We’re at the end of the lifespan of the current generation of consoles, so the focus has been on the depth of story. When the new generation of hardware comes out, people will revel in the graphics and story will be swept aside again.

– Shadowrun creator Jordan Weisman

With the rise of so-called “crowdfunding,” game makers are finding fans online who are willing to pledge a few bucks toward a game they’d like to see produced.

The primary site where these connections are being made is Kickstarter, a three-year old company. Since Kickstarter got off the ground, the games category has garnered $29 million in pledges, according to the New York Times. Other popular categories include film/video, music and design.

Further, it was reported that 854 game developers successfully reached their fundraising goals, raising an average of $29,409 apiece.

Most impressively, three game companies have raised more than $1.5 million each since the beginning of this year: Double Fine raised $3.3 million from 87,000 backers; Wasteland 2 raised $2.9 million; and Shadowrun Returns secured $1.8 million.

Another site, Gambitious, which will be exclusively dedicated to helping game companies raise money, is preparing to launch on June 5 in Los Angeles as part of E3, the industry’s big annual conference.

The shift to nontraditional fundraising is now even catching the eye of megapublishers like Electronic Arts. Last week, EA said developers who crowdsourced funding will be able to sell their games on Origin at no cost for three months.

Origin is the company’s online game store, which allows users to download PC games electronically and counts up to 12 million users worldwide.

“The public support for crowdfunding creative game ideas coming from small developers today is nothing short of phenomenal,” said David DeMartini, EA’s SVP of Origin, in a release. “It’s also incredibly healthy for the gaming industry. Gamers around the world deserve a chance to play every great new game.”

EA doesn’t disclose how much it charges because it says fees can vary, but through this program, developers will now receive 100 percent of sales during the 90-day window plus any pre-sales that are generated before the title officially launches, a spokesman confirmed.

It’s unclear whether crowdfunding is a fad and consumers will tire of it quickly, and to be clear, not every company that requests money is able to get it.

But it pairs nicely with a broader trend in the industry that AllThingsD’s Eric Johnson wrote about last week. He explained that game developers are increasingly finding it advantageous to stay small, rejecting the notion that productions need big budgets in order to create blockbusters.

The evolution has been aided by the rise of three new distribution platforms, Apple’s App Store, Facebook and Valve’s Steam Store (and to a lesser extent, EA’s Origin, which is catching up). With these digital platforms, developers can reach customers without having to package up their software and sell it at retail, saving thousands of dollars.

With the crowdfunding phenomenon completely under way, Videogame Analyst and Consultant Scott Steinberg saw the opportunity to write an e-book on the subject called “Crowdfunding Your Business: A How-To Guide.” In the recently released book, he argues that crowdfunding helps developers identify projects that consumers are willing to pay for, before they’ve wasted the money and time on developing them.

He writes that by “requesting feedback or recruiting help from public donors via open calls for assistance — you can gauge demand for and create bankable products from day one.”

Big video games like Mass Effect 3 and Halo 4 aren’t going away anytime soon. But a growing cadre of independent games developers is taking the road less traveled — keeping teams tiny and visions narrow.

In fact, they say they don’t want to grow. And despite that unorthodox philosophy, they’re reaching big audiences, making some impressive money and shaking up the games industry as a whole.

These independent developers, or “indie devs,” fill a huge spectrum of opinions about what video games can and should be. But, as with their counterparts in music and movies, it’s not always easy to nail down which games are indie and which aren’t.

Up-and-coming publishers like Zynga and Rovio started out small and indie, of course. In the loosest sense, the term applies to pretty much anyone who’s not one of the big legacy game companies, such as Nintendo, Sega or Electronic Arts.

However, after they put out a hit or two, a few independents peel off from the pack by continually hiring and growing. Contrast Zynga, which has nearly 3,000 employees at 21 offices around the world, with unconventional companies such as San Francisco-based Bolt Creative, where the two co-founders pointedly avoided hiring anyone but themselves.

“We made a decision to stay small,” said Dave Castlenuovo, Bolt’s only programmer. “To me, I get the most enjoyment working out of my home, getting to see my wife.”

