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Video Games Face Ho-Ho-Horrendous Season

Stocks in this article: MSFT SNE NTDOY.PK TWX ERTS ATVI THQI

NEW YORK ( MainStreet) -- Video game sales got a little push from motion controllers last holiday season, but the video game industry's going to need a software power-up if it wants any presents under the tree this year.

There's already a chill over video game console and accessory sales as holiday shopping begins. Last December, spending on Nintendo's Wii, Microsoft's (MSFT) Xbox 360 and Sony's (SNE) PlayStation 3 consoles decreased 16% from December 2009, according to market research company NPD Group. Accessory sales jumped 10% last year as more casual gamers danced awkwardly in front of Microsoft Kinect motion capture devices and swung orb-topped PlayStation Move motion wands like would-be Gandalfs as each item sought a share of the Wii's jittery, jumpy fan base.

Slumping consoles such as the PlayStation 3 and so-so software sales need new titles to lifts gamers' holiday spirits.

Much as the Guitar Hero/ Rock Band frenzy of years before left gamers with closets full of unused peripherals, excitement over the Kinect and Move has lost momentum. Overall video game accessory sales were down 14% in September -- the last month for which NPD Group had figures available -- from September 2009, when the Move was just released and the Kinect was still more than a month away.

The platforms' parent companies have responded with as many cheat codes as possible to help drive demand. Nintendo dropped the price of its Wii by $50, to $149, back in May and packaged it with the popular Mario Kart Wii instead of the well-worn Wii Sports. Not to be one-upped, Sony dropped the price of the PS3 to $249 from $299 back in August and put it just a bit closer to the $199 cost of a base-model Xbox 360.

"I think Wii will still be No. 1 in December, as it has the lowest price point, and the big box guys tend to offer big gift card promotions with any console," says Michael Pachter, video game expert and managing director of equity research at Wedbush Securities. "A $149 Wii with a $50 gift card from Wal-Mart (WMT) makes it a pretty easy decision."

Facing attacks and peril from all sides like its mustachioed plumber figurehead Mario, Nintendo could certainly use the boost. By introducing the next-generation, high-definition Wii U at the Electronic Entertainment Expo this summer, Nintendo effectively made the Wii's current incarnation a lame duck and any revenue from it a bonus at any price. Meanwhile, Nintendo's once-dominant DS handheld gaming devices are on the defensive as increasing pressure from Apple (AAPL) iOS and Google (GOOG) Android portable devices and their cheap-to-free game apps squashed DS market share decreased from 70% in 2009 to 57% last year.

As a result, Nintendo's bare-bones DS Lite had its price whittled to $99 back in June just to generate interest. The new Nintendo 3DS, meanwhile, had its price slashed from $250 when it was released in March with little software support to $170 in July with promises of a Star Fox 64 release in September, a Super Mario 3D Land in November, Mario Kart 7 in December and Kid Icarus: Uprising next year.

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