“The continued economic turmoil, and in particular the troubling unemployment rate, is undoubtedly impacting industry sales,” said NPD analyst Anita Frazier. “Our latest Economy Tracker indicated that although consumers’ general opinion about the economy is improving, their outlook on their own personal situation is worsening. If consumers’ personal outlook continues to erode, they could very well be much more conservative with their holiday shopping this year.”

A somber warning for the videogame industry. Even recent price cuts on game consoles have done little to spur demand.

“Year to date, the hardware category has experienced the sharpest decline in the industry, with unit sales down 10 percent compared to the same time period last year,” Frazier wrote. “Recent price cuts helped spur a one- to two-month increase in unit sales, and this month’s Wii sales reflect that boost, but the other platforms have not sustained the sales momentum after price reduction.”

The videogame industry may be recession-resistant, but it is clearly not recession-proof, as some once believed. Sales data, below.

U.S. Hardware Sales, October 2009

1. Wii 506.9K
2. Nintendo DS 457.6K
3. PlayStation 3 320.6K
4. Xbox 360 249.7K
5. PSP 174.6K
6. PlayStation 2 117.8K

U.S. Top Ten Software Sales, October 2009

1. Uncharted 2: Among Thieves (PS3, Sony) 537,000
2. Wii Fit Plus (Wii, Nintendo) 441,000
3. Borderlands (360, Take 2) 418,000
4. Wii Sports Resort (Wii, Nintendo) 314,000
5. NBA 2K10 (360, Take 2) 311,000
6. Halo 3: ODST (360, Microsoft) 271,000
7. NBA 2K10 (PS3, Take 2) 213,000
8. Forza Motorsport 3 (360, Microsoft) 175,000
9. Kingdom Hearts 358/2 Days (DS, Square Enix) 169,000
10. FIFA Soccer 10 (360, Electronic Arts) 156,000

As a result, Nintendo’s operating profit fell 52 percent to 64 billion yen, missing the company’s own forecast of 100 billion yen, as well as estimates of analysts, who were expecting 90 billion.

That shortfall prompted Nintendo to cut projections on Wii sales for the year to 20 million from 26 million. Thursday, the company also slashed its profit forecast for the year by almost a quarter to $2.6 billion. That’s 18 percent less than last year and nearly 25 percent less than the 300 billion yen it had earlier projected.

This despite a recent Wii price cut intended to drive sales of the device. Clearly, something more is needed here. Said Barclays analyst Mia Nagasaka: “Nintendo needs to build up a sales-promotion scheme or introduce a new product to drive its earnings.”

That said, Nintendo is cutting the price of its Wii videogame system by $50 in hopes of growing the market for the popular device as we head into the winter holidays. On Sunday, the company will begin peddling the Wii at a suggested retail price of $199.99.

The new price is the first reduction since the console launched in November 2006 and follows similar price cuts by two rivals, Sony’s (SNE) PS3 and Microsoft’s (MSFT) Xbox 360.

All three are hoping they’ll attract recession-addled gamers into the market, and according to Reggie Fils-Aime, president of Nintendo of America, they’ve got decent shot at it. “Our data shows in the U.S. alone there are 50 million consumers who are interested in playing videogames but they haven’t yet done so,” Fils-Aime told The Wall Street Journal. “They are waiting for product innovation or a slightly better value.”

If it was, surely we wouldn’t be seeing the sixth consecutive month of declining sales reported by NPD. According to the market research firm, overall sales in the United States in August of hardware, software and game accessories were $909 million–a 16 percent drop from the same period a year ago.

Hardware sales were down 25 percent for the month and 17 percent for the year. Software fared little better. It was down 15 percent for the month and 14 percent for the year.

Six straight months of falling sales. Overall, the industry is down 14 percent for the year, earning nearly $9.1 billion so far in 2009, according to NPD. Is this a trend that can be dismissed with the standard “well, software drives console sales” explanation? I’m not so sure. It’s not like Mario Kart and Madden NFL 10 have disappeared from the shelves. Indeed, they’re still top-selling titles. They’re still driving sales. They’re just driving a hell of a lot fewer of them.

Indeed, Electronic Arts (ERTS) CEO John Riccitiello bemoaned this very fact in an email to employees, released yesterday. “It is discouraging that one of our highest-rated and best-marketed ‘Madden’ titles in years is facing strong headwinds,” he said, adding industry trends “present a challenge.”

