“We do not take changes to our release schedule lightly, and this short delay will ensure that Max Payne 3 delivers the highest quality, groundbreaking entertainment experience that is expected from our company,” said Chief Executive Strauss Zelnick.

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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Separating physical and digital sales is quickly becoming an outdated concept, since the two are so intertwined.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

Monthly game sales at brick-and-mortar retail shops have suffered as gamers flocked to both online marketplaces and cheaper games on Web sites such as Facebook and smartphones such as Apple Inc.’s iPhone.

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The NPD Group reports today that in the first quarter of the year, digital revenues totaled $1.85 billion, coming in just below traditional sales of $2 billion.

The estimates were released today ahead of its monthly report coming out on Thursday, which is expected to show another weak period for traditional physical sales due to a lull in big game releases and the less than stellar demand for Nintendo’s new 3DS handheld, according to MarketWatch.

Unlike the estimates released today, the Thursday report only accounts for sales made at retail for hardware, software, and accessories — and not the digital format content distribution, which is currently seeing the most growth.

Zynga’s IPO may be the biggest example of this trend.

The San Francisco company, known for such games as CityVille on Facebook and Words With Friends on mobile, reported revenues of $235.4 million in the first quarter of this year. None of those revenues would be accounted for in the traditional physical channel because they come primarily from microtransactions inside online games.

“While the new physical retail channel still generates the majority of industry sales, our expanded research coverage allows us to assess the total consumer spend across the growing number of ways to acquire and experience gaming, including mobile apps and downloadable content,” said Anita Frazier, an analyst at the NPD Group.

MarketWatch reports that two analysts expect more declines in June after sales slid 19 percent in May compared to the same month the previous year. Doug Creutz of Cowen & Co. wrote in a note to clients that he believes sales will decline 12 percent; Michael Pachter of Wedbush Securities predicted a drop of six percent.

New game releases for June include Duke Nukem Forever from Take-Two Interactive, which received disappointing reviews.

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.

“We are back in baseball,” said Peter Moore, president of EA Sports. “It’s been six years since we’ve had the licenses.”

For a while now, MLB has had a third-party exclusivity with EA’s competitor, Take-Two Interactive. While Take-Two still holds a grip on most games, MLB has turned to EA to make its Facebook game.

This may be an early indication that EA’s decision to fork out $275 million to acquire Playfish, one of the early entrants into the social-gaming space, was a step in the right direction.

Still, there are a whole lot of home runs EA must now hit.

World Series Superstars, which launched today in advance of Opening Day tomorrow, challenges players to build teams, manage clubs and compete in games against friends. The game follows three other branded sports titles: FIFA Superstars, Madden NFL Superstars and Sports PGA Golf Challenge. Like the other titles, World Series Superstars is free to play with the option of paying for virtual goods to advance the game further.

Beyond EA’s licensing deal with MLB, the roll-out of the game also hints at the increasing importance of branded games on Facebook.

To date, much of the industry has been focused on what is called original IP, which doesn’t rely on well-known names to spur adoption. Zynga, for instance, has been wildly successful with its own content, ranging from FarmVille to CityVille and Mafia Wars.

A lot of debate recently, however, has centered about whether brands will dominate as the industry matures.

It’s debatable as to whether Zynga or others have become brands themselves, much like Rovio’s Angry Birds on mobile, but EA’s approach has been to leverage the licenses it has and bring games to market on Facebook, such as Monopoly and other titles.

Before EA purchased the social game maker, Playfish had no branded titles.

“We are very focused on extending some of our key brands onto social platforms. We’ve invested a lot since the acquisition, and we are starting to see the fruits of the labors,” said C.J. Prober, Playfish’s VP of publishing and product management. “Playfish is still really new to EA and we have lots of access to great new brands. The mix of brands vs. original IP will be higher in the near term, but will even out over time.”

Prober argues brands are increasingly more important since Facebook started cracking down on how often a developer can post messages to a player’s wall to attract new users among their friend groups.

Facebook said there’s still a mix of both branded and original titles, but that it is starting to see a shift.

“We are seeing some acceleration on the growth of brands coming to the platform…We are moving from the younger, newer category of games to the branded players that have been established on other platforms,” said Katie Mitic, Facebook’s director of platform and mobile marketing.

In particular, she says branded sports games are among the most engaging and best monetizing games on the platform.

“As Facebook Platform matures, we’re seeing high quality games, such as FIFA Superstars and Madden NFL Superstars, emerge and reach a new audience of social game players who may not have typically played online games before,” she added.

For anyone, it’s a large audience to target.

Mitic said more than 200 million people play games on Facebook each month–translated into sports terms, that’s nearly twice the size of the entire audience of the last Super Bowl.

The company’s nine-month results ended Dec. 31 included revenues of $954.6 million, jumping 80 percent, compared with the same period a year earlier. In that same period, income from continuing operations totaled $76.2 million, or 88 cents a diluted share, compared with a loss of $98.4 million, or $1.27 a share, for the year-ago period.

