Startup Grind, which first reported the layoffs, said between 500 and 1,000 employees will be affected, representing between 5 percent and 10 percent of the game-publisher’s workforce.

In an emailed statement to All Things D, the company said: “EA is growing and looking to hire hundreds of people for our digital, console, mobile and social games. Like all game companies, we make occasional adjustments to resize teams as projects are completed and new priorities are established. Overall, we expect that headcount will be up at the end of this year.”

Our sources indicate that the layoffs will be closer to 500 and are tied to the company’s game schedule. Last year, the company shipped two epic projects: Battlefield 3 and Star Wars: The Old Republic, which were challenging Activision’s respective dominance in first-person shooters and massively multiplayer online categories.

Once a title shifts, some employees stay on to work on other projects or remain on teams that build new content for the existing games to keep them fresh.

In this case, it appears the cuts show just how many resources the company was investing in these titles before launch. We expect to hear about these titles’ performance in a couple weeks when EA reports fourth-quarter earnings.

Three years ago, the company conducted a larger restructuring, totaling 1,500 employees.

Still, the Redwood City, Calif., company has aggressive hiring plans. Previously, it disclosed it wants to hire 5,000 engineers by the end of the decade to help build a platform, crossing all of its labels, including mobile, social and console. In particular, CTO Rajat Taneja has been bulking up his team since joining EA in October and now has 600 people on staff.

In afternoon trading, EA’s stock was down more than 5 percent, or 89 cents, to trade at $15.29 a share. Over the past year, it has traded as high as $26 a share.

Some 600 workers lost their jobs, most of them in divisions not related to game development. Blizzard says the World of Warcraft development team will not be impacted, despite continued subscriber losses. WoW lost well over a million and a half players last year.

Ugly news, but Blizzard president and co-founder Mike Morhaime said in a post to the WoW forums that the company needs to better manage its resources to continue to drive its gaming business. Which is exactly what it plans to do.

“We remain committed to shipping multiple games this year,” Morhaime said. “Our development teams in particular remain largely unaffected by today’s announcement. We’re continuing to develop, iterate, and polish Blizzard DOTA, Diablo III, StarCraft II: Heart of the Swarm, World of Warcraft: Mists of Pandaria, as well as other, unannounced projects.”

Zynga was up 42 cents, or almost 5 percent today, to close at $8.87 a share.

That’s a huge reversal from earlier this week when the stock nosedived to an all-time low. Meanwhile, none of the traditional game makers were having such a good day.

Electronic Arts closed down $1.47, or 7.5 percent, to $18.04 a share; THQ fell 7 percent to 66 cents a share; Take-Two Interactive fell .5 percent to $14.50 a share; and industry-leading Activision Blizzard slipped 2.5 percent $12.24 a share. GameStop also traded lower, finishing off the day down 2.8 percent to $23.51 a share.

The game makers were universally feeling the impact of an NPD Group report that revealed yesterday that videogame software sales fell 8 percent in December compared to the same month in 2010. When including hardware and accessories, like game cards, the entire industry contracted by 21 percent year over year.

Potentially, investors were betting that if the traditional game-makers weren’t fairing well, then Zynga was a good bet. The leading Facebook game-maker operates purely online and on mobile, so it potentially would be more isolated from the retail and packaged goods sectors.

The old guard vs. new guard battle also played out on the front lines yesterday.

EA was dealt an additional blow when Zynga announced it had hired away Barry Cottle, head of Electronic Arts’ Interactive division. Cottle, who was in charge of the company’s digital strategy, including social and mobile games, was EA’s biggest weapon in fighting Zynga’s dominance on Facebook and had led EA’s rise on mobile.

But EA’s loss was Zynga’s gain.

The social games leader appointed Cottle to the position of EVP of business and corporate development in charge of new global partnerships, acquisitions and other development roles.

According to NPD data released today, about $6.7 billion, or 40 percent of consumer retail spending, was spent on the Xbox, breaking down into two categories: $2.1 billion on consoles and $4.6 billion on games.

The figures take into account U.S. retail sales of new physical videogame content, including portable and console hardware, games and accessories.

In all, those sectors generated revenue of $17.02 billion in 2011, an 8 percent decline over the $18.6 billion generated last year. (Yes, I repeat, Microsoft got 40 percent of that in 2011.)

The initial report does not take into account sales from digital formats such as downloadable content on the console, social and mobile games, or other categories, including used and rentals.

