Last month both hardware and software game sales dropped a whopping 31 percent to $1.2 billion from $1.7 billion the same month in 2008, according to the report. June's decrease marks the fourth consecutive month of year-over-year declines.

The huge decrease is the greatest monthly year-over-year decline since September 2000, when the industry suffered a 41 percent drop.

Some Play for Free

In recent interviews with us, NPD analyst Anita Frazier had said the video-game segment would do well in the recession because it's one area in which consumers are willing to spend during an economic downturn. Now she has a different view.

"This is one of the first months where I think the impact of the economy is clearly reflected in the sales numbers," Frazier wrote in her analysis. "While the aggregate of content may not be as strong as what we saw in the first half of last year, and while the consumer base willing to spend dollars on hardware at the current price points may be thinning, the size of the decline could also point to consumers deferring limited discretionary spending until a big event (must-have new title, hardware price cut) compels them to spend."

Could consumers' lack of interest be the answer? No, as four million new players have joined the video-gaming market since last year, according to Frazier.

While some of those players are retail consumers, others are not purchasing games and instead are playing online for free.

Titles Suffer

Video-game software sales took a smaller hit in June, falling 29 percent from $876 million to $626 million.

While Nintendo took the top two slots for its DS and Wii platforms, one of its games fell off the top-10 chart for the first time in more than two years. Wii Play is bundled with Wii remotes. Made up of nine mini-games, Wii Play is geared to give each member of the family something to play, including billiards, air hockey, tank battles, table tennis, and a cow-riding race.

There was, however, good news for another Wii game.

Wii MotionPlus, a motion-control accessory for the remote, had solid sales, as did Activision's Prototype, which topped software sales with 419,000 copies sold. UFC's 2009 Undisputed held the number-two spot with 338,300 games sold.

Hardware Not Immune

Video-game hardware suffered the sharpest decrease in June, plunging 38 percent from $617 million to $383 million year over year. Each platform, except for Microsoft 's Xbox 360, was rattled by the decline.

The Nintendo DS held the lead in sales with 766,500 sold. The Nintendo Wii was second with 361,700, while the Xbox 360 had 240,600. Trailing behind was the PlayStation 3 with 164,700 sold, PSP with 163,500, and PlayStation 2 with 152,700.

The industry needs to focus on how to monetize on all of the gaming available to consumers through PCs, mobile devices and video-game systems, according to Frazier.

"Certainly there is plenty of opportunity in the industry, but the rate of change in many areas of the industry presents a lot of challenge as well."