Castlenuovo and his design partner Allan Dye eschewed the new-normal start-up song-and-dance: Securing VC funding, finding office space and building a company on the idea of scaling bigger and bigger.

Instead, they found huge success, despite staying small, with their flagship game Pocket God. The game lets sadistic smartphone owners punish an island of perennially doomed cartoon pygmies.

Pocket God was a one-off project started in late 2008, which went from idea to a first version on the iPhone App Store in about a week, Castlenuovo said.

But it has outperformed most one-week larks. The 99-cent app and its downloadable extras have earned about $7.5 million so far.

And the game’s pygmy characters have racked up an additional $600,000 through a spinoff comic book series, which is not bad for a two-man team.

So, how does a little operation such as Bolt Creative thrive while a company like Nintendo, with access to some of the world’s top talent and most beloved video game characters, is reporting to investors its first annual loss since 1981?

Part of it, of course, is the conventional wisdom that smaller start-ups are just nimbler on their feet. But to get at the real answer, you have to look primarily at three big companies: Valve, Apple and Facebook.

On PCs, Valve’s Steam Store eliminated the need for developers to get their games distributed in brick-and-mortar stores in order to find a mass paying audience of gamers. Mobile app marketplaces, starting with Apple’s on iOS, similarly leveled the playing ground for smartphone game developers.

And games have also infiltrated social networking sites, especially Facebook, although the spoils are decidedly lopsided: Zynga alone was responsible for 15 percent of the company’s revenue in the first quarter of 2012.

To raise the money to make new games, new avenues are also springing up fast. In March, San Francisco-based Double Fine Productions solicited donations on Kickstarter for a new point-and-click adventure game in the style of the classic games made by its founder, Tim Schafer. They met their $400,000 goal in about eight hours and ultimately raised $3.3 million from Kickstarter users.

These sorts of developers don’t always have it easy: They have to do more with less, taking on more responsibilities than they might have to in much larger teams. And they can’t bank on legacy pieces of intellectual property for success.

Not that this is an equally bad fate for everyone. For his part, Castlenuovo compares himself to Robert Rodriguez, an independent filmmaker who famously produces, writes, directs, shoots and edits most of his movies solo.

“I enjoy wearing many hats,” Castlenuovo said.

Plus, indie devs can now focus more on making the games they’re most passionate about and less on how they’re going to sell them, at least initially.

Derek van Vliet, co-founder of a Toronto-based indie shop called Get Set Games, seems to be in a good place. His company’s casual iPhone/Android game Mega Jump, initially developed by just three people (now upped to four), has racked up 24 million downloads since May of 2010.

But van Vliet grumbled that bigger companies like Electronic Arts can temporarily take over app store charts by throwing around the weight of some of their biggest properties, including Madden, Tetris and Scrabble.

“That’s getting a lot from very little work for them,” he said.

For better or for worse, the business of games is not a meritocracy. But it might be a mistake to assume it’s all one big, cohesive business in the first place. After all, the devs say, isn’t at least some of what we’re doing art?

Art vs. entertainment?

If you want to quickly start a fight on the Internet, you should follow Roger Ebert’s lead and assert in broad strokes that video games are not and will never be art. Even among the game developer community, the dividing line between art and entertainment is fuzzy at best and may be impossible to place outright.

After all, some games are just casual fun. But others are deeply personal for their creators and, if you believe their many fans, are more meaningful and higher-quality as a result.

George Fan, co-creator of Plants vs. Zombies, said he knows his game is a piece of entertainment, which he developed independently and later distributed through PopCap before EA bought the company in 2011. But he questioned whether art and indie projects even have a chance amid the business pressures at EA.

“It’s pretty much as far as you could get from indie in any company,” Fan said.

Castlenuovo echoed the sentiment, noting big companies are best able to serve their investors when they focus on making top-10 hits.

“I’m going to stick with the creativity,” he said.

Even if you accept that some developers are making artful games, getting others to appreciate them in that way is an uphill battle. In the delightful new documentary “Indie Game: The Movie,” developer Jonathan Blow explains how his indie mega-hit Braid explores the concept of trying to reverse past mistakes by giving players the ability to rewind time.

