The videogame company’s stock has also been hammered by recent concerns about how well its new online blockbuster title Star Wars game is selling after launching in December.

In 2011, U.S. retail sales of new physical videogame content — including portable and console hardware, games and accessories — totaled $17.02 billion, an 8 percent decline over the $18.6 billion generated the year before, according to NPD.

Additionally, multiple reports indicate that while unit sales were up year over year in December, overall revenues suffered from steep discounting. Game retailers, such as GameStop and Amazon, both reported that holiday sales fell below expectations.

Electronic Arts’ third-quarter figures will be released today after the bell.

Its stock is trading down 12 cents, or .62 percent, to $18.46 a share. That has fallen significantly from its recent high of $25.20 back in November.

Back in October, the company said it was expecting third-quarter revenues of $1 billion to $1.1 billion and a loss per share of 77 cents to 63 cents. Excluding some stock-based compensation, acquisition-related expenses and other charges, the company said it is expecting a profit of 85 cents to 95 cents a share.

Analysts are expecting revenues of $1.61 billion and earnings per share of 93 cents.

The company also faced a setback when it announced that Barry Cottle, who was in charge of the company’s digital efforts, was leaving the company. Cottle took a job with Zynga, the company’s rival when it comes to talent and publishing games on Facebook.

And, while the industry is continually contracting on the hardware and physical retail front, one area of tremendous growth is digital.

At the time of Cottle’s departure, which was the third high-profile steal Zynga made over the past year, EA confirmed the company had achieved more than $1 billion in digital revenues in 2011.

Digital revenues include everything from downloadable content on consoles to social games, like the company’s hit The Sims Social, to the new release of Star Wars: The Old Republic, which is set to challenge Activision’s World of Warcraft game.

In the second quarter, EA said digital revenues were growing 30 percent year over year, and because of that, it was able to raise its full-year guidance.

Check back here to see if the company can deliver.

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.

With the help of West Coast Customs, the auto body shop known from the MTV series “Pimp My Ride,” Nintendo was able to create real-life replicas of the classic Mario Kart and Luigi Bumble V Kart.

As in the game, Mario’s shiny red go-kart comes complete with a glider attachment for flying; Luigi’s kart is tricked out with a rear propeller for underwater navigation.

Here’s Reggie Fils-Aime, president of Nintendo of America, posing in Luigi’s Kart:

And, here’s Mario’s Kart:

The karts will be on display at the LA Auto Show, Nov. 18-27 at the Los Angeles Convention Center, and there is a contest for a chance to bring one home, via GameStop’s PowerUp Rewards program.

To win, PowerUp members must make a purchase or trade in a game at GameStop in December.

Early next year, an episode of “Inside West Coast Customs” will show how the vehicles became a reality.

The shaky results led the retailer’s shares to drop nearly seven percent in morning trading, but by the end of the day the stock had completely recovered, closing at $21.43, up 97 cents a share.

Why?

GameStop president Tony Bartel said the quarter was expected to be weak, due to poor hardware sales and a lack of major game releases. But he noted that there are several reasons to be excited about the second half of the year.

“As anticipated and forecasted, we knew the market was going to be softer than most anticipated, and sales were going to be down,” he said. “And at the same time, we are investing four cents of every quarter for strategic initiatives.”

Still, the company hit its guidance and exceeded most analysts’ expectations by earning $30.9 million, or 22 cents a share, on revenue of $1.74 billion. On average, analysts were estimating earnings of 21 cents a share on revenue of $1.81 billion, according to FactSet.

Here are three reasons for Bartel’s optimism: 

Price drops: Game hardware fell 16 percent in the second quarter, according to NPD Group, led by weak sales of Nintendo’s struggling 3DS and Sony’s PlayStation 3. Since then, both Sony and Nintendo have cut the price of those devices, which has already helped accelerate sales.

Presales: Bartel said there was a 30 percent reduction in titles being released in the second quarter compared to last year, but the pipeline of titles is very strong for the rest of the year. So far, GameStop has, over the next two quarters, more titles with a million-plus reservations than it has ever had. No word on which titles those are, but Bartel was willing to list some of the games he is “excited” about: Gears of War 3, Battlefield 3, Uncharted 3, Batman: Arkham City, Elder Scrolls and Assassin’s Creed, among others.