Those so-called “newer” categories generated $7.24 billion in revenues last year, an increase of 7 percent over the prior year.

The increase in spending on alternative formats, however, wasn’t enough to offset declines in physical retail. All told, consumer spending across both categories totaled between $16.3 billion and $16.6 billion, falling 2 percent over last year.

Separating physical and digital sales is quickly becoming an outdated concept, since the two are so intertwined. Consumers have the choice of purchasing many of the games over the Internet via a digital download versus buying them at Wal-Mart or Target.

NPD acknowledged today that it needs “deeper visibility” into digital distribution to get a complete picture of the industry, which will be its focus in 2012.

Still, the report can still be used as a litmus test to see what is performing well.

Overall, a surprisingly disappointing December is what dragged down results for the whole year, NPD discovered.

“Because of the great slate of content that came to market during the fourth quarter, I had expected December sales to represent a larger portion of total year sales than what occurred,” said NPD Group analyst Anita Frazier, in a release.

Frazier added that December sales accounted for just 23 percent of the annual total, compared to the past 10 years, when December, on average, represented 28 percent of the total.

In addition to Microsoft’s Xbox, Sony’s PlayStation also performed well, with both witnessing a 5 percent increase across all game categories for 2011. Meanwhile, the Nintendo Wii, which cannot display HD content, saw a decline year over year.

In a separate statement, Microsoft said that it outsold the PlayStation, the second-place console, by 2.7 million units, and that in all, it has now sold 66 million Xboxes and 18 million Kinect accessories. On a global basis, Sony said in a statement that it sold more than 6.5 million units worldwide this holiday season.

Here are the Top 10 best-selling games in December, according to NPD:

1. Call of Duty: Modern Warfare 3 by Activision Blizzard
2. Just Dance 3 by Ubisoft
3. Elder Scrolls V: Skyrim by Bethesda Softworks
4. Mario Kart 7 for 3DS by Nintendo
5. Battlefield 3 by Electronic Arts
6. Madden NFL by Electronic Arts
7. Assassin’s Creed: Revelations by Ubisoft
8. NBA 2k12 by Take Two Interactive
9. Super Mario 3D Land for 3DS by Nintendo
10. Batman: Arkham City by Warner Bros. Interactive

The game is long overdue and over budget, but now that it is actually here, the LucasArts-blessed project is likely to become one of the company’s most significant game launches over the next decade.

The Star Wars title falls into the category of a massively mutliplayer online role-playing game (MMORPG), a subscription game that people can escape into for hours, acting out the role of characters and interacting with others inside a virtual world.

Other games in the genre have done extremely well, including Activision Blizzard’s World of Warcraft, which has more than 10 million subscribers after more than six years in existence.

In an interview, Frank Gibeau, president of EA Labels, told All Things D, “This is our most ambitious game of my career, and the biggest project ever made at Electronic Arts.”

The project started as early as 2007, when BioWare received the license from LucasArts. Electronic Arts acquired BioWare in 2008.

The game is on a completely different scale than a social game, and is closer to premium titles found on videogame consoles. But really, a better standard of comparison would be a blockbuster movie production.

“If a social game is a speedboat, this is like a nuclear-powered aircraft carrier,” Gibeau said.

There are at least 300 hours of game play possible within Star Wars: The Old Republic. EA hired 1,000 actors to perform 250,000 lines of dialogue — more than in all six “Star Wars” movies combined. The game is produced in English, French and German.

“It’s the most voiced-entertainment property in history — film, book, anything,” said Gibeau. “We are thinking of this game in terms of a 10-year life cycle.”

One of BioWare’s co-founders, Ray Muzyka, has been working on the project nonstop for the past several years. He told me that, despite having plenty of access to the game, “I still want to play it. I still haven’t scratched the surface, and it’s still compelling.”

Star Wars: The Old Republic officially launched at midnight, but has been slowly adding 200,000 players a day over the past week, to ensure that the servers were ready to handle the crush. Gibeau said that by today there will already be around 1.5 million people playing in the game.

The game costs $60 for a digital download or physical copy. The first month is free; it costs $15 a month after that.

One of the key differences between Star Wars and other MMO-style games is the voiceover, Gibeau said. Most MMOs require the player to read a lot of text in order to receive instructions on what to do next. BioWare lets the characters do the talking to make the players feel a part of the game.