Third-quarter net revenues totaled $334.3 million on earnings of 45 cents per diluted share. That easily beat analyst expectations, which had forecasted revenues of $314 million and earnings per share of 34 cents.

The New York-based game maker, known for hit titles such as Grand Theft Auto and NBA 2K11, also increased its financial guidance for the fiscal year 2011. The company now expects revenues of $130 to $150 million in Q4, and revenues of up to $1.1 billion for the year ending March 31.

The company’s forecasts now call for Q4 non-GAAP earnings per share to be in the range of a loss of 40 to 45 cents, and for the year from 80 to 85 cents to easily beat analysts’ previous expectations of 62 cents for the year.

In a release, Strauss Zelnick, chairman and CEO of Take-Two, said strong holiday results enabled the better-than-expected results. Going forward, it’s evaluating new revenue streams. “These include opportunities in Asia and Latin America, evolving downloadable content models and online multiplayer experiences,” he said.

More to follow after the company’s earnings call.

• So, for starters, investor Carl Icahn recently increased his stake in the company; TTWO has agreed to give him control of three board seats. He thinks the stock is too cheap. (Duh.)
• Icahn’s involvement has fed into a steady drumbeat of rumors suggesting that the company could still eventually be acquired by Electronic Arts (ERTS); in 2008, the company rejected a $25.74-a-share bid from EA as too low. Always looking out for the shareholders!

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“Our downgrade is on valuation and our view of deteriorating fundamentals,” he writes. “Sales of video game software have been declining, and we expect further weakness given the lack of job creation in the U.S.”

He adds that game development costs are likely to keep rising, “as customers limit purchases to top-rated titles.”

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Broadpoint.AmTech analyst Brian Schachter raised that question in a research report Friday, asserting that there is excess capital at many Asian video game companies, particularly in China. While noting that there would be considerable hurdles to overcome, Schachter wrote that both THQ and Take-Two Interactive (TTWO) could be potential takeover targets for Asian players looking to deploy capital in the U.S.

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“In our view, the company’s share price fully reflects an increasingly positive outlook and the lack of other company specific catalysts,” he writes.

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Federal prosecutors say they’ve broken up an insider trading ring that scooped up some $4.8 million in illegal gains over a four-year period–some of which came from trades made before EA’s bid for Take-Two became public knowledge. That’d be very lucrative information to have in advance, given that EA was offering a premium of more than 50 percent when it offered to buy the company behind Grand Theft Auto in February.

The quick version (longer summary here): The SEC says that Matthew Devlin, formerly a Lehman Brothers. broker, gained information about secret takeover bids from his wife Nina Devlin, who works for the Brunswick Group, a PR firm that specializes in M&A work. He then passed the tips on to his clients, the SEC alleges.

The SEC hasn’t charged Nina Devlin with anything. In a statement, her employer says she was unaware of what her husband was up to: “This is a violation of trust between husband and wife. Our employee was the victim of a criminal act by her spouse which made detection extremely difficult despite our high standards of confidentiality.”

Electronic Arts’ (ERTS) $2 billion offer for Take-Two (TTWO) was one of 13 deals the trading ring profited on, the SEC says. Unlike most of the other deals, however EA’s proposed purchase never went through. That’s much to the chagrin of ordinary Take-Two investors, who were offered as much as $25.75 per share for stock that’s now trading at less than $9–and just reported dismal results.

But Take-Two (TTWO) did have one glimmer of good news today: It has managed to hang onto the creative team at Rockstar Games, the studio that made the GTA games. It has signed brothers Sam and Dan Houser, along with other “key members” of the group, to a contract that runs Jan. 31, 2012. The Houser brothers’ current contract was set to expire early next year, and there was lots of speculation that a rival game company–likely Electronic Arts (ERTS)–would try to lure them away by backing up a truck full of cash.

So how much did Take-Two have to shell out to keep the Housers, who are the game world’s equivalent of Steven Spielberg and Jerry Bruckheimer? The company wouldn’t spell out the terms during its earnings call except to note that it will share profits from the games the brothers sell so that “their incentives are aligned”; it has also given the brothers the ability to create games that they would own themselves and that Take-Two would distribute.

But make no mistake: There’s no way the Housers agreed to stay on without a significant guarantee: In 2005 alone, the company paid out $84 million in royalties, and most of that went to the RockStar group, according to this excellent Wall Street Journal story. And the Housers have only become more important to the company since then.

Even in a best-case scenario, that contract won’t really pay significant dividends for Take-Two for several years, when the Housers come out with their newest shoot ’em up. In the near term, the future looks rough: Videogames were supposed to be a recession-proof industry, but turns out that game buyers are just as susceptible to economic collapse as the rest of us.