Digital revenues: GameStop is still on track to hit $450 million in digital revenues this year, which represents a 50 percent bump over 2010. In the second quarter it reported digital sales growth of 69 percent, and some of its latest digital initiatives haven’t even launched yet. Bartel said a survey found that 50 percent of customers who bought downloadable content at a GameStop store were buying it for the first time, and that they often paid in cash or with gift cards.

Terms of the deal were not disclosed.

GMG is a publisher of digital currency cards and works closely with Facebook to manage, distribute, market and manufacture the cards.

The cards, which are sold at major retailers including Best Buy, RadioShack, Target and GameStop, are good for Facebook Credits, which is the digital currency used inside all games on the social network.

The digital currency market is growing as more games are played online for free and give players the option of buying virtual goods inside the game. Rather than having to enter a credit card number online, game cards can be conveniently purchased in cash and redeemed online. Another big player in the industry is Atlanta-based InComm.

Topps, which was acquired and taken private by Michael Eisner’s Tornante Company and Madison Dearborn Partners in 2007, says it will leverage the acquisition to enter the digital currency market, while bringing manufacturing, design and collectibility skills to digital currency cards.

Rob Goldberg, the CEO of GMG, will become the VP and general manager of the digital currency business, reporting to Topps CEO Ryan O’Hara. GMG will represent the company’s third business division in addition to trading cards and confections, such as Bazooka bubble gum.

GMG’s other executives, Tim Pechmann and Jeff Mickeal, will also join Topps.

GMG works with about 45 clients, including the NFL and game companies like THQ.

Put on a pair of 3-D glasses, listen to the bombs exploding in the distance, or stand in line for hours to get a glimpse of Call of Duty Modern Warfare 3.

Traditionally, the event has been all about videogame makers outdoing one another to ensure shelf space at the major retailers, like Target, Wal-Mart and GameStop. But increasingly the conversation is also about something that takes up absolutely no space at all: digital games.

Maybe to the surprise of many of the 45,000 people in attendance this week at E3, it’s the intangible stuff that’s driving much of the industry’s future.

The Entertainment Software Association, which organized the 17th annual event, released results of a study saying that the format and demographic make-up of gaming are changing.

It said that purchases of digital full games, digital add-on content, mobile apps, subscriptions and social network gaming accounted for 24 percent of game sales in 2010, generating $5.9 billion in revenue.

Other findings:

• The average game player is 37 years old, while the average game purchaser is 41 years old;
• Sixty-five percent of gamers play games with other gamers in person;
• Fifty-five percent of gamers play games on their phones or handheld devices;
• Consumers spent $25.1 billion on game content, hardware and accessories in 2010.
• Forty-two percent of gamers are women, and women 18 or older make up more than one-third of gamers.

More From E3

• At E3, Xbox Lets Kinect Lead the Charge on Gaming, Live TV Ambitions
• Justin.tv Broadcasts Gamers’ Every Move on TwitchTV
• Who Needs War? Sparks Will Fly in EA’s New Sims Game for Facebook.
• Sony Unveils Vita Gaming Device at E3; Will Launch This Year for $249
• E3: Nintendo Unveils the Wii U With Tablet-Style Controller
• Three Key Takeaways From Nintendo’s Wii U (Plus Photos!)
• No Hacks to Report at Xbox, But Microsoft Isn’t Letting Its Guard Down
• Forget About 99 Cents, What If You Could Rent Mobile Games for 25 Cents?
• Digital Game Revenues Hit $5.9 Billion in 2010

GameStop, which has more than 6,000 physical locations, said today its digital revenues jumped 53 percent in the first quarter, compared to the year-ago period. Additionally, it’s on track to hit $450 million in digital revenues this year and $1.5 billion by 2014.

In an interview, GameStop’s President Tony Bartel and CEO Paul Raines explained that they see three sources of digital revenues: mobile; downloadable content to the console; and PC, which includes downloads and point cards for social games, as well as advertising.