“That’s the biggest overall thing we brought to the genre,” BioWare co-founder Greg Zeschuk said in an interview. “It’s an approachable story with real living and breathing characters who get to choose their own outcome. It creates a way to be attached to the game.”

“It grows on you over time,” Muzyka added. “Once you’ve played The Old Republic, you can’t go back (to other MMOs). It’s woven into the experience. That emotional engagement is very natural. … They feel alive. They feel like they are helping someone, or your alliance, or your village. You can be a hero or a villain.”

Electronic Arts is reluctant to say that it is betting the farm on the game, when it has so many other franchises and big projects in the works. But the potential for profit is an open question.

The release of Star Wars: The Old Republic will automatically draw in players because of the movie franchise’s mass-market appeal. Who doesn’t want to play the role of Luke Skywalker, Princess Leia or Darth Vader? (Except that those three names are banned in game play, since everyone can’t walk around the Republic with the same name, duh.).

Of course, EA will have to pay LucasArts handsomely for the right to use a big brand name like Star Wars. There’s no secret why other social games are generic — it’s cheaper. There are also hundreds of millions in development costs that Electronic Arts will have to recoup.

And those costs don’t stop on launch day.

EA and BioWare are already developing more content for the game, and have hired a team of customer-service reps in Ireland to take calls from players.

Gibeau defines what he would consider a successful game: “It’s certainly not a make-or-break product for our company,” he said. “Star Wars is a really important part, but it’s in the context of the larger digital transformation. I’d love to have a business that lasts for 10 years; I’d love to have millions of subscribers and a huge hit from that standpoint,” he said. “But our conservative cases are much less than that, so we are in pretty good shape from any outcome.”

Muzyka is a big poker player, so I asked how he is betting the game will do.

“I like to bet on things that win, and I think it’s going to win big,” he said.

To set the scene, the game takes place thousands of years before the rise of Darth Vader, when war between the Galactic Republic and the Sith Empire was dividing the galaxy. Players choose to play as a Jedi, a Sith, or a variety of other roles.

Watch this trailer and judge for yourself whether the game experience is as realistic as its creators claim:

The gory first-person shooter has managed to outsell all movies, books and videogames during its initial debut.

It even surpassed last year’s release of Call of Duty: Black Ops, which grossed $650 million, and Call of Duty: Modern Warfare 2, which sold $550 million.

In an interview, Activision Blizzard’s CEO Bobby Kotick told AllThingsD that the game’s entertainment value compares well against other more accessible media options.

“I don’t think we have empirical evidence to support this, but the cost per hour is a lot lower than any form of entertainment,” he said. “In this difficult economy, you are getting a great value.”

The latest installment, called Modern Warfare 3, retails for about $60 and is available on the Nintendo Wii, PlayStation 3, Xbox 360 and for the PC.

He said for that price, you get a social experience because of the multiplayer capabilities; a cinematic experience with good imagery and a story line; and an interactive experience. “It touches on all of the compelling areas of entertainment,” he said.

Activision is claiming that the Call of Duty franchise is one of the most valuable entertainment properties worldwide, having exceeded $6 billion in revenue over its lifetime. At that level, Kotick says, it is up there with “Star Wars,” the Harry Potter franchise, and maybe “Lord of the Rings.”

In its first day on the market, Activision sold more than 6.5 million units in North America and the United Kingdom at an estimated sell-through rate of more than $400 million.

It’s competing against a number of blockbuster first-person shooters that are being released this winter, like Electronic Arts’ Battlefield 3, which came out late last month. That title sold five million units during its first week of sales.

Not only is Call of Duty a big revenue hit, but it’s also likely sucking away time spent on other media.

According to Microsoft, more than 3.3 million unique gamers logged seven million multiplayer hours with the game by the end of Nov. 8, the first day it was available. At one point, more than 3.3 million concurrent users played the game on Xbox Live.

A companion social network for the game, called Call of Duty Elite, is being sold separately for $50 for premium access.

Kotick said Activision will release more information about sales on that soon, but “the response has been much higher than we anticipated.”

The game, which was released today, is expected to be the videogame publisher’s top-selling title this year, even though it faces steep competition from Electronic Arts’ Battlefield 3 title.

The company also said today that other franchises, including a brand new game called Skylanders, enjoyed unexpectedly high adoption from users.