However, the directors then cut to an online video reaction to the game from Soulja Boy. The young rapper enthusiastically tells his fans that Braid “ain’t got no point … you just walking around, jumpin’ on shit.”

Still, when developers can work by themselves or on very small teams, rather than as part of a publicly traded company, they’re freer to pursue “passion projects” that mean more to them. On the surface, that’s good, but it can also be a sort of psychological poison.

For Leo Alterman, a hobbyist indie dev and senior at Stanford University, making games is about recreating a sense of wonder he felt as a child playing Nintendo 64. And he’s not just talk: A game he built from scratch starting in high school, Tasty Static, has racked up 100,000 free downloads online in the past two years.

But Alterman said he could never make games his profession — the personal stakes are just too high.

“If you’re doing that as a job, and you fuck it up, then yeah, you’re kind of in trouble,” he said.

Indie devs straddle the stressful line between living to work and working to live. Despite his quest for childlike wonder, Alterman describes himself as morbid, and he’s in good company: In “Indie Game: The Movie,” one developer compares his work to being in a concentration camp as a major deadline approaches. Another earnestly threatens to kill himself if he can’t finish his game as planned.

“So, that’s my incentive,” he deadpans.

It seems unlikely that gamers would look at the latest update to Madden or Words With Friends and use it to judge those games’ creators. But Edmund McMillen, co-creator of the popular (and maddeningly difficult) indie platformer game Super Meat Boy, said the game and its public image are so tied to his story and personality that it’s impossible not to feel judged.

“We put everything into it,” McMillen said of himself and his “Team Meat” partner Tommy Refenes. “We are the game.”

The mainstream response

Just as with indie music and movies, there’s a more emotional response to the idea of a game produced by one or two people than one produced by a faceless company. And finding indie game developers who are willing to question the values of big games companies — like EA and Zynga — is like finding sand on a beach.

“That doesn’t seem like art to me,” the hobbyist dev Alterman said of Zynga, which did not respond to requests for comment. “They’re playing a different game.”

“Zynga’s a business,” Team Meat’s McMillen said. “I would go so far as to say they don’t even make games. They make money.”

“That sounds like hell to me,” Refenes says in “Indie Game: the Movie,” after he’s asked about working at EA or Epic Games.

Plus, players are responding to independent developers in a big way. According to the mobile app analytics and advertising firm Flurry, 56 percent of all mobile games played in Q1 2011 were made by indie devs; one year later, in Q1 2012, that share had jumped to 68 percent.

But those opinions and trends don’t seem to deter Rich Hilleman, EA’s chief creative officer and one of the company’s first 20 employees from the early 80s. He’s careful to praise talented indie devs who have gone on to join EA, but also stresses the administrative headaches that come with staying small.

“I want to not have to worry about clearing credit cards and legal issues and translating this stuff into Maltese,” he said. “I think you recognize that it was fun to be independent, except that that stuff wasn’t all that fun.”

When Hilleman joined EA, the company didn’t do any development in-house; it was solely a publisher that connected independent game designers with bigger audiences. Within the gaming world, the company helped make rock stars out of developers like Bill Budge, whose game, Pinball Construction Set, was packaged like a music album, with Budge’s name in giant script on the front.

Not really something you’d see today. I’ve sunk countless hours into EA’s Need for Speed racing game on my iPhone, but I couldn’t tell you the name of a single person who helped make it.

When I told him this, Hilleman countered that customers, not publishers, are the ones who decide who the stars are, although it’s hard not to wonder why that star status doesn’t correlate with hugely popular games like EA’s Star Wars: The Old Republic, which gained 1 million subscribers within three days of its launch last year.

Hilleman readily volunteers that one of the closest modern rock-star successors to Bill Budge is an indie dev: Notch, the creator of Minecraft. In the past three years, Notch’s sandbox game has built an extremely passionate community of over 16 million players, despite having primarily three programmers listed in its credits.

Despite all this, Hilleman draws a firm line in the sand in opposition to independent developers who say they’re freer to pursue “passion projects” than developers at EA.

“Building video games is just hard,” Hilleman said. “There is no such thing as building something you do not like. It just does not happen.”