To aid in its expansion to digital, GameStop has made a handful of recent acquisitions, of which two have yet to be completed. The acquisition of Spawn Labs will allow it to provide a cloud-based streaming game service–similar to OnLive–and Impulse will allow it to compete with Steam, a streaming service on the PC side.

Bartel said all three areas of digital are growing, but perhaps the fastest is downloadable content for the console, which they are projecting will become a $6.3 billion business in 2014.

He said all of the major game publishers are developing downloadable content that can be sold as add-ons to their packaged goods business, which creates a steady, recurring revenue stream.

Overall, what the two execs said they are seeing is an expansion in the number of people playing games–in other words, digital is not cannibalizing console. In addition to the 100 million homes that have an Xbox, a Wii or a PlayStation, increasingly consumers are playing games on their computer, smartphone or tablet.

The company’s stock reacted positively to the report, nearly hitting a 52-week high after increasing 64 cents, or 2.4 percent, to close at $27.32 a share.

Both its traditional physical-store business and its digital initiatives continue to grow.

“The important thing to know is that we are actually making the market bigger for gaming. We think gaming is a net positive growth activity,” Raines said.

Overall, the company reported a first quarter profit today of $80.4 million, or 56 cents a share, on revenues of $2.28 billion. Profits were up 6.9 percent and revenues were up 9.5 percent compared to the same period a year earlier.

In addition to digital, GameStop also contributed its strong performance, in part, to the launch of Nintendo’s 3DS.

Nintendo said it sold 400,000 3-D handheld game units during its first week in the U.S., but since then sales have lagged. In the first full month the device was for sale, it sold less than 200,000, according to NPD Group.

GameStop said it has roughly a 45 percent market share on 3DS sales, but that it has lower expectations for how the Nintendo product will perform in the current quarter.

The media conglomerate plans to spin out its IGN.com dudes-and-games site, and is bulking up in advance by acquiring Hearst’s dudes-and-games-centric UGO.com.

People familiar with the companies’ operations tell me News Corp. and Hearst have been finalizing plans over the weekend, and will likely announce the merger within the next few days.

Plans to cleave off IGN.com will take longer, perhaps months. Roy Bahat, who has been running IGN for News Corp. since 2007, will run the new company.

The goal is to create a standalone Web business that will focus primarily on videogame news, reviews, and culture. News Corp. is weighing taking on outside investors for IGN in advance of the split; IGN may also acquire other properties before the move.

News Corp. officials declined to comment. I haven’t heard back from Hearst. News Corp. also owns this Web site.

Unlike other Web moves News Corp. has been making, the plan to move IGN outside of News Corp.’s corporate walls isn’t a disposal of an impaired asset. People familiar with IGN’s operations say it is growing and profitable.

I’m told the company expects to earn more than $10 million this year on revenues of around $100 million. The idea is that IGN will be able to grow much faster if it isn’t operating inside Rupert Murdoch’s company.

Assuming that News Corp. ends up getting a buyer or partner for MySpace, the IGN move means that the company will have found new homes for all three of the big Web properties it bought during the Web 2.0 boom.

News Corp. kicked off the boom itself by buying MySpace for $580 million in the summer of 2005; a few months later it paid $650 million for IGN. In 2007, it paid about $250 million for photo-sharing site Photobucket, which it handed over to Ontela in December 2009.

Both in and outside of News Corp., IGN has always garnered much less attention than MySpace. Just a few years ago, MySpace was the world’s biggest social network, and the reason Google had signed on for a $900 million ad deal; IGN was simply a collection of dude-oriented sites that News Corp. had overpaid for. More recently, MySpace has been a black hole for money and talent, while IGN has found its focus as a competitor to CBS’ Gamespot.

Hearst, meanwhile, has been trying to figure out what to do with UGO for a while. It paid $100 million for the site in 2007, but its original management team left within two years. Hearst Interactive head Ken Bronfin has been overseeing the site since then, and last year the company hired former Montogmery & Co. banker Kevin Covert to find a partner.