“Based on our third-quarter performance, stronger than expected consumer response to our new entertainment property, Skylanders: Spyro’s Adventures, and Call of Duty: Modern Warfare 3, we are raising our full-year financial outlook and expect once again to deliver record operating margins and the highest earnings per share in our company’s history,” said Activision’s CEO Robert Kotick, in a release.

Skylanders uses small miniature toys that come to life in the videogame across multiple platforms.

In the third quarter, the company reported Q3 revenues of $754 million, up from $745 million, and a profit of $148 million, or 13 cents a share, up from $51 million, or 4 cents a share in the year-ago period. On an adjusted basis, the company recorded a profit of 7 cents a share.

Results easily beat analyst expectations, who were expecting, on average, adjusted earnings of two cents a share on revenue of $564.8 million, according to a poll by FactSet.

The company was previously expecting revenues of $4.18 billion, or 68 cents a share. It has now upped those estimates to $4.33 billion, or 76 cents a share.

During regular trading today, shares of Activision Blizzard at one point rose nearly 3 percent to $14.11, which put the stock to a new three-year high. The stock ended up closing up 1.38 percent, but in after-hours trading the stock continued to jump, increasing more than 4 percent to $14.55.

On sale Oct. 16, the game, called Skylanders: Spyro’s Adventure, represents a major deviation from the company’s hugely successful war-based Call of Duty.

The game melds physical toys with videogames by using a “portal,” which is plugged into the console. Once an official Skylanders toy is placed on the portal, the character transports into the game and comes to life on the screen.

The game is similar to one announced recently by Disney that uses miniature toy cars and an iPad. In this case, kids place the physical toy on the iPad’s screen to interact with the game, which is based on the movie “Cars 2.”

Eric Hirshberg, CEO of Activision Publishing, told me in a phone interview that Skylanders has “got a couple real innovative stories to tell.”

Not only does the game enable physical toys to come to life inside of a virtual world, Hirshberg said, it also can be played cross-platform. “The toys travel from console to console and to the Web, and they remember everything that happens to them,” he said.

That means a child’s chosen character will remember what level it has attained and transfer that information from the player’s Nintendo Wii to an Xbox or Sony PlayStation at a friend’s house. Players will also be able to pick up where they left off on Android, iOS, Nintendo’s 3DS and online.

“If you play on your Wii and level up to 10 and then go to the Xbox, those all go with you,” Hirshberg said. “And then, on a road trip, you can log in to the iPhone version and the same thing happens.”

Skylanders: Spyro’s Adventure will have more than 30 different characters.

The plot is about a mysterious world that has been taken over by a sinister Portal Master known as Kaos, who has frozen the Skylanders as toys and banished them to Earth. The players are charged with helping to return these heroes back to their world.

In a release yesterday, Activision said the games would be on display in Toys“R”Us as soon as this weekend, to get the buzz started ahead of the holidays.

Toys“R”Us Chairman and CEO Jerry Storch said, “We believe that the product line will be one of this holiday’s hottest gifts, and we can’t wait to offer customers a one-of-a-kind way to discover Skylanders at our stores.”

A $70 starter pack includes a copy of the game (on PlayStation 3, Xbox or Nintendo Wii), three Skylanders characters, the portal of power, a character poster, trading cards, stickers, Web codes and batteries.

And — diverging from the current social gaming trend — it’s not available on Facebook.

The game, called Glitch, is comprised of thousands of hand-drawn illustrations — it’s a multiplayer online fantasy world that takes place inside the minds of 11 giants.

It is less like FarmVille and more akin to Activision Blizzard’s very successful World of Warcraft — except that there is no war. Instead, players must rely on their imaginations to build a nonviolent community of made-up characters.

In the company’s fact sheet, one question asks, “What can I kill in the game?”

The answer: “Your time!”

While that’s a genuine answer, it will be interesting to see if there’s a wide enough audience willing to invest a lot of time in a game without blood and violence.

The game, which targets adults 14 and older and has been available in beta for the past few months, is being called “a collaborative simulation,” where the direction the world takes requires cooperation among the players.

Glitch’s universe is a fantasy land, with plants that look like a hookah pipe with eggs at the end of each tendril. Strange palm-tree-like animations have googly eyes and tongues hanging out, and users can dress their avatars up as space crusaders or in dinosaur or unicorn outfits.

Tiny Speck’s CEO Stewart Butterfield said he doesn’t expect to attract as many players as a top game on Facebook, but added that he expects engagement among the players to be much higher. “We don’t need tens of hundreds of millions of people to play. We need a couple hundred thousand players to break even,” he said.

