Squeezed by the economic downturn, US retail sales of video games dropped sharply in June, the largest year-over-year decline the industry has seen in nearly nine years.

Market researcher NPD Group said that sales of game hardware, software and accessories plunged 31 per cent from the same month last year, to $1.17 billion (£717 million). It marked the biggest year-over-year decline since September 2000.

The drop “is certainly going to cause some pain and reflection in the industry,” said NPD analyst Anita Frazier in a statement.

June was the fourth straight month to see a sales decline this year, even as video game companies continue to tout their products as a cheap form of entertainment.

Recession-battered consumers are nonetheless cutting back on spending, and there have also been fewer hit game launches in recent months than in the corresponding period in 2008.

While retail sales have declined, the video game audience is continuing to expand. But many people are playing games online, for free.

“The trick is to continue to figure out how to monetise all the gaming that is going on across PC, mobile devices, and video game systems,” Frazier said.

June hardware sales tumbled 38 per cent to $382.6 million (£234 million) from $617.3 million (£378 million). As expected, the Nintendo Wii was the month’s best-selling console with 361,700 units sold, while the Nintendo DS was the top-performing handheld gaming device with 766,500 sold.

Microsoft’s Xbox 360 sold fewer units than the Wii – just 240,600 – but it was the only system to show a year-over-year sales increase. Sony’s PlayStation 3, meanwhile, saw 164,700 units sold.

Software sales dropped 29 per cent, to $625.8 million (£383 million) from $875.8 million (£536 million). Best-selling games included Prototype for the Xbox 360 from Activision Blizzard, fighting game UFC 2009: Undisputed for the Xbox from THQ and the fitness game EA Sports Active for the Wii from Electronic Arts Inc.

In all, industry sales are down 12 per cent year-to-date. But video game companies make most of their money during the holiday season, so with a strong performance in the back half of the year, 2009 sales “could still be flat to slightly up to 2008’s record-breaking performance,” Frazier said.

Also, many new, big-selling games are launched at the E3 Expo, which runs at the beginning of June.