UPDATE: US Video Game Market Sales Fall In December

U.S. video game market sales fell in December, marking an end to a rough year for the industry hard hit by quickly changing business models and cash-strapped consumers looking for new, cheaper ways to be entertained.

Industry sales of new video game hardware, software and accessories in the U.S. fell 9%, to $5.06 billion in December from $5.5 billion during the same time a year earlier, despite blockbuster success of Microsoft Corp.'s (MSFT) Xbox 360 "Kinect" motion controller and Activision Blizzard Inc.'s (ATVI) "Call of Duty: Black Ops."

The results for the month underscore a rough year for the industry, which suffered as recession-weary customers have resisted opening their wallets. Instead, sales through the Internet and social networks soared as gamers focused their lean entertainment budgets on cheaper alternatives available for smartphones and through social networking websites such as Facebook.

As a result, sales of new hardware consoles were hit hard in 2010, falling 13%, to $6.29 billion from $7.19 billion a year ago. NPD said the only console to grow in sales was Microsoft Corp.'s Xbox 360.

Yet, while sales of new games for the year fell 6%, to $9.36 billion, there were some very successful titles. Activision Blizzard Inc.'s (ATVI) "Call of Duty: Black Ops," was tallied as the top selling game in 2010, NPD said. More than 12 million units of Black Ops have been sold since its release, more than double that of the runner-up, Electronic Arts Inc.'s (ERTS) "Madden NFL '11."

Overall game sales languished in December, falling 8%, to $2.37 billion. NPD said the numbers would have been worse had it not been for particularly strong PC games sales, which jumped 62% on demand for the latest expansion pack for Activision Blizzard's "World of Warcraft" franchise. That and another popular game from the company, "Starcraft II: Wings of Liberty," represented 14% of total PC game unit sales for the year, NPD said.

A bright spot for the industry, however, was accessories. Microsoft's Kinect motion controller was also a big hit since its release in November, shipping more than 8 million units in its initial 60 days on the market. Subscription and digital download gift cards were also popular with consumers in 2010, NPD said, dramatically growing in unit volume sales from 2009.

Looking forward, NPD said it expects the video game industry to grow, although for which segments remains unclear. Devices such as Apple Inc.'s (AAPL) iPhone and iPad have drawn considerable attention of video game developers, generating meaty profits for successful game developers. Internet-based video games such as privately held Zynga Game Network Inc.'s "Farmville" have also become hit sensations among consumers, looking for free and cheap alternatives to traditional video games.

Industry mainstays are reacting to these new trends by expanding their product's capabilities, such as adding support for posting updates to Facebook, streaming movies from Netflix Inc. (NFLX), and playing games in 3-D.

-By Ian Sherr, Dow Jones Newswires; 415-439-6455; ian.sherr@dowjones.com

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