The game will be monetized through microtransactions — such as buying new outfits for your avatar — or through subscriptions. Butterfield said the company purposely avoided charging for simple things — like more energy in order to play for longer — even though that’s a popular way to get people to pay in free-to-play games.

“It creates a weird experience. It’s like stop signs with dollar signs,” he said.

While Tiny Speck is not on Facebook, the company does expect that the social gaming craze will be beneficial, as players introduced to gaming will seek out deeper experiences elsewhere once they get tired of playing different variations of the same farming-like mechanics.

“I think social gaming companies are burning their customers out. That’s the best possible position for us,” Butterfield said. “We are trying to bring beauty and brains to the online gaming world. There’s humor and absurdity. We have a low-level fundamental belief that there’s an importance of fun in everyday life.”

Even though it is not focused in the hot social gaming space, Tiny Speck has been the recipient of venture capital from some of the big-name Valley VCs, including Andreessen Horowitz and Accel.

But never fear, better times await. The next four months will generate more than half of the industry’s sales that are made at retail, which could be more than enough to bring things back in line with last year’s performance.

The NPD Group today released its assessment of retail sales in August, which does not take into consideration electronic or other digital channels where games are sold.

NPD analyst Anita Frazier said almost everything related to games — software, hardware and accessories — declined in August, compared to the same month a year earlier. The one exception was portable game sales, which were driven by sales of Nintendo DS and 3DS software.

Price cuts benefited both Nintendo and Sony.

Sony trimmed the price of the five-year-old PlayStation 3 to $250 from a previously recommended price of $300, while Nintendo slashed the price of the struggling 3DS by $80, after the glasses-free 3-D handheld device had been on sale for only four months.

Nintendo said about 185,000 units were sold after the price reduction on Aug. 12, an increase of more than 260 percent during the comparable 19-day time period in July. During the entire month, the company sold 235,000 3DS game devices to outsell the original Nintendo DS, which still managed to sell 165,000 in August.

The PS3 price cut also allowed it to drive a notable uptick in sales year over year.

Xbox continues to maintain its lead over other consoles in the market, selling 308,000 units in August, which means it has outsold any other console maker for 14 of the past 15 months in the U.S.

In August, total U.S. game sales from retail, including all hardware and software, was $669.9 million, falling 23 percent from $873.8 million a year ago. Software sales in the period were hit the hardest, recording a 34 percent drop to $264.8 million from $403.5 million a year earlier.

Frazier attributed the bulk of the decline to Electronic Arts shifting the release of its latest Madden football title from August to September. The game launched on Aug. 30, which falls within NPD’s September 2011 reporting period.

Otherwise, the best-selling game in August was Square Enix’s Deus Ex, followed by EA’s NCAA Football 12 and Activision’s Call of Duty: Black Ops.

Frazier added that the rest of the year could more than make up for the softness seen in 2011.

“Even though year-to-date performance of the new physical portion of the industry is down 5 percent, more than half of industry sales in this channel are still to be realized in the back four months of the year,” she wrote. “Given the strong release schedule in the coming months, new physical retail sales could still be flat to slightly up once full-year sales are tallied.”

To mark the anniversary, the game studio known for creating Halo on the Xbox produced an hour-long documentary — a “celebration of Bungie’s legacy and a love letter to the community of gamers who have embraced Bungie’s games for two incredible decades” — with footage of its founders developing Macintosh games in a one-room office in Chicago, and a glimpse of the company’s present and future.

Somewhere in between, the game studio was acquired by Microsoft and moved to Bellevue, Wash., only to split off in 2007 to become an independent company. Later, it signed a 10-year publishing deal with Activision Blizzard.

In the video, the company captures interviews with “ever-elusive creative director, Jason Jones — and interviews from key industry veterans and luminaries.”

During the quarter, revenues from digital channels increased 27 percent year over year and accounted for 37 percent of the company’s total net revenues.

Strong digital revenues also contributed to record profits.

Activision reported record earnings per share of 29 cents as compared with 17 cents in the second quarter 2010. Revenues were also up, totaling a new record of $1.1 billion compared to $967 million in the year-ago period.

In a release, Robert Kotick, Activision’s CEO said, “Today, there are more ways than ever for players to access entertainment online and play games which have truly become one of the most compelling forms of entertainment in the world.”