I don’t know how the two sites are valued in the merger, except that IGN is worth more. News Corp. will have a controlling stake in the combined company. Comscore says IGN has an audience of 19.7 million U.S. visitors; it pegs UGO at 13.1 million.

In March, Microsoft said it had sold 10 million Kinect sensors in the first four months. But it was evident that sales could be slowing after a huge spike during the holidays.

The two accessories are slightly different but serve the same purpose of extending the life of the videogame console by widening the audience it serves from the hardcore segment to the more casual player.

The Xbox Kinect uses a camera to track the movements of players, so they don’t need to use a controller at all. Generally, the best use case for it so far are games that mimic dancing, but recently, Xbox has started integrating the technology into other services, such as Netflix.

In contrast, the PlayStation Move, which uses a camera and a controller, is more similar to the Nintendo Wii.

Because the player must hold a controller, Sony claims, actions can be much more precise, making the system appropriate for a wider selection of games. There are also peripherals for the controller, such as the Sharp Shooter, which allows a user to simulate shooting a gun. Sony said despite limited supply, 40 percent of the time the Sharp Shooter accessory sold alongside Killzone 3 at key retailers.

During the holidays, Microsoft had a difficult time meeting demand for the Kinect, but supply has since caught up. Today, Sony also reported shortages of the Move.

In a statement, Bob McKenzie, SVP of merchandising for GameStop, said: “Due to the demand for the PlayStation Move motion controller, we’ve been struggling to keep units in stock in our U.S. GameStop stores. With big franchise titles set for release throughout the year for the PlayStation Move, we expect the remainder of 2011 to be a period of continued sales growth for PlayStation Move.”

Sony also said the PS3 has now sold 50 million units worldwide and has more than 75 million registered accounts for the PlayStation Network, which offers downloadable games and entertainment.

The retailer based in Grapevine, Texas, said it has acquired Spawn Labs Inc., a company that provides technology for playing games that run remotely on machines in data centers, rather than locally on a personal computer or console near the player. GameStop said it also has cut a deal to acquire a subsidiary of Stardock Systems Inc. called Impulse, which runs a service that lets consumers purchase and download computer games to their PCs. GameStop didn’t disclose financial terms for either transaction.

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The Nintendo 3DS, which allows players to see 3-D images without special glasses, will go on sale in the U.S. on Sunday for $250.

Amazon is already claiming that the Nintendo 3DS was the biggest console launch ever on Amazon.com. It sold more units on January 19–the day it was announced–than any console had before, including the slimmed-down versions of the Xbox 360 last year and the PS3 the year before.

GameStop, which will open 800 of its stores worldwide at midnight on sales day, said pre-sales were strong. “Demand has been so strong that, literally, we are working every day with Nintendo to ensure that we have sufficient product. And they have been very good partners on this, and we fully expect to have sufficient product at launch; the demand is very strong,” said GameStop’s President Tony Bartel during the company’s earnings call yesterday, according to a SeekingAlpha transcript.

Nintendo expects to ship about four million 3DS units worldwide by the end of March, and said 1.5 million of those will likely be in Japan. The device went on sale in Europe today.

The original DS has been insanely popular over the years.

Nintendo has sold more than 47 million portable video game systems in the U.S. since the original model launched in November 2004. By its own measures, it says, that makes Nintendo DS the nation’s best-selling video game system of all time.

Still, it’s unclear whether the 3-D mechanism will draw a new audience, or whether it’s enough to encourage current users to upgrade.

In other words, can the 3DS repeat history? There’s a handful of reasons why this could be game over.

Nintendo warned that children under the age of six should not view the 3-D images due to health concerns, although optometrists have since largely dismissed the worries.

Another concern is price.

The device costs $250, which is $100 more than the original. The games are also $10 more expensive at $39 each.

Finally, there’s the competition.

The Nintendo products are attractive because they don’t require a monthly fee. Increasingly, however, smartphones are offering an equal gaming experience. Apple’s iPad and iPod touch also don’t have monthly fees, and those devices have thousands of games for much less than $39. If 3-D is important, two smartphones were unveiled this week at CTIA with 3-D capabilities–without glasses.