Perhaps that’s because we’re in the middle of the worst American recession in 50 years and $40 for a videogame is still $40. I’ll bet $5 and my old Intellivision that the videogame industry will post its first year-over-year loss since 2004 this year.

Hardware Sales:

1. Nintendo DS     552.9K
2. Wii     277.4K
3. Xbox 360     215.4K
4. PlayStation 3     210.0K
5. PSP     140.3K
6. PlayStation 2      105.9K

Top 10 Software Sales:

1. Madden NFL 10 (Xbox 360, Electronic Arts): 928,000
2. Wii Sports Resort (Wii, Nintendo): 754,000
3. Madden NFL 10 (PS3, EA): 665,000
4. Batman: Arkham Asylum (360, Square Enix): 303,000
5. Batman: Arkham Asylum (PS3, Square Enix): 290,000
6. Madden NFL 10 (PS2, EA): 160,000
7. Dissidia Final Fantasy (PSP, Square Enix): 130,000
8. Wii Fit (Wii, Nintendo): 128,000
9. Mario Kart Wii (Wii, Nintendo): 120,000
10. Fossil Fighters (DS, Nintendo): 92,000

“In 2004, as you may recall, we launched a slim version of PlayStation 2, a defining moment for that console, helping us to really expand the user base of PlayStation 2 further,” Sony Computer Entertainment Chief Executive Kazuo Hirai said at the Gamescom videogame trade show in Cologne, Germany. “Today is that day for PlayStation 3.”

And so, starting Sept. 1, the PS3 will be available for $299. That’s still well above Microsoft’s (MSFT) Xbox 360, which retails for less than $200 and Nintendo’s Wii, which sells for $250, but it’s a hell of a lot better than $399. And analysts say it will almost certainly spur demand for the console. “People were expecting this to happen. [Sony] had to do something,” MKM Partners analyst Eric Handler told MarketWatch. “This will bring some new customers to the fold.”

Indeed. But how long can Sony sustain such market share gains, when Microsoft and Nintendo are almost certainly mulling price cuts for their platforms as well?

On a trip to Seattle, BoomTown visited the headquarters of the Pet Holdings empire, which includes Lolcats (icanhascheezburger.com), Fail Blog and now, Emails From Crazy People. While there, Kara filmed a video with Ben Huh, CEO of the (profitable!) company. There is obviously a method to Huh’s wackiness.

Elsewhere in Seattle, BoomTown got some of the lowdown on the machinations in the wake of the Yahoo-Microsoft deal. Satya Nadella and Yusuf Mehdi are just two of the Microsoft (MSFT) execs charged with leveraging the deal to knock Google (GOOG) out of its number one spot. They each sat down in front of the Flip camera to share their thoughts.

BoomTown also noted the beginning of the Yahoo-Microsoft regulatory filings this week and provided the full document of Yahoo’s (YHOO) 8-K to the Securities and Exchange Commission about the deal. To think: this is only the tip of the MicroHoo iceberg.

If you were one of the many wondering about Twitter’s high-profile outage this week, don’t worry–Kara provided a handy translation of the co-founder Biz Stone’s blog post about the whole matter. If you weren’t wondering at all, you’re not alone–Kara’s mother and older son, Louie, think the whole thing is a waste of time.

Google CEO Eric Schmidt’s resignation from Apple’s (AAPL) board of directors was just some of the news on Digital Daily this week. In some of the other news, the FTC responded with a “nice try, but we’ll continue our investigation anyway.” Better news for Apple, then, that it claims 32 percent of operating profits in the handset industry, even though it’s only the fifth-largest handset vendor.

In the not-so-good department on Digital Daily this week, NewsCorp. (NWS) (which owns the Wall Street Journal and this Web site) reported a 32.5 percent drop in fiscal-year-adjusted operating income–largely because of its “red-hot” social network, MySpace. Elsewhere, Cisco (CSCO) reported a 46 percent drop in quarterly profit while still beating the Street’s estimates, and Vonage (VG) recorded a second-quarter profit of $2.3 million while losing 89,000 net subscribers in the same quarter.

On Personal Tech, Walt Mossberg reviewed a new netbook from Toshiba this week great battery life and a winning keyboard, among other things. On the Mossberg Solution, Katie Boehret reviewed the Wii MotionPlus remote accessory, an add-on to the Wii remote that includes a gyroscope and allows for more precision and sensitivity in gameplay. Walt responded to readers on Mossberg’s Mailbox, answering emails about buying a new no-frills laptop, switching ISPs and moving contacts emails without too much pain, and discerning the minimum system requirements for Windows 7.

