Electronic Arts Warns

And EA's not alone in seeing poor sales. Activision (ATVI Quote), one of EA's leading rivals, issued its own earnings warning last week. Last month, GameStop (GME Quote), the leading video game retailer, slashed its sales guidance for the holiday quarter. Meanwhile, industry research firm NPD Group estimated that retail sales of video game software in the U.S. fell 18% in November, marking the third straight month of disappointing sales.

Indeed, investors seemed to take EA's news as a bad sign for its rivals as well. In recent after-hours exchanges, Activision shares were off 28 cents, or 2%, to $12.75; THQ (THQI Quote) shares were off 84 cents, or 4%, to $21.67; and Take-Two Interactive's (TTWO Quote) were off 51 cents, or 3%, to $16.92.

The industry's troubles come amid a transition to a new generation of video game technology. Last month, Microsoft released the Xbox 360, the first of three new game consoles expected on the market in the next year.

Previous transitions have caused similar upheaval for the video-game software publishers. Typically during such periods, companies see sales of older-generation games slow long before they can be replaced by sales of games for the new systems. At the same time, publishers' costs typically soar as they invest in developing games for the new consoles.

EA's stock closed regular trading Tuesday up 86 cents, or 1.7%, to $53.11.