Portable devices helped offset weak sales of gaming consoles and drove the video game industry to record sales in the United States last year, according to a report from the NPD Group.
The research firm said sales hit US$10.5 billion, up nearly 7 percent from last year and eclipsing the previous high-water mark of $10.3 billion set in 2002.
Game Boy, PSP Lead Way
Portable gaming was the clear winner, with sales of games for Nintendo's 
Game Boy Advance and the Sony (NYSE: SNE) PlayStation Portable (PSP) climbing 42 percent to $1.4 billion. NPD Group said more sophisticated and new devices such as the Nintendo DS helped expand the market to older players as well.
"The real story for 2005 was the incredible expansion of portable gaming," said NPD analyst Anita Frazier.
The portable numbers also masked weakness in the console market, though NPD said some of the sagging sales could be tied to a shortage of devices and the fact that some consumers held off knowing the Microsoft (Nasdaq: MSFT) Xbox 360 would launch late in the year, to be followed by new machines from Sony and Nintendo in 2006.
NPD said console hardware sales were down 3 percent, software revenue fell 12 percent and sales of accessories slumped 8 percent compared to 2004. Sales of portable gaming consoles nearly doubled, the firm said, rising 96 percent.
Wait 'Til Next Year
Some analysts believe portable devices will continue to be a powerful force, but say that 2006 could be a big year for console sales. Reported Xbox shortages, which peaked during the run-up to Christmas, will soon be a non-issue as tens of thousands of the devices are brought to market.
Other analysts noted that the numbers leave some gaps in the full story. For instance, not counted is online gaming, in which a user pays a subscription to interact with other players via the Internet. Revenue from those games was estimated to be up sharply, with users accessing them both with portable and hard-wired consoles. Take-Two Interactive recently warned it would miss targets for the holiday quarter and fellow game maker Atari issued a similar warning late in 2005.
Some major game publishers have been experiencing hard times, with many blaming the pending launch of new consoles as a reason for weak sales. NPD said game prices did rise an average of 7 percent, however, as titles for new platforms, including the Xbox 360 and the PSP, brought in a premium.
DFC Research President David Cole told the E-Commerce Times that when taken as a whole -- online, handheld and traditional consoles -- the interactive gaming market is experiencing strong growth, with 2005 sales of about $28 billion expected to grow to $42 billion by 2010.
"Growth is more spread out among various platforms than in the past," he said, noting that the industry often sees peaks and valleys based on when new gaming technology hits the market.
He added that the launch of Xbox 360 was the beginning of a series of product rollouts that will feature gaming consoles with expanded functionality, making the devices more important to consumers and more valuable to those who make them and the software they use.
Kinder, Gentler Games?
The growth of the gaming market will become even harder to judge as more devices morph into multi-purpose tools, said Yankee Group senior analyst Mike Goodman. For instance, many at-home consoles now selling or soon to hit the market have the ability to play DVDs and portable devices such as the PSP can play downloaded movies.
Mobile entertainment devices like the PSP will bleed into the same categories as the Apple (Nasdaq: AAPL) iPod, Goodman added, while others offering WiFi 
gaming connectivity are more akin to smartphones or similar devices.
Even with rising sales, the year 2005 will not be remembered entirely with fondness by the gaming industry, as it continued to face pressure on numerous fronts about the amount of explicit violence in many of the top titles for younger players.
The industry dodged a bullet late in the year when a judge halted a California law that would have prohibited the sales of adult-rated games to those under 18, but experts say federal lawmakers may tighten regulations if the industry does not take steps on its own.
NPD's Frazier said consumer tastes may help clean up games as well. She noted that no games rated "Mature," or recommended only for those over 17, ranked among the top-selling titles in 2005. By comparison, two M-rated games -- "Grand Theft Auto: San Andreas" and "Halo 2" -- topped the charts in 2004.
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