Walt went into a little more detail about Windows 7 on his MossBlog. Unfortunately, he discovered that more detail does not equal more clarity when it comes to a Windows 7 upgrade. At his request, Microsoft sent along a handy chart meant to simplify all aspects of the matter for readers. It is an astoundingly, even comically, complicated document. The company has promised to send a newer, simpler one. Stay tuned.

More next week.

Nintendo really should have cut its losses yesterday and cancelled its E3 press conference after Microsoft’s (MSFT) Project Natal demo. How could it possibly have trumped Redmond, Wash.’s controllerless game control system? Certainly not with the Wii Vitality Sensor it showed off today.

The peripheral’s big gaming advancement? It records a user’s vital signs. A nice addition to the Wii Fit, but a far cry from Microsoft’s efforts to turn gamers themselves into controllers.

As I said yesterday, “sucks to be Nintendo.” And today, it most certainly does.

In March, Japanese sales of Nintendo’s wildly popular game console fell below those of rival Sony’s PlayStation 3 for the first time. According to data released on Monday by research outfit Enterbrain, Sony sold 146,948 PS3s in the five weeks to March 29, while Nintendo sold 99,335 Wiis–and, for those keeping track, Microsoft (MSFT) sold 43,172 Xbox 360s. Driving sales: Yakuza 3 and Resident Evil 5–two new titles not yet available for Wii.

Could this be the beginning of a new trend, a dramatic reversal of fortune for Sony, which ceded its gaming console dominance to Nintendo back in 2006? Sony (SNE) clearly hopes so, but Nintendo doesn’t seemed too worried. “It is still the first few months of the year when sales are slow for the industry so we are not particularly concerned,” a spokesperson told the Financial Times. “We hope to line up strong software to support hardware sales in the second half of the year.” And if it’s able to do that, Nintendo probably does have little cause for concern–at least for now. The Wii is still outselling the PS3 by 3-to-1 in the states, and at eight million sold, cumulative Wii sales in Japan exceed the three million consoles Sony’s managed to sell.

Confirming recent speculation, Sony this morning said that it’s dropping the price of the PlayStation 2 from $129 to $99.99 as of April 1. “With this new price, we intend to introduce a new generation of consumers–some of whom weren’t even alive when the system was first introduced in 2000–to the immense entertainment value offered by PlayStation 2,” John Koller, Sony’s director of hardware marketing, explained in a blog post. “In the gaming industry, the typical lifecycle for a console is around five years, but because we build each of our platforms for a large and diverse consumer base, we design our platforms differently. With the original PlayStation and now PlayStation 2, we’ve proven that consumers can rely on our platforms for their gaming and entertainment needs for at least a decade.”

And that does indeed seem to be the case. Though nearly 10 years old, the PS2 remains quite popular. Indeed, Sony expects to sell eight million of the consoles in its current financial year–not so far off from the 10 million PlayStation 3s it expects to sell in the same period. And it will certainly grow in popularity at this lower price point, giving Sony (SNE) a means to really take Nintendo’s Wii to the mat.

Now, about that PlayStation 3 price cut rumor: Sony isn’t planning one, though arguably that’s exactly what the console, which is being outsold two-to-one by the Xbox 360 and the Wii, needs. “As we have stated previously, we do not have plans for a PS3 price drop, and any rumors to that effect are false and are the result of speculation,” Sony Computer Entertainment America said in a statement. “SCEA remains focused on the long-term momentum of PS3. With the industry’s best software lineup this year, combined with our most aggressive marketing campaign to date, we remain confident in our approach and the value we’re delivering with PS3.”

That breathless and swooning introduction aside, ngmoco co-founder Neil Young’s keynote address at the Game Developers Conference in San Francisco today was noteworthy in that it really heralds the arrival of the iPhone as a gaming platform. The GDC is the largest annual gathering of professional videogame developers, so the fact that Young, an Electronic Arts (ERTS) alum turned iPhone developer, delivered his remarks from a stage that will soon host Nintendo president Satoru Iwata and Metal Gear creator Hideo Kojima says a lot about the esteem in which game developers hold the device–dismissive comments from Sony (SNE) be damned.

