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Video Game Sales Plunge, but Have They Hit Bottom?

After a brief sales increase in September, video game sales took another nosedive in October — but the bad news may finally be over.

Modern Warfare 2
Source: Activision
Modern Warfare 2

Sales of video game software dropped 19 percent compared to a year ago, to $573 million.

The decline was notably worse than most analysts were expecting. The worst-case scenario for most analysts was a 15 percent drop. Most were looking for something in the neighborhood of 9-10 percent.

Year-to-date, game sales are now 13 percent behind 2008's pace.

Hardware sales were even worse than software, falling 23 percent compared with the 2008 numbers, despite recent price cuts for all gaming systems. Sony saw a notable month-over-month dropoff, selling just shy of 321,000 PS3 units — a 33 percent decline from September (although it was a 69 percent improvement from 2008).

Microsoft's Xbox 360 sold just 250,000 units, while the Nintendo Wii sales rallied (versus last month) on that system's drop to $199.99, jumping to 507,000 units sold. The momentum wasn't enough, though, to match the 2008 numbers — when there were 803,000 Wiis sold. Also noteworthy was the fact that the Wii topped the Nintendo DS in sales for the first time in eight months.

Overall, hardware sales, even with lower prices, are now down 17 percent year-to-date.

While the numbers are frustrating (and worrying) for publishers and investors, many analysts believe October could mark the end of the bad news for the foreseeable future. November sales will be buoyed by the launch of Activision's "Call of Duty 4: Modern Warfare 2," which sold a breathtaking 4.7 million copies in the U.S. and U.K. in its first 24 hours on store shelves.

"October may also mark the last month of a year-over-year decline in software sales ahead of a string of positive growth months lasting through 2010," says Colin Sebastian, an analyst with Lazard Capital Markets.

The momentum of "Modern Warfare 2" will hopefully carry the industry through December — and the first quarter of 2010 has a slew of games that were delayed from the holiday season, which should drive consumer demand.

PS3 exclusive "Uncharted 2: Among Thieves" led the sales charts in October, moving 537,000 copies. Take Two Interactive Software, meanwhile, scored a big victory in the sports genre over Electronic Arts . Take Two's "NBA 2K10" sold 524,000 copies on the Xbox 360 and PS3, while EA's "NBA Live 10" sold just 141,000.

Take Two also had a pleasant surprise with the third place finish for "Borderlands" — which sold 418,000 copies, mainly on word of mouth marketing from core gamers.

Only two of September’s big games — "Halo 3: ODST" and "Wii Sports Resort" — made it into the top 10. "The Beatles: Rock Band" was nowhere to be seen.

While consensus is that 2009's sales numbers will finish behind 2008's by a single digit percentage, the awful performance of October could mean further adjustments. Should "Modern Warfare 2" sales begin to lag — especially as the industry moves into December — it could be a clear sign that the industry is not just being affected by the recession and is, in fact, in crisis.