Katie Boehret of The Wall Street Journal and All Things Digital gave the device a mixed review, calling out its clunkiness and remarking that the images sometimes made her dizzy.

However, the device offers a lot more features than the old model. In May, it’s expected to get a software update that will enable downloadable games and add a Web browser.

On launch day, users will have a choice of dozens of game titles, including several created by Nintendo, such as Pilotwings Resort, Nintendogs + Cats: Golden Retriever & New Friends, and Steel Diver.

Typically, the launch of new hardware spurs a spike in game sales.

It’s Ubisoft’s intention to launch more 3DS titles than any other third-party video game publisher this week to ride that wave. It has four titles ready at launch, including Asphalt 3D, Combat of Giants, Dinosaurs 3D and Tom Clancy’s Ghost Recon. In all, it has more than 15 games in development for the platform.

All of Ubisoft’s games at launch will be in 3-D; however, a toggle on the device allows you to convert the images to 2-D. The games also take advantage of other new features, such as the accelerometer, which in Asphalt 3D allows you to steer the car with motion control.

Ubisoft SVP of Sales and Marketing Tony Key said the goal is to be No. 1 on the platform. “The thing is going to be hot. Our initial prediction is that it will be hard to get your hands on one. It’s going to sell out. All kinds of people will be trying to buy one, ranging from the core gaming men to tweens to every gamer segment out there,” he said. “As fast as Nintendo can make them is as fast as they will be able to sell them.”

Both Amazon and GameStop are providing incentives for current DS owners to upgrade. They are offering $50 to $100 in trade-in credit on old gaming units, depending on the device.

Nintendo, which is based in Kyoto, Japan, has previously said that there’s been no apparent damage to its headquarters after the recent earthquake, and that business operations, including future product shipments, haven’t been affected.

GameStop is expanding from primarily selling games in retail stores found in malls around America to a digital strategy that includes a new mobile component starting today.

The announcement expected today is timed with the release of its new Android application, which will let users of Google’s operating system download hundreds of games for free to either their phone or tablet.

In an interview, GameStop President Tony Bartel said: “The console continues to be a growth business, but it’s also exploding outside of console. It’s moving to anywhere people have a device that’s capable of reaching the Internet–if that’s a smartphone, or one of the 50 tablets that we saw at CES. Our gaming strategy is anytime, anywhere on any device.”

That’s a relatively new concept for GameStop, which jumped into the digital realm only following its acquisition of Kongregate six months ago.

Kongregate operates an online gaming community that gives tools to game developers so they can add achievements, virtual goods and community aspects to their games.

The Android application will be called Kongregate Arcade, which will leverage those same experiences found online. The app will be available to users from the Android Market for free. Inside the game, users will be have access to 300 free games to start.

Traditionally, Kongregate makes money from in-game advertising and virtual goods sold. Its mobile app will be monetized through ads only.

Kongregate CEO Jim Greer said he thinks users will find it easier to discover new games on the Arcade app than on Android’s default market. “We see the discovery of games in Android marketplace as an issue. It’s hard to find titles and it’s not well curated,” he said. “We’ve learned a lot about making customized game recommendations to players based on what they’ve played and what their friends have played, and their ratings and game play styles.”

In addition, he said the Android version will be linked to its PC version, allowing users to tap into the community they’ve already built, and earn achievements on both the phone and online.

GameStop plans to promote the application in its physical stores and leverage Kongregate’s 13 million monthly unique visitors on the PC to make it a hit. Already, Greer says, Android users are the most likely to visit the company’s mobile Web site.

Interestingly, Kongregate has created the experience in Adobe’s Flash Player, meaning that even if Apple allowed it, it would not work on the iPhone because Apple doesn’t support Flash. Likewise, it will only work on Android phones that support Flash–that is, phones with version 2.2 or higher.

GameStop will be competing against other companies, such as Aurora Feint’s OpenFeint game network, which claims to have 3,400 games and 55 million users across Apple and Android. In a way, GameStop will also go head-to-head with one of its more traditional competitors, Amazon.com, which is preparing to release an Android app store that also aims to solve the discovery problem.