In the meantime, Take-Two shares closed today at $12.07–less than half of the $25 per share that EA offered investors for the company in February. They’ll open even lower tomorrow–investors drove the stock down nearly 20 percent once they got a look at the company’s newest numbers.

For FY Q4 ended Oct. 31, the publisher of Grand Theft Auto and other videogames posted revenue of $323.4 million and a non-GAAP profit of two cents a share; the Street had been looking for $325.8 million and five cents.

That’s not good, but the real trouble is the guidance.

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But–as many readers have requested–they will all be available in their entirety in this column.

Here’s an interview I did with Activision Chairman and CEO Bobby Kotick about the state of the gaming business.

The video of the interview is in three parts.

It’s a good week to focus on the gaming industry since Electronic Arts (ERTS) abandoned its hostile acquisition bid for Take-Two Interactive (TTWO) over the weekend.

EA’s effort was motivated, in part, by Activision’s recent merger with Vivendi Games, which includes Blizzard Entertainment’s “World of Warcraft,” one the most popular multi-player games.

The merger has made Activision (ATVI), with its own well-known franchises–especially the hugely popular “Guitar Hero,” which debuted version IV at D6–one of the gaming industry’s largest companies.

In this third video, Kotick publicly demos “Guitar Hero IV” for the first time, with the help of special guest stars Paula Abdul of “American Idol” and skateboarding star Tony Hawk.

But–as many readers have requested–they will all be available in their entirety in this column.

Here’s an interview I did with Activision Chairman and CEO Bobby Kotick about the state of the gaming business.

The video of the interview is in three parts.

It’s a good week to focus on the gaming industry since Electronic Arts (ERTS) abandoned its hostile acquisition bid for Take-Two Interactive (TTWO) over the weekend.

EA’s effort was motivated, in part, by Activision’s recent merger with Vivendi Games, which includes Blizzard Entertainment’s “World of Warcraft,” one the most popular multi-player games.

The merger has made Activision (AVTI), with its own well-known franchises–especially the hugely popular “Guitar Hero,” which debuted version IV at D6–one of the gaming industry’s largest companies.

In this second video, Kotick talks about virtual goods and in-game advertising, the international market, set-top boxes, violence and “Grand Theft Auto,” the competitiveness of the gaming business, the situation at Yahoo (he was, until recently, a board member), and takes a question from the audience about social gaming.

But–as many readers have requested–they will all be available in their entirety in this column.

Here’s an interview I did with Activision Chairman and CEO Bobby Kotick about the state of the gaming business.

The video of the interview is in three parts.

It’s a good week to focus on the gaming industry since Electronic Arts (ERTS) abandoned its hostile acquisition bid for Take-Two Interactive (TTWO) over the weekend.

EA’s effort was motivated, in part, by Activision’s recent merger with Vivendi Games, which includes Blizzard Entertainment’s “World of Warcraft,” one the most popular multi-player games.

The merger has made Activision (AVTI), with its own well-known franchises–especially the hugely popular “Guitar Hero,” which debuted version IV at D6–one of the gaming industry’s largest companies.

In this first video, Kotick talks about the merger with Vivendi–which aims to inject social gaming DNA into Activision–the popularity of Nintendo’s Wii and Microsoft’s Xbox; better graphical, storytelling and character development in games; gaming on social networks; business models in the industry; and the EA attempt to acquire Take-Two.

And then it lowered its bid to $25.74 a share, from $26.

EA (ERTS) did this because last night, Take-Two (TTWO) shareholders approved the issuance of 1.5 million new shares to the company’s management firm, ZelnickMedia–shares that EA claims dilute the value of its buyout offer. A reasonable argument to be sure. But lowering the price of an offer that Take-Two already claims undervalues it clearly isn’t going to advance EA’s cause.

And at this point, that cause needs all the help it can get. As of this writing, EA has gathered a little more than 8% of Take-Two’s shares. It needs 50% for its offer to succeed. And with Take-Two gearing up for the April 29 release of its eagerly anticipated “Grand Theft Auto IV”, it’s not likely to get much more at $25.74. Said Take-Two chairman Strauss Zelnick, “I’m mystified by EA’s strategy.“

And then it lowered its bid to $25.74 a share, from $26.

EA (ERTS) did this because last night, Take-Two (TTWO) shareholders approved the issuance of 1.5 million new shares to the company’s management firm, ZelnickMedia–shares that EA claims dilute the value of its buyout offer. A reasonable argument to be sure. But lowering the price of an offer that Take-Two already claims undervalues it clearly isn’t going to advance EA’s cause.

And at this point, that cause needs all the help it can get. As of this writing, EA has gathered a little more than 8% of Take-Two’s shares. It needs 50% for its offer to succeed. And with Take-Two gearing up for the April 29 release of its eagerly anticipated “Grand Theft Auto IV”, it’s not likely to get much more at $25.74. Said Take-Two chairman Strauss Zelnick, “I’m mystified by EA’s strategy.“