Of course that doesn’t mean life is necessarily easier for devs who, at big companies, don’t have to translate anything into Maltese. James Swirsky, co-director of “Indie Game: The Movie,” said he saw plenty of hardship in his two years as a games tester at EA.

Devs there, he said, “were just as stressed out and pushed to the brink as the guys you see in the film.”

The key difference

Independent game developers share a lot of DNA with their big-business brethren, and the differences aren’t big enough to merit a culture war or to force audiences to choose between one or the other.

Furthermore, the mainstream world is not clueless: EA has learned its lessons from the years in the mid-aughts when console games seemed stuck in a rut, and has tried to reach out to and learn from the independent community — although Hilleman is quick to point out the irony of the situation, since in the 80s “Electronic Arts” was still small enough to be synonymous with the indie scene.

Meanwhile, Zynga has established a successful pattern of growing by acquisition, looking for the independent shops that are happy to sell out (not that that’s a bad thing, as OMGPOP and others can tell you).

But there’s still a key difference between the independents and the rest, and everyone watching the gaming space should note: With the rise of indie games as an economic force to be reckoned with, the charges are set for an explosion of creativity in the gaming world in the coming years. Indie devs have been around for decades, but now it’s easier than ever for them to make a comfortable living while making the games they personally pick and love.

The “hardcore” gamer community often derides social games on Facebook and mobile devices as too simplistic. But that will change. Games will get better and more ambitious as barriers to entry continue to fall and more outlier voices come into the mix.

With indies coming into the spotlight, games may finally be able to come into their own. Call it a real-world power-up.

More people are paying to play social games than they were a year ago, but the average player is also spending less than in the past.

According to SuperData, the average social gamer who pays to play in the U.S. spent $37.59 in April, which is about $8 less than a year ago, when the average social gamer spent $45.58.

SuperData partners with publishers and developers to create an online gaming panel, which tracks more than a million paying online gamers every month. The report covers the U.S., Germany, Brazil and Spain, spanning all major social game genres, including city building, farming, and strategy and combat.

While the amount each player pays has fallen, SuperData found that as the industry has matured, more people have become more comfortable spending money inside the free-to-play games. In April, 2.5 percent of social gamers converted to spending users, compared to 1.4 percent a year earlier.

But the average paying game player should not be confused with the overall average spend per user. After all, you can spend a lot of time harvesting crops and building cities without ever paying a dime.

For instance, in the first quarter, Zynga said the average bookings per user totaled 5.5 cents, which is the company’s total revenue for one quarter spread across all gamers — whether they pay or not.

SuperData found that game players who play mid-core games, which include strategy and combat games, are spending the most right now. Meanwhile, the average spending player of farming games has been on a decline for the past few months.

The research firm estimates that the North American social gaming market will be worth $1.8 billion by the end of this year, and the worldwide social gaming market, including social games on mobile, is expected to hit $13 billion in 2015.

Since the company’s last earnings release in February, the videogame publisher’s stock has fallen 20 percent, and on Friday, it tumbled another 3.5 percent, or 55 cents, to trade at $15.12 a share.

In general, the market for game stocks are teeter-tottering, as the industry works through a massive transition from packaged goods sold at retail to digital games that are given away for free and distributed through Apple and Facebook.

Even pure plays like Zynga — which are focusing exclusively on mobile and social — aren’t immune, as investors question the free-to-play model and the dependence on third-party platforms. Zynga’s stock is off almost 20 percent since its IPO in December.

This afternoon, analysts are expecting EA to exceed the company’s internal guidance by earning 16 cents a share on revenues of $960 million. EA’s own estimates are calling for non-GAAP earnings of 10 to 20 cents a share on revenues of $925 to $975 million.

As a sign of the times, Wedbush analyst Michael Pachter revised his expectations down by $5 million due to U.K. games retailer Game Group going bankrupt during the quarter.

Otherwise, Pachter said that he’s expecting the company to report at the high end of the guidance, thanks to strong sales of Mass Effect 3, which went on sale during the quarter, and to a solid performance by the company’s online game, Star Wars: The Old Republic.

Other console titles shipped during the quarter include FIFA Street and Tiger Woods PGA Tour 13.