Rather than competing among the throng of exhibitors attempting to be noticed at the show, Nintendo will host a private event in two weeks to preview its 3DS, a new handheld game player that provides a 3D experience without the need for special glasses.

Invitations to the Jan. 19 event in New York City have already been sent to reporters, who will have the opportunity to play games on the device, watch demonstrations and hear a presentation from President and COO of Nintendo of America Reggie Fils-Aime.

So, without major news coming from Nintendo, what else can we expect at CES from the gaming space?

We’ll be watching for news from among more than 35 exhibitors that are attending from the games industry. They include AMD, HP, Intel, LevelUp, Logitech, Microsoft, Nintendo, Nokia, Sony, Alcazar Entertainment, Cosmi, DC Comics/Warner and DreamWorks Animation, and gaming retailers, such as Amazon and GameStop.

One of the stars will likely be Microsoft’s Kinect, the Xbox accessory that uses cameras to track a player’s movements to allow them to play games without a traditional controller.

In all likelihood, Microsoft CEO Steve Ballmer, who kicks off CES with a pre-show keynote address on Wednesday, will use the venue to brag about the Kinect’s runaway success.

This holiday season Microsoft expected to sell 5 million Kinects after saying it sold 2.5 million Kinects in the first 25 days. It’s been sold-out at many retailers for weeks, but we haven’t heard whether it met its 2010 target. At least, not yet.

Microsoft is banking on the Kinect to widen the demographic of the Xbox beyond the hardcore gamer, so widespread adoption will be key.

Another company that is already getting attention in the days leading up to CES is PrimeSense, which Microsoft licensed the core Kinect technology from.

The Israeli company is planning to show how the motion-controlled interface can be used for the PC.

The device will be similar to the Kinect because it will allow users to interact with a PC without a mouse or keyboard. It won’t be only for gaming, but also for typical PC activities, like accessing the Internet and browsing media.

The device is expected to be ready for the PC next year — but this time, not from Microsoft, reports BusinessInsider.com. Rather, PrimeSense is teaming up with PC and peripheral maker Asus.

Following the release, the company’s stock began a free fall, dropping 15.25 percent to $35.34 a share over concerns that the retailer is losing market share to Amazon, Target, Wal-Mart and others.

What’s worse is that the retailer appears to be one of a few that is not seeing this year’s goodwill. ComScore is reporting big online sales gains this year compared to last year, and the Commerce Department said today that retail sales rose for a fifth straight month in November due to increasing consumer confidence.

Meanwhile, Best Buy reported a 4.4 percent drop in quarterly profits, and was forced to lower its per-share profit forecast for the year to the range of $3.20 to $3.40, which is down from its previous guidance of $3.55 to $3.70 a share.

In the three months ended Nov. 27, Best Buy reported $11.9 billion in revenues, falling from $12.02 billion in the same period a year ago. Net income fell to $217 million from $227 million in the same period last year.

In the quarter, Best Buy said sales of TVs declined in the U.S., but the loss was partially offset by an increase in smartphones and tablet computers. Best Buy faces stiff competition from retailers such as Wal-Mart, Amazon, Target and GameStop, which were more aggressive on pricing. The Wall Street Journal reports that the company surrendered 110 basis points of market share in the most recent quarter.

IGN Entertainment, the online gaming content site, and GameStop, the largely offline games retailer, are integrating their online media and retail offerings in an effort to target videogamers from discovery to purchase.

The partnership is an unusual effort, given content and retail are not often so explicitly combined.

As part of the deal, said the companies:

* IGN will be creating branded media advertising products on GameStop.com, and will be its sales representative online. Consumer advertisers will be able to buy branded ads on the retail site.

* IGN content will appear on GameStop.com, with all kinds of cross-linking, and there will be copious buttons for e-commerce on IGN.com.

* GameStop will be buying its ads on IGN.com.

* The traffic of both GameStop and IGN will be combined. Currently, GameStop has 7.2 million monthly uniques worldwide and IGN’s videogame content has 28.9 million.

