive big sales. Still, the same is true every year, and as a result, there are few who could argue at this point that the video game business is facing what may be its biggest crisis in years.