Instead, the Burlingame, Calif., company was going to focus on building games for smartphones.

Now CrowdStar, known for titles such as Top Girl, Social Girl and Modern Girl, is announcing that it has raised $11.5 million in a second round of funding to fuel its mobile ambitions.

Investors in CrowdStar’s second round are Time Warner, Intel Capital, YouWeb, The9 and NV investments. To date, the company has raised $35 million in capital.

With the new funding, the company said it plans to pursue mobile games targeting the female audience and focusing on shopping and fashion. The games will be distributed using Facebook’s social graph, the Gree social gaming network and Apple’s Game Center.

“This funding round validates our pivot to mobile social games,” Relan said in a release. “We’re going for a bigger market with lower production and acquisition costs compared to social games on the web.”

This summer, CrowdStar will launch a brand-new Girl franchise game on Gree’s emerging mobile social network. Just yesterday, Gree announced it had acquired mobile social game maker Funzio for $210 million, showing its committment to signing up new games to the network. CrowdStar is also distributing games on Amazon’s Kindle Fire.

In fact, consumers are now spending equal amounts of time social networking and playing games, according to Flurry, which provides tools to app developers to track consumer behavior.

In the first quarter, Flurry found that the average consumer spent 24 minutes on games and social networking — each — every day. In the same period a year earlier, consumers spent 25 minutes playing games and only 15 minutes social networking.

In a blog post, Flurry’s Peter Farago explains that while time is now evenly split, the shift is more severe when you calculate the percentage of time spent on each type of application. By doing so, you can see that time spent on gaming has dropped as overall usage on phone applications has increased from 68 minutes a day to 77 minutes a day.

In the first quarter, consumers spent 31 percent of their time playing games, falling from 37 percent a year ago. Likewise, social networking has soared from 22 percent to 37 percent.

Social networking on the phone would include Facebook and other applications like Instagram (which Facebook just acquired for $1 billion). Games include everything from Rovio’s Angry Birds to Zynga’s Words With Friends. Other popular phone categories include news and entertainment.

Flurry also discovered that advertisers have followed the change in behavior with more ad revenue being generated by social networking apps than games. In April, 37 percent of ad revenue went toward social networking apps versus 36 percent going toward games. Just two months earlier, games were generating 35 percent of ad revenue and social networking was generating only 24 percent.

One limitation of the study is that it is looking only at smartphones and does not take into account behavior on tablets, where a lot of gaming is taking place.

The same way we make other decisions: by waiting for someone to decide that it’s the right thing to do, and then letting them recruit other people to work on it with them. We believe in each other to make these decisions, and this faith has proven to be well-founded over and over again.

– From page 13 of the Valve Handbook for New Employees

They all seem pitched toward the same mythical viewer, presumably the one prized by Internet advertisers, whose mind appears to be occupied with a sticky mix of celebrity gossip, blockbuster movies, video games, zombies, action sports and news of the weird.

– Mike Hale of the New York Times, writing about new channels on YouTube

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.

The great thing about Zynga that people don’t get, is our values are up on the wall, and the top one, which I take really, really seriously, is “Be the CEO.”

– Veteran game designer Bob Bates talking about social gaming and corporate culture at Zynga

GungHo is a new energy drink, which is pouring it on thick to attract videogamers who are looking for less jitters and more eye-hand coordination for those late-night gaming sessions.

In a study conducted by the University of Utah on behalf of GungHo, it found more than 50 percent of gamers said they were not satisfied with existing energy drinks because jitters cause a lack of control.

In contrast, GungHo, which promises “Ninja-like focus” says it increases concentration, memory storage and recall without the same high’s and low’s associated with other energy products.

No reason why an energy drink can’t be like any other videogame accessory in the industry, from high-end controllers to downloadable content. A single shot costs $2.99, or about the equivalent of three 99-cent mobile games.

Here’s a video of someone under the influence of GungHo:

It was all part of last weekend’s kickoff for an exhibit celebrating the art of the videogame. The three-day GameFest also featured speakers, music performances and movie screenings.

The GameFest part was just for the opening weekend, but “The Art of Video Games” exhibit itself runs through Sept. 30 in Washington, D.C.

