U.S. retail videogame sales in May fell significantly for the third straight month, NPD Group Inc. reported, led by a steep drop in sales of Nintendo Co. Ltd.'s (NTDOY) Wii game console.

Yet the NPD results mostly met analyst expectations, fueling optimism that the videogame industry contraction should end by August.

NPD reported that U.S. spending on videogames fell 17% annually, to $540 million, the result of few new releases during the month and a difficult comparison to a year ago, when Take-Two Interactive Software Inc.'s (TTWO) "Grand Theft Auto IV" alone sold more than 1.3 million copies. According to NPD, THQ Inc.'s (THQI) "UFC 2009 Undisputed" and Nintendo Co. Ltd.'s (NTDOY) "Wii Fit W/Balance Board", the month's top two selling games, managed 1.03 million units combined.

Yet the results met the expectations of analysts.

Video game console sales slip was more significant, down 30%, to $302.5 million. Sales of the Microsoft Corp. (MSFT) Xbox 360 were off 5% and Sony Corp.'s (SNE) PS3 off 37%, though each fared better than consensus expected. Meanwhile, Wii console sales fell 55% to 289,000, which was slightly below expectations.

The $863 million in combined video game and console sales in May is a 23% decline from a year ago. Year-to-date, total U.S. videogame revenue is down 7% from a year ago.

Yet, analysts remain confident a strong slate of new game releases, starting with this month's "Sims 3" from Electronic Arts Inc. (ERTS) will lead to a return to industry growth by August.

-By Ben Charny; Dow Jones Newswires; 415-765-8230; ben.charny@dowjones.com