A majority of the company’s digital revenues come from subscriptions, downloadable content and full-digital downloads.

On a non-GAAP basis, the company reported diluted earnings per share of 10 cents on revenues of $699 million. This exceeded the analyst consensus of 5 cents a share on revenues of $599 million.

Activision is also raising its outlook for revenue and earnings per share for calendar year 2011.

It is now expecting non-GAAP revenues of $4.05 billion and 77 cents a share for the year, up from previous expectations of non-GAAP revenues of $3.95 billion and 73 cents a share.

The company’s stock is trading up in after-hours duty by about 3.64 percent or 43 cents to $12.25 a share.

Activision Blizzard Inc. plans to launch an online service called Call of Duty Elite this fall that will work with the next major edition of the game, Call of Duty: Modern Warfare 3, and future installments of the hyper-realistic combat-simulation game. In a move industry executives describe as a first, Activision plans to charge a monthly subscription fee for the service, which will provide extra content that isn’t offered on game discs sold in stores, including downloadable map packs that give players new Call of Duty levels to play.

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That translates to about $27.3 million of the company’s fourth quarter revenues and $102 million for the full year ended March 31.

In particular, the New York-based company said digital revenues were driven by offerings for Red Dead Redemption, the Grand Theft Auto franchise, Borderlands and the Sid Meier’s Civilization franchise.

Many game makers have identified digital content as a way to extend the life of console games and to create recurring revenue streams between major releases. As we’ve reported previously, the definition of digital varies among companies. Some define it as content downloaded over an Internet connection to consoles, or mobile or social games.

Activision Blizzard, the maker of World of Warcraft and Call of Duty, said 50 percent of its first quarter revenues came from digital, and Electronic Arts were ecstatic that digital revenues for its fiscal year ended March 31 totaled $833 million, exceeding its forecast of $750 million.

During the company’s earnings call this afternoon, Take-Two’s CEO Strauss Zelnick said it was exploring other digital offerings, including emerging platforms such as massively multi-player online games in China, in addition to social games. He said they have several projects underway that have the opportunity to generate significant revenues. One of the titles in the works is Civilization, which is currently in beta on Facebook and will launch some time this summer.

The company said its digital revenues currently include: downloadable content to both Xbox Live and the PlayStation Network; through PC delivery services, like Steam; and content sold through mobile platforms, such as iPod, iPad, and Sony PSP.

For the year ended March 31, the company said revenues totaled $1.14 billion, growing 49 percent over the year-ago period. Net income totaled $53.8 million, or 62 cents a share, compared to a net loss in the year-ago period. In the fourth quarter, the company lost 27 cents a share or $22 million on revenues of $182 million.

In its first-quarter results released today, the company, which is known for its Call of Duty and World of Warcraft games, said its revenues from digital channels increased 30 percent year over year in the first quarter.

What’s more, on a non-GAAP basis, digital channels accounted for more than 50 percent of net revenues, or roughly $378 million.

However, what’s becoming clear is that the definition of digital is a moving target for all parties involved, a trend that will likely continue as companies experiment with new business models and ways to deliver games to consumers.

Activision’s big source of digital during the quarter came from the $15 content pack for Call of Duty: Black Ops, which provides new areas for players to explore that were not included in the the original game sold at retail. It’s available on Xbox today and is expected to launch on Sony’s PlayStation Network and the PC in the second quarter.

That’s much different from Electronic Arts, which said last week that its digital revenues for its fiscal year ended March 31 totaled $833 million, exceeding its forecast of $750 million.

When EA talks about digital, it refers to mobile games and social games on platforms, such as Facebook. For the most part, it’s not referring to downloadable content available on consoles (although it has that, too).

The differing points of view also come down to business models.

Mobile games and social games are often free and either monetized through advertising or through virtual goods that are purchased in the game. Online games are often paid for via subscriptions and console games frequently require a $60 upfront payment with the option of paying for more downloaded content later.

Thomas Tippl, Activision’s COO and CFO, said while digital revenues grew at 30 percent, it was also able to maintain margins of up to 50 percent since most of its digital content was leveraging the company’s large online communities and popular franchises.

Call of Duty and it’s $15 content pack is one example:

During the earnings call, Activision said that Call of Duty: Black Ops has now officially become the best-selling title of all time in dollars across the Xbox 360, PlayStation 3 and the PC in the U.S. and Europe. Additionally, the popularity of that title was able to drive massive sales of the digital add-on pack. While only released a few days ago, it has the potential to do better than most console games at retail.