Apple’s (AAPL) iPhone is still in its early stages as a gaming platform and make no mistake, it is a viable gaming platform, said Young. And he should know; ngmoco–the developer of popular iPhone game titles like Rolando, Dropship, and Topple–just closed a $10 million second-round of funding after only nine months in business.

“Don’t let the haters tell you it sucks compared to the [Nintendo] DS or the [Sony] PSP,” Young said of the iPhone. “It doesn’t. It’s good. It’s clear that the quality of iPhone games is eclipsing its console counterparts, and that’s even more acute when you compare it against the prior generation.” Why?

Unlike its console rivals, the iPhone is always connected, users always carry it, it offers unique features that can’t be found anywhere else–a touchscreen, an accelerometer, connectivity. In this way, said Young, the iPhone is similar to the Nintendo DS. When that device first launched, many thought it would be beaten into whimpering submission by the far more robust PSP. But that never happened. “Nintendo was able to win that battle by combining great software with hardware that it understood very well,” Young said. “If Nintendo made the iPhone, what would they focus on? I think they would build games that could only be on the iPhone. The designs would be progressive, discontinuous, and would have the user and the user’s context always in mind. They would have great underlying game design with native device functionality at the core.”

His point: Graphics and sound alone don’t necessarily make a great app. As Nintendo has shown us with the DS and the Wii, gaming is all about the platform. And Apple has clearly created one to be reckoned with.

Though Wii manufacturer Nintendo posted a 21 percent gain in quarterly operating profit on brisk demand for the videogame console, it slashed its forecast for full-year sales of the device (it slashed its full-year profit forecasts as well–by 33 percent). Nintendo had expected to sell 27.5 million units during its fiscal year, which runs from April until March. Now it expects to sell only 26.5 million. “Wii sales in Japan during the year-end shopping season didn’t meet our forecast,” Nintendo President and CEO Satoru Iwata said during an earnings briefing. “Still, I don’t think demand for the Wii has run out.”

No, of course not. But clearly the Wii isn’t as recession-proof as was once thought. And, despite its appeal to budget-conscious consumers, Nintendo doesn’t feel it’s immune to the general slowdown in consumer spending. Said KBC Financial Products analyst Hiroshi Kamide: “Today’s revision suggests that the roaring pace of Wii growth that we’ve seen until now may be over.”

Now that’s not nearly the 44 percent spike of the previous year, but it’s certainly far better than expected. Said NPD analyst Anita Frazier: “While industry growth has not continued at the blistering pace we saw during the second and third quarters, December’s 9 percent increase over last December brings the year in 19 percent ahead of last year, and sets a new record for total industry sales.”

The engine of the industry’s sales growth? Nintendo. Defying the continued deterioration of the economy, the company saw sales for its Wii and DS consoles surge 59 percent and 23 percent in December and 62 percent and 17 percent for all of 2008. Meanwhile, Microsoft (MSFT) sold 1.44 million Xbox 360s during the month. And Sony (SNE) sold just 726,000 PS3s and 410,000 PSPs.

Clearly, Nintendo carried the industry despite the current economic downturn. Indeed, the Wii accounted for an astonishing 55 percent of all current generation home console sales in 2008.

“Without these sales, the industry would have likely felt the full wrath of the recession–much like other industries closely linked to gaming,” said Jesse Divnich of Electronic Entertainment Design and Research. “We believe their simple-to-use design, cheaper and wider variety of software titles, and the already ‘hot effect’ in place on both systems, all played a role in driving both the Wii and the DS to the top of their segments. Simply put, Nintendo saved Christmas.”

And that’s exactly what consumers are looking for, according to Google (GOOG).

“We’ve seen quite an increase in queries for things like discounts and bargains and things like that,” Google CEO Eric Schmidt told “Meet The Press” this past weekend. “And we know that shoppers are using the Internet to get better pricing.”

A remarkable metric, given the economic downturn. How is it that gaming is thriving at a time when the global financial crisis is squeezing wallets? “There are a couple of reasons,” Ron Meiners, director of community for the Hollywood Interactive Group, recently told News.com. “One is the traditional value of entertainment during tough economic times. Like the great fantastic musicals in the 30s. Movies did great, because they took people’s mind off of the troubles they were facing. [And] videogames have great value as entertainment. The number of hours of solid entertainment that comes from a videogame purchase is much greater than a movie, for example, for very comparable cost.”