IGN, which is profitable, has been pushing hard to grow its branded advertising recently, as well as its traffic.

And, over the summer, it introduced IGN Social, adding social elements, such as gamers talking with each other, to its content offerings.

(Full disclosure: IGN is a division of News Corp., which also owns Dow Jones, which owns this site.)

And today, GameStop (GME), the industry’s dominant pure-play retailer, got an upgrade from BB&T Capital Markets.

BB&T analyst Anthony Chukumba upped his rating to Buy from Hold, with a $32 price target. “After a brutal 2009 and early 2010, we believe GameStop’s fortunes have taken a turn for the better,” he writes.

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For the quarter, GME reported revenue of $3.52 billion, up a hair from $3.49 billion a year ago, and above the Street at $3.45 billion. EPS was $1.29 a share, beating the Street by a penny. Same-store sales were down 7.9 percent.

For the January 2011 fiscal year, GME sees sales up four to six percent from the $9.08 billion reported for the year just ended, which implies $9.44 billion to $9.62 billion, above the Street at $9.38 billion.

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Walmart said it will discount the top 25 video games by 15-20 percent through December 24. The Nintendo gift card offer starts December 5 and runs through December 12.

A quick check of Amazon.com (AMZN) finds that the online retail giant–which over the last few weeks has been engaged in a price war that has included books and DVDs–has matched some of the cuts by Walmart, and in at least one case, has undercut Walmart.

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The new videogame Call of Duty: Modern Warfare 2, set to hit stores Tuesday, is a sequel spawned by sequels. But rather than following the frequent pattern of franchises fading as they age, Modern Warfare 2 is the most highly anticipated game of the season.

“It’s the biggest launch in our history, bigger than Halo 3,” said Tony Bartel, merchandising and marketing chief for videogame retailer GameStop, which has been taking pre-orders since April.

The manufacturer, Activision Blizzard Inc. (ATVI), has been advertising the first-person shooter game since March.

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Specialty retailer GameStop has been taking pre-orders since last April, much earlier than most games. “It’s the biggest launch in our history, bigger than ‘Halo 3,’” said the company’s head of merchandising and marketing, Tony Bartel, comparing the game to the blockbuster shooter that Microsoft (MSFT) released in 2007.

GameStop stores usually call customers who have pre-ordered games the night before launch. Bartel said, this time, it will be “talking to more people on Monday night than the total amount of ‘Call of Duty: World at War’ that sold in the first month.”

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The answer shouldn’t be a surprise, but somehow the performance Gamestop reported this morning managed to catch Wall Street off guard anyway.

The company’s revenue of $1.74 billion was in line with estimates, but earnings of 23 cents a share missed consensus by five cents. More worrisome is that the company had to knock down its guidance for the rest of the year and says that comparable store sales will be down between four percent and eight percent through 2009. Now Gamestop (GME) shares are trading down five percent in a flat market.

Did I mention that this shouldn’t be a surprise? Game sales, once thought to be immune to the recession, have been slumping for months. Turns out that a tough economy may indeed prompt more gamers to huddle in the basement in front of their Xboxes, but it won’t prompt them to buy new games (used ones may be a different story).

Gamestop says it’s still optimistic that coming games, like yet another Call of Duty sequel from Activision (ATVI) and yet another version of Halo from Microsoft/Bungie (MSFT), will help perk things up. But I’m interested to note that the company didn’t cite the new Beatles version of Rock Band, from Electronic Arts (ERTS) and Viacom’s (VIA) MTV as a catalyst.

By the way, for fantasists who persist in pretending that the Beatles are coming to iTunes at Apple’s (AAPL) event next month: Stop! It’s not true.

As I noted yesterday, July data from research firm NPD Group showed a 37 percent drop in video game hardware sales, and a 26 percent drop in console and handheld hardware sales. The report comes just days ahead of GameStop’s earnings report for its fiscal second quarter ended July, which is due before the open on Thursday, August 20.

Sterne Agee analyst Arvind Bhatia this morning responded to the NPD data by trimming his EPS estimates for GME; he now sees profits for the quarter of 23 cents a share, down from 28 cents.

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