“The Call of Duty content pack shattered records with 1.4 million downloads in the first 24 hours,” Tippl said. “We no longer think about launch events, but long-term on-going relationships with players. The response from fans underscores this approach.”

The company also discussed other digital initiatives, of which some could arguably be considered social, although they are not on Facebook.

In the works is a next-generation massively mutli-player online game; a micro-transaction game for China; a digital platform surrounding the Call of Duty franchise; a new property from Bungie; and Skylander’s Spyro’s Adventure, a new children’s game coming out that will tie the Internet together with real-life $10 toys.

But not ever in the company’s earnings release, or during the call, did Activision place much emphasis on mobile games or social games.

Actually, Facebook was mentioned once. Activision said that since Call of Duty: Black Ops First Strike launched on Feb. 1, players have spent an average of 58 minutes a day playing online, which is more than the 55 minutes an average Facebook user spends a day on the social network.

So, maybe it can build its own communities?

Still, one could argue that mobile and social are key components to the digital gaming experience.

In addition to Electronic Arts’ many investments in the space, including the purchase of Playfish, a social games publisher, Disney also acquired Playdom. Both plan to use the publishers to bring some of their more recognizable content from other platforms to Facebook. Social games are also becoming a massive business for privately held companies, like Zynga.

An analyst during Activision’s earnings call this afternoon asked about how the company viewed the various emerging platforms across the videogames industry.

In response, Activision’s CEO Robert Kotick said: “You hit on the most interesting of the fundamentals that are redefining interactive entertainment. More people are playing games than ever before.

“Facebook has done a good job of introducing interactive entertainment to people who have never engaged in gaming of that kind…We’ve always taken the approach of platform agnosticism. We deliver services across devices with a display and a microprocessor. We have to prioritize the resources based on the opportunity. As we look out three to five years, we see there being a lot more displays with microprocessors that will be capable of playing games. We are so excited about the prospects of the future. If it has a microprocessor and a display, our content can be there.”

But despite the round’s petite figure, especially in today’s healthy venture market, make no mistake that the Los Angeles-based company has blockbuster-sized ambitions and a valuation to match.

The round was revealed in a regulatory document filed today, but from what we are hearing from people close to the situation, it will put the company’s valuation in the low hundreds of millions. A company spokesperson declined to comment.

The financing is from existing investors, Redpoint and MK Capital, and brings the company’s total to about $20 million, including a small line of credit. It will give the company the cash it needs to fuel additional growth without requiring the executive team to lose focus by kicking off a gigantic fundraising effort. From what we are hearing, the latest round is not a reflection of the company’s growth, but it will help it stay on track.

Its YouTube channel is quickly becoming the destination for hardcore game fans to watch videos. Trust us when we say the demographic is as far from those playing FarmVille as you can get. It’s often adrenaline-pumping action filled with violence and profanity. In other words, it’s the top shelf of entertainment for most males aged 18 to 34.

While the niche sounds small, it isn’t.

In 2010, Machinima’s YouTube channel attracted 2.3 billion page views. Last month alone, it attracted 575 million page views and 67 million unique visitors. It’s seeing between 15 and 20 percent growth every month. The funding will allow it to keep growing and to expand to other platforms.

The growth is not that hard to understand. In fact, it’s probably the same trend that propelled Activision Blizzard’s Call of Duty: Black Ops to hit $1 billion in sales after slightly more than one month–the equivalent of a blockbuster movie release.

According to the company’s Web site, the word “Machinima” is basically a mash-up of the words “machine” and “cinema,” which is used to describe the process of “creating real-time animation by manipulating a videogame’s engine and assets.”

The company is essentially building a destination for videogame fans to watch a ton of its own editorial content, but also allows players to upload their own videos. Often, the video is a recording of someone playing a video game and providing their own play-by-play soundtrack as they achieve some great accomplishment.

By creating content and attracting fans, Machinima can generate buzz for videogames long after their initial launch dates. Users who continue to play games may buy additional downloadable content, which leads to incremental revenues for the game maker. In essence, Machinima is an advertising network, and it has worked on projects with all of the major gaming companies and film studios.

