Retail video game sales in the United States 
totaled just above $707 million in July, the industry’s single-worst month of sales since October 2006. That’s a 26% year-on-year fall.
Investors keen on the games industry should do some soul searching going into the back half of 2011. The business is in transition. Much like the movie industry, digital distribution and evolving technology are changing the games business, and old figureheads like game machine makers Microsoft (NASDAQ:MSFT), Sony (NYSE:SNE) and Nintendo (PINK:NTDOY) are jostling uncomfortably with new darlings in the social and mobile game space like Farmville creators Rovio.
Those aforementioned industry veterans aren’t quite ready to introduce the next generation of major machines to compete with Facebook and Apple‘s (NASDAQ:AAPL) iPad; There’s no PlayStation 4, Xbox 720, or even the announced WiiU ready to release in time for Christmas.
So what are those companies preparing for the holiday season? And will they fare better during a prime-spending season than they have during the summer? Here’s what they’re offering:
Microsoft
The Xbox 360 continues to outperform its competitors in the U.S., thanks in no small part to the popularity of the Kinect — the hands-free, camera-based motion controller Microsoft released last fall. Of the 6 million Xbox 360 consoles the company sold between November 2010 and July 2011, 3 million were in the $399 and $299 packages bundled with Kinect.
Outside a few promising titles due in September and beyond — Disney Kinect Adventures, Kinect Star Wars, Gears of War 3 and the Halo Anniversary remake — Microsoft doesn’t have a real attention-grabbing product lined up for the holiday. What it does have is a promising strategy to grow the Xbox brand beyond the living room.
In a Tuesday post on the official Windows Phone blog, Microsoft announced the array of Xbox Live games and services coming to Windows Phones this fall. If anything can bolster Microsoft and Nokia‘s (NYSE:NOK) new smartphone business, it’s a robust Xbox experience on the platform. It announced 14 new games for the service — not exactly an App Store-killing number, but a promising start and a reassurance to investors that Microsoft’s profitable entertainment division is evolving.
Sony
The PlayStation 3 received its first price drop in two years Tuesday, with Sony knocking the tag down to $250. The device certainly could use the boost that usually comes after a price drop. Sony sold just 2 million PlayStations during the second quarter of this year, down from 2.5 million during the same period in 2010.
However, the company’s fall lineup of products might not entice consumers to buy the system — even at the lower price. Sony is releasing sequels to moderate sellers — Uncharted 3, Resistance 3, Ratchet & Clank: All 4 One — but there’s little to support its Move motion controller. Its big new peripheral is a $500 24-inch 3D television targeted at college-age consumers, but given how leery of spending consumers are and overwhelming disinterest in 3D TV, it’s hard to imagine this will be an earner for Sony.
But even though this likely will be a rough fall for Sony, the company is getting its ducks in a row for 2012. The PlayStation Vita portable, due out next spring, is shaping up to be an impressive cross between the versatility of the iPhone and the high-end graphics experience of the PlayStation 3. According to Sony, Facebook and Twitter will be supported by the Vita, as will Foursquare. Most exciting of all is that it will support Skype calling, too, according to a Tuesday report at TechCrunch. The Vita might yet compete with smartphones.
Nintendo
Retailers including GameStop (NYSE:GME) and Walmart (NYSE:WMT) are reporting that the price drop on the Nintendo 3DS handheld has had the appropriate effect for the troubled Japanese giant. The device is selling again after a nearly cataclysmic debut. Nintendo is banking on the popularity of its Mario franchise to carry both the 3DS and its entire business through the holiday season with the awkwardly titled Super Mario 3D Land and Mario Kart 7.
As for its once-huge Wii home console, the company plans to release a streamlined budget version of the device below its current $150 price tag. It’s a wonder who will buy it, though, as the only major Wii release scheduled for this fall is The Legend of Zelda: Skyward Sword in November, an entry in a series that sells well but not well enough to get Nintendo’s share price out of the gutter.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.
