Industry insiders blamed the disappointing January sales on consumer fatigue following the holiday shopping season and shortages of Nintendo Co.'s motion-controlled Wii videogame console.

NPD said sales of videogame software dropped 12% from the same month a year earlier to $597 million, which is much worse than analysts expected.

The fall came despite continued growth in sales of Activision Blizzard's latest "Call of Duty" game, which was released in November and was the fourth-biggest seller in January. Nintendo's "New Super Mario Bros Wii" topped the sales list with 656,700 units.

1. New Super Mario Bros., Wii (Wii, Nintendo of America) 656.7k
2. Mass Effect 2, (360, Electronic Arts) 572.1k
3. Wii Fit Plus w/ Balance Board, (Wii, Nintendo of America) 555.7k
4. Call Of Duty: Modern Warfare 2, 360 Activision Blizzard 326.7k
5. Mario Kart w/ Wheel, (Wii, Nintendo of America) 310.9k

Wedbush Morgan analyst Michael Pachter said a strong performance by Nintendo Co Ltd's Wii -- spurred by a holiday sales promotion at Wal-mart Stores Inc -- helped boost overall industry figures.

"It was really all Nintendo, they won by a mile," he said.

The Wii sold 3.8 million units in December and set a record for monthly game system sales in the U.S.

"We expected to have a good holiday and this was a great reaffirmation of that," said Cammie Dunaway, Nintendo of America's executive vice president of sales and marketing.

GameStop Corp. fell the most in the Standard & Poor's 500 Index on concern the world's largest video-game retailer may be forced to lower prices after Wal-Mart Stores Inc. offered discounts.

Walmart is slashing prices on the top 25 video games by as much as 20 percent through Dec. 24 and GameStop may need to match those reductions to stay competitive, Tony Wible, an analyst with Janney Montgomery Scott LLC, wrote in a note to clients today.

"Many of the GME stores overlap in close proximity to a WMT store as GME has historically sought to benefit from WMT foot traffic," Wible said, referring to the two companies' stock tickers.

Promotional activity heading into the holiday season has been more intense than in the past. That's because for many mass merchants, videogames are a crucial category--not just because of the sales they directly generate, but because the hottest games and consoles can be used to lure shoppers into stores and entice them into making larger purchases. "Call of Duty: Modern Warfare 2" broke first-day sales records by raking in $310 million earlier this month, but nothing as big lies ahead.

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On Black Friday, the official start of the holiday shopping season, retailers are wooing customers with some big promotions. Best Buy Co. is offering several hot games including Electronics Arts Inc.'s "Dragon Age" for $34.99, a $25 discount. Wal-Mart Stores Inc. is throwing in two free games and a Blu-ray movie disc, a $139 value, to sweeten purchases of the $299 Sony Playstation 3 game console.

Early sales of what were expected to be big holiday games--specifically Activision Blizzard Inc.'s "Guitar Hero 5" and MTV Games' "The Beatles: Rock Band"—have so far been relatively modest. Both games, released in early September, dropped out of the top 10 best-selling games after a month, selling fewer than 100,000 copies each in October, according to NPD Group.

Some of the other titles that retailers are expected to rally around include Nintendo's "New Super Mario Brothers" Wii platform game and Ubisoft Entertainment's action-adventure game "Assassin's Creed II," which were both released in mid-November.

1. Halo: ODST (Xbox 360) 1.52 million
2. Wii Sports Resort (Wii) 442,900
3. Madden NFL10 (Xbox 360) 289,600
4. Mario & Luigi: Bowser's Inside Story (DS) 258,100
5. The Beatles: Rock Band (Xbox 360) 254,000
6. Madden NFL10 (PS3) 246,500
7. Marvel: Ultimate Alliance 2 (Xbox 360) 236,000
8. Batman: Arkham Asylum (PS3) 212,500
9. Guitar Hero 5 (Xbox 360) 210,800
10. The Beatles: Rock Band (Wii) 208,600

In July, according to industry analyst the NPD Group, video game sales fell for the fifth straight month, and the year-over-year numbers are striking: In July, the video games business posted sales of $848.9 million, down 29 percent from $1.1 billion a year earlier. Year-to-date sales, reported NPD, were at $8.16 billion, down 14 percent from the same time period a year ago.

And things are only getting worse. While the industry's June numbers were down a full 31 percent from a year earlier, they still topped nine figures, coming in at $1.17 billion in June. But that means that in July, sales were down 27.4 percent from just a month earlier.

U.S. sales of video games dived 23 percent to $863 million in May, research group NPD said on Thursday, dipping below the $1 billion threshold for the first time since August 2007 as consumer spending weakened and hardware makers waged a price war.

In the year to May, video games sales -- considered by NPD to include hardware, software, and accessories -- slipped 7 percent from a year earlier to $6.1 billion.

Among makers of gaming hardware, Nintendo (7974.OS) again led the pack with 633,500 of its "DS" portable gaming devices and 289,500 of its Wii platforms sold, dwarfing the 175,000 Microsoft (MSFT.O) Xbox units that moved in May.

"May is typically one of the lowest revenue-generating months in any given year for the industry in general," said NPD analyst Anita Frazier. "The dollar sales decline was exacerbated by a decline in average retail prices for almost all of the categories."

According to a report from the NPD Group late Thursday, sales of game software in the U.S. fell 17% during the month, compared to the same period the previous year. Wall Street analysts had largely been expecting sales to remain flat for the period, according to a consensus of forecasts gathered by MarketWatch. Game hardware shared a similar fate, with sales falling 18% for the month. Accessories fell 15% during the period.

Part of the challenge for the industry was a difficult comparison with the previous year. Last March saw the release of three big titles, including Nintendo's "Super Smash Bros: Brawl," which sold 2.7 million units during the month. Other big sellers were "Tom Clancy's Rainbow Six: Vegas" from Ubisoft and "Army of Two" from Electronic Arts.

Game hardware sales grew 11% to $532.7 million. Nintendo remained in the lead as the top seller of game consoles; the Wii platform moved 753,000 units while the handled DS sold 588,000 units, according to NPD data. The Xbox 360 from Microsoft sold 391,000 units.

Though it remains the lowest selling of the next-generation consoles, the PlayStation 3 from Sony Corp. saw a notable jump from the previous month. Unit sales grew 36% to 276,000, thanks mostly to the release of "Killzone 2," a first-person shooter title that is exclusive to the PS3 and moved 323,000 units -- making it the fifth-place title for the month.

Another boost to the PS3, and Xbox 360, came from Capcom's "Street Fighter IV," which moved 403,000 units for the PS3 version and 446,000 units for the 360. The top-selling game title for the month was the "Wii Fit" from Nintendo, which moved 644,000 units. The company had three other titles in the top ten, including "Wii Play" and "Mario Kart" for the Wii.