In a recent example, Machinima teamed up with Warner Bros. Digital Distribution to produce an original online series to promote Mortal Kombat. The nine-episode series, which has the quality of a feature-length film, debuted on April 12. In the first five days, the first episode got more than 5.5 million views.

Here’s that video [for mature audiences only!]:

In fact, the only sector that grew in January was accessories, which increased six percent to $235.1 million

Accessories have been strong in previous months as well, buoyed by new motion-controlled remotes, like Microsoft’s Kinect and Sony’s Move.

The accessories have breathed new life into the Xbox and PlayStation at a critical time when the consoles have already been on the market for a couple of years.

However, accessories weren’t enough to keep both hardware and software sectors afloat.

In January, U.S. sales of videogame software fell five percent to $576 million compared to the same period the previous year. Hardware sales fell eight percent to $324 million.

In a statement issued by Microsoft today, it released more NPD data, including that it sold 381,000 Xbox units in January, up 15 percent year-over-year. It says it is the only console that showed growth in the time frame.

Microsoft also said it continues to experience some Xbox shortages at retail because of sustained consumer demand for Kinect, but anticipates the problem to improve through February, and is working retail and manufacturing partners to expedite production and shipments.

The top-selling games for the period were Activision Blizzard’s Call of Duty: Black Ops, Ubisoft’s Just Dance 2, Electronic Arts’ Dead Space 2, Sony’s Little Big Planet 2, and Majesco’s Zumba Fitness. Making it into the top 10 was MTV’s Dance Central, which teaches people how to dance using the Xbox Kinect.

Photo Credit: Harmonix

However, the company’s shares slid more than 6% after-hours after Activision issued a forecast for the current quarter and fiscal year that were both sharply lower than Wall Street’s expectations.

The company also said it’s discontinuing its once-popular Guitar Hero franchise, citing a sharp slowdown in the sales of music games. Another title, True Crime: Hong Kong, had been expected this year but will also be killed, Activision said.

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The milestone means “Call of Duty: Black Ops” crossed the $1 billion threshold nearly a month earlier than the last version of the game, “Call of Duty: Modern Warfare 2, “which came out in early November 2009. In a news release, Activision CEO Bobby Kotick said only “Call of Duty” and the movie “Avatar” have passed $1 billion in revenue so quickly.

In an interview, Kotick attributed the improved performance of “Black Ops” to the quality of the game, including the manner in which it allows even novice gamers to easily start playing the combat game.

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The report released today is limited to trends that occur at physical retail locations, but from that vantage point, the Xbox 360 platform accounted for more than 40 percent of total industry sales. NPD analyst Anita Frazier reasoned the gains were driven by the successful launch of Microsoft’s Kinect, the Nintendo Wii-like motion detecting game accessory that works with the Xbox. The Kinect led Xbox 360 accessories to account for 60 percent of that category’s dollar sales.

Microsoft started selling Kinect halfway into November, and after only 15 days Microsoft said it had sold 2.5 million.

In general, NPD says the gains made last month, due to Microsoft’s successes and holiday discounts, were good enough to offset the majority of declines that occurred in 2010. “We expect a big jump in sales in November due to seasonality and the influence of holiday, but the change this November over October is bigger across most platforms than it was last November,” Fraizer said.

Last month, total game sales, including videogame hardware, like consoles and portables, plus software and accessories, were estimated to total nearly $3 billion, an 8 percent increase over November 2009. Now, sales for the year to date are only off last year’s $14.7 billion by 5 percent, providing hope that 2010 can end the year flat at $18.8 billion to $19.6 billion.

Other top performers included the Nintendo DS, which was boosted by new red and white designs, and Activision Blizzard’s Call of Duty: Black Ops game.

Photo Credit: Microsoft.

The New York-based entertainment company is preparing to unload its Harmonix videogame division, maker of the popular “Rock Band” line of games.

Viacom on Thursday reported profit for the latest quarter fell 59 percent after it took $260 million in write-downs related to Harmonix, which has long been a drag on the bottom line.

Harmonix has been on the block since September, and Viacom is now in deal talks with both videogame companies and private-equity firms, according to people familiar with the matter. Viacom is expected to hold an auction, and as many as four companies might participate, one of those people said.

Viacom bought Harmonix in 2006 for $175 million, and made an additional $150 million payment in 2008 as part of the deal. But for much of that time the unit has been locked in brutal competition with rival game “Guitar Hero,” from Activision Blizzard Inc., which is roughly 60 percent-owned by Vivendi SA.

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