5 Industries In Peril In 2012

Video games
The one piece of new hardware released in 2011, the Nintendo 3DS handheld, got such a lukewarm reception and had so few sought-after Mario and Zelda games that Nintendo dropped its price from $250 to $170 just a few months after its launch. Huge games such as Batman: Arkham City, Elder Scrolls V: Skyrim, Call of Duty: Modern Warfare 3 and Battlefield 3 were released this year, but NPD Group still expects year-to-date sales to be flat or down by as much as 3%.

It doesn't get easier from this point on.

The industry's struggling to find an identity at a point where it can least afford to do so. Apple(AAPL) iOS and Google(GOOG) Android products have cut the long-dominant Nintendo DS' share of the handheld game market from 70% in 2009 to 59% last year. This year, NPD Group says downloaded games for mobile devices represent just about half of all video game downloads, with 40% of all gamers with mobile devices saying they spend less on console games as a result.

That's not the greatest news for aging consoles or their producers. Sony(SNE) dropped the price of its PlayStation 3 by $50 this summer and was already reeling from a hack of its PlayStation Network earlier in the year that exposed the personal information of millions of its members. Nintendo offered a sliver of hope at the Electronic Entertainment Expo this summer with the introduction of its high-definition Wii U console due to hit stores next year. Unfortunately, that made its already fading Wii console a lame duck for the remainder of 2011 and allowed Microsoft's(MSFT) Xbox 360 to open up the largest lead in console sales since the Nintendo DS was the top-selling system in 2008.

While Sony tries to re-enter the handheld market with its Vita device and Nintendo's Wii U and its touchscreen controllers give the video game world its first new console in half a decade, neither represents a safe bet. In fact, the only growing segment of the traditional video game industry is the one that's driving the Xbox 360's success: downloadable content. According to Jesse Divnich, vice president of capital research and communications at video game market research firm Eedar, the percentage of HD console owners who buy songs, game maps and other downloadable content has risen from 34% in 2009 to 51% in this year. Eedar estimates that those downloads will add up to $875 million in North America by the end of the year and surpass $1 billion next year.

It's estimated that the 49% of people who don't buy downloadable content -- including 41% who are afraid of having what happened to PlayStation Network users' info happen to their own -- would generate another $600 million in revenue per year. Even if they don't, onlookers see these disconnected consumers as the key to increasing physical software sales.

"Many question the long-term viability of traditional physical media, but given the overwhelming anticipation for all the great AAA content in the pipeline, I believe the final results will indicate that there is still plenty of life and demand in the traditional physical media space," Divnich says.