Each generation of gaming gets its moment in the spotlight — from the early Atari, Coleco and Intellivision consoles, through Nintendo, Sega Genesis and Dreamcast, to today’s Xbox 360, Wii and PlayStation 3.

The exhibit is interactive, allowing visitors to not only view the evolution of the graphics in videogames, but also to try their hand at some classics. Lines formed as kids and adults alike queued up to play Super Mario and Pac-Man on a giant screen.

For more on the exhibit and the accompanying GameFest, check out our photo gallery:

I always thought of it as a family game. And it just sort of degenerated into a one player type thing which was never in my mind.

– Ralph Baer, inventor of the Magnavox Odyssey, the first home videogame system, on how videogames didn’t end up being the family activities he imagined they would be

A growing body of university research suggests that gaming improves creativity, decision-making and perception. The specific benefits are wide ranging, from improved hand-eye coordination in surgeons to vision changes that boost night driving ability.

Read the rest of this post on the original site »

But he said Skylanders: Spyro’s Adventure, which attempts to bring physical toys to life through videogames, has been worth it.

“It was scary,” he said. “But if you truly have a breakthrough idea, then you have to have the confidence to treat it as one because they don’t come around very often.”

To be sure, the game was a major deviation from the company’s war-based roots.

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

In 2011, the game was the tenth-best seller after launching in October, and was the only title to make the list that wasn’t a sequel. Additionally, it was the only kids game.

Hirshberg appeared this morning as the keynote speaker at DICE, an annual videogame summit held in Las Vegas.

His speech, titled “The Eric Hirshberg Experiment,” addressed how he has a nontraditional background as a CEO, but that Activision Blizzard’s CEO Bobby Kotick saw the usefulness of his creative background. Rather than being a trained operations or finance manager, Hirshberg is a marketing type who is more likely found drawing and bringing a sketch pad to meetings.

“There are other creative CEOs, but they generally founded the companies, like Bill Gates or Steve Jobs,” he said. “But if creativity is at the core of your business, maybe it should be at the core of how they make decisions.”

Skylanders is just one case in point.

To make it the best experience possible, Hirshberg said they delayed the game’s launch by a year and spent the time getting the toys right, so they could compete side by side with characters developed by Pixar or Disney.

They also spent time making sure the game could work across platforms, so kids could play it at any of their friends’ houses regardless if they had a PC, Xbox, Sony PlayStation or Nintendo Wii.

As a result, every decision resulted in taking on more risk and spending more money.

Last night, Skylanders was voted as the most outstanding innovation in gaming as part of the 15th Annual Interactive Achievement Awards, which are decided on by members of the Academy of Interactive Arts & Sciences.

“We knew a lot of things had to go right — the core to that was bringing the toys to life. We knew that was magical, and if we got it right, it would have huge potential,” Hirshberg said. “We had the whole package. We had a great game and a great story and then pushed with all of our might with a big marketing plan.”

Yesterday, Activision reported fourth-quarter results, reporting well above its internal guidance and Wall Street analyst expectations, driven by extremely strong sales of Call of Duty, but also strong sales of Skylanders as well as, plus stable subscriber figures of its online game, World of Warcraft.

Additionally, the NPD Group said yesterday that the Skylanders toys were a top-selling accessory in January. It said that the toys were the highest-ranking item last month, and that collectively, Skylanders accessories represented 22 percent of all accessory sales.

For sure, Hirshberg has early successes to point to, but the experiment is ongoing.

As a result, the industry saw a double-digit decline in physical software sales at retail, according to NPD, which tracks the industry.

It said last year new launches represented 13 percent of videogame sales in January, but that last month, the performance of new launches dropped by 99 percent, said NPD analyst Liam Callahan.

Videogame sales for console and handheld game units from retail totaled $356 million in January, falling 38 percent compared to the same period a year earlier. Overall sales, including hardware, accessories and software, dropped 34 percent.

But the drop can’t be blamed entirely on the lack of new launches. Sales of titles launched in the fourth quarter also performed poorly, falling 31 percent in units compared to the year-ago period.

“As shoppers were not drawn to stores due to new launch activity, this potentially impacted additional software purchases made on impulse,” Callahan said in a release.

