Crack In Videogames' Armor

Sales of videogames have finally taken a hit from the financial crisis, weakened by record-high unemployment, uncertainty about the future and a growing number of Americans swapping credit cards for savings accounts.

Game software and hardware sales fell a combined 31% in June compared with last year, according to hot market research firm NPD. That's the biggest monthly decline since 2000, when sales dropped 41%; year-to-date, sales are down 12% from 2008.

A new frugality seems to be at play here. Hardware sales dropped 38%, much more than sales of the games themselves, off 29%. One obvious reason is that the hardware costs more than individual games: the Xbox 360 retails for $300 and the Sony ( SNE - news - people ) PlayStation 3 costs $400, while games sell for $60 or less. With consumers cutting back on luxuries of all kinds, it seems reasonable that gamers are deferring big purchases, writes NPD analyst Anita Frazier.

Weaker game titles than last year, when several eagerly awaited sequels hit stores in June, contributed to the decline, writes Citigroup ( C - news - people ) analyst Brent Thill. "The industry has been giving gamers little reason to head to the stores," says Thill. "Hardware remains very expensive and the big software releases have yet to hit the shelves."

The latest numbers also show that Sony's PlayStation 3 console still lags far behind its rivals Microsoft ( MSFT - news - people ) and Nintendo ( NTDOY.PK - news - people ). In June, gamers bought 241,000 Xbox 360s and 362,000 Nintendo Wii consoles. PlayStation 3 sold just 165,000, although the electronics giant sold nearly as many older versions of the PlayStation as well. The Wii console, a surprise hit for Nintendo that uses motion-based controllers and emphasizes simple gameplay, has seen sales slip since last year but remains the front-runner after attracting a new audience to gaming. The Xbox actually saw monthly sales rise since last June, the only gaming system to do so. Year-to-date both the Xbox and Nintendo's handheld DS system are up in sales.

When it comes to software, consoles continue to dictate what gamers buy. Of the top 10 titles last month, only two run on the PlayStation. The best-sellers were Activision's "Prototype" and THQ's "UFC 2009:Undisputed," both for the Xbox. Next came Electronic Arts ( ERTS - news - people )' fitness game for the Wii, "Sports Active," and the 10th installment of "Tiger Woods PGA Tour," also for Wii. Nintendo's "Wii Fit" game rounded out the top five.

The two PlayStation games that made the top 10 list for June were EA's "Fight Night Round 4," at No. 7, and Sony's own "Infamous," at No. 10.

Analyst Thill thinks software sales will show an increase from last year toward the end of the summer when he expects console makers to cut their prices amid a deluge of new games like "Guitar Hero 5," "Beatles Rock Band" and "Wii Fit Plus."