U.S. Video Game Sales Stalled (GME, MSFT, SNE, DIS, ZNGA, FB)

U.S. retail sales of video games, controllers and gear fell 20% in August compared with sales in the same month a year ago, according to a report from research firm NPD Group. The biggest drop came in sales of hardware, down 39% from August 2011, as consumers turn to their mobile devices for a new way to waste time.

Traditional video game retail sales at outlets like GameStop Corp. (NYSE: GME) have fallen off dramatically, and even Microsoft Corp. (NASDAQ: MSFT) has seen a significant drop in sales of its popular Xbox game consoles. A report in Bloomberg Businessweek noted that retail Xbox sales totaled 193,000 in August, down 37% from retail sales of 308,000 in August last year.

Part of the problem facing the video game industry is that fewer people are playing video games. In another report from NPD Group, the research firm said that 12 million gamers — about 5% of the estimated 211.5 million U.S. players — gave up video games in the past 12 months.

The action is in mobile games, and it is not only traditional game makers like Nintendo, Sony Corp. (NYSE: SNE) and Walt Disney Co. (NYSE: DIS) that are missing the boat. Digital game makers like Zynga Inc. (NASDAQ: ZNGA) and mobile game platforms like Facebook Inc. (NASDAQ: FB) have not yet solved the puzzle of how to move a successful digital desktop game to a mobile device.

The traditional video game makers continue to rely on what they call “core” gamers. From a report at PCMag.com:

Given the long lifecycles of the current consoles and the increasing installed base of smartphones and tablets, it’s not surprising to see a slight decline in the core gamer segment,” Anita Frazier, the NPD Group’s video game industry analyst, said in a statement. “It’s the revenue contribution of the core gamer segment that continues to outpace all other segments, and remains vital to the future of the industry.

Banking on a relatively small segment of the population to spur growth may be a successful near-term strategy, but over the long haul it doesn’t look like a winner.

Paul Ausick