NPD also estimated sales from used games, downloadable content and social and mobile games. It says those channels accounted for an additional $350 million to $400 million in sales.

Microsoft’s Xbox 360 continues to be the best-selling console, and Activision’s first-person shooter Call of Duty: Modern Warfare 3 continues to be the top-selling game title. Sony is banking on a spike in sales from the launch of the PlayStation Vita portable unit, which is expected to hit the market Feb. 22, along with 25 new titles.

In other words, we could see a board game of FarmVille, Words With Friends or CityVille in the not too distant future. In addition, we could potentially see action figures based on some of its game characters.

Merchandising around videogames is not new, and has recently spread like wildfire to mobile and social gaming with rising stars like Rovio’s Angry Birds or ZeptoLab’s Cut the Rope.

In a press release, Zynga says Hasbro has obtained the license to develop and distribute a wide range of product lines based on Zynga’s game brands, but does not get into too many details.

It also says the deal covers opportunities for co-branded merchandise featuring a combination of both Hasbro and Zynga brands, it said. Could we see a co-branded Words With Friends Scrabble game?

Hasbro already has a long-standing relationship with Electronic Arts, which publishes such titles as Scrabble and Monopoly across many platforms.

In a statement, Zynga’s CEO and founder Mark Pincus said, “This partnership is so special because it represents an exciting leap forward in enabling people to connect their virtual and real worlds. Hasbro has inspired play through their famous toys, games and action figures and we look forward to working with a company that continually creates meaningful and fun brands.”

The two companies said the first products will hit shelves in the Fall.

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.

Mr. Mullins, 19, is the creator of “Felix the Peaceful Monk”—his character in a videogame called The Elder Scrolls V: Skyrim. The game gives players wide latitude over their on-screen characters’ appearance and actions. Felix, who is half man, half cat, has become a small-time Internet celebrity for his steadfast refusal to kill.

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The Kyoto-based videogame maker also offered an even bleaker outlook for its full-year earnings for the year to March, saying Thursday that net losses will be three times greater than its projections in October as valuation losses on foreign-currency holdings from the strong yen continued to swell.

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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

Last year, Zynga hired Electronic Arts’ COO John Schappert, who now holds the same title at the social games company. It also picked up EA Play’s EVP Jeff Karp, who is now Chief Marketing and Revenue Officer.

Most recently, Cottle was overseeing EA Mobile, Playfish, Pogo, Hasbro and PopCap, and had been one of the key driving forces behind transforming the company from primarily a packaged goods company to a digital company.

At Zynga, Cottle will serve as EVP of business and corporate development in charge of new global partnerships, acquisitions and other development roles.

In a letter sent to employees today, Electronic Arts CEO John Riccitiello downplayed the departure of Cottle, and said it was going to fold EA Interactive into the entire organization now that “everyone and everything is digital.”

Four years ago, when it originally set up EA Interactive, it was to oversee mobile, social and Pogo, he explained. But today, those initiatives are part of every group within the company.

“It’s abundantly clear that the digital transformation is not confined to one group,” he wrote. “Therefore, we have decided to begin 2012 by folding EAi into the organizations noted below. This reflects our new reality: everyone and everything is digital.”

Executives now leading the charge include EA Labels President Frank Gibeau, COO Peter Moore, CTO Rajat Taneja and EVP of digital Kristian Segerstrale.

Riccitiello provided further evidence of EA’s digital transformation by announcing that the company had achieved more than $1 billion in digital revenues in 2011.

The loss of another high-profile executive to Zynga represents a signficant blow to the company, which has been clear about its attempt to challenge Zynga’s dominance in social gaming. Last year, it paid $750 million to acquire PopCap to become the second-largest social game maker on Facebook.

Cottle, who was at EA for the past five years, previously worked at Palm, where he held the position of COO, and at the Walt Disney Company, where he was he was an SVP and chief marketing officer.

“It’s rare that you find someone who possesses a deep operational background and also has the vision to see where your business and your industry are headed,” said Zynga’s CEO Mark Pincus in a release. “His skill set, combined with his deep understanding of the games, technology and entertainment spaces will help us accelerate our mission of connecting the world through games.”