I was on an island, marooned before a nationally televised audience on Friday. But this wasn't a reality show. It was CNBC's Closing Bell.

Kaufman Bros. analyst Todd Mitchell and I were being interviewed by Melissa Francis on the heels of disappointing metrics in the video game market. Marketing research specialist NPD Group announced that hardware and software sales suffered a steep 29% in July, the fifth consecutive month of year-over-year declines.

If this sounds bleak, join the club. Just be warned that it's a pretty lonely group.

My CNBC segment began with hordes of diehard gamers lining up for last week's debut of Electronic Arts' (NASDAQ:ERTS) Madden 10. Mitchell also has a surprisingly upbeat outlook on the sector.

"We're cautiously optimistic on the quarter going forward," he told Francis.

Really? I disagreed on the air, so I may as well disagree now. There are several reasons to approach this industry cautiously right now:

  • Delays are natural occurrences in the game development cycle, but Activision Blizzard (NASDAQ:ATVI) and Take-Two Interactive (NASDAQ:TTWO) are bumping release dates at the worst possible time.
  • GameStop (NYSE:GME) was holding up well earlier this year, as its high-margin resale business was making up for any weakness in new wares. Now even GameStop is projected to post a dip in quarterly profitability this week.
  • The economy isn't there for $50 and $60 games, drawing audiences to cheaper casual games being distributed through smartphones and computers.

That last point is important, because the moat is narrowing for developers. You don't need a war chest to market a game through the App Store or Microsoft's (NASDAQ:MSFT) Xbox Live marketplace. Ad-supported freebies on smartphones and apps on social-networking sites are apparently just fine for all but the die-hard gamers.

In covering the NPD Group data, all four of the first readers to respond to my skepticism argued that the industry had not peaked.

I don't get the optimistic rush. It's not as if every entertainment option is smarting these days. The local multiplex is holding up well. Consumers are spending plenty of time watching Google's (NASDAQ:GOOG) YouTube or socializing on Facebook and News Corp.'s (NYSE:NWS) MySpace.

There is a distinct trend working against commercial console releases, and everyone seems to be dismissing it as a passing phase.

I'm on a lonely island, indeed, but the view is killer. 

Where do you see the future of gaming? Did it peak for keeps? Let us know in the comment box below.

Google and Take-Two Interactive Software are Motley Fool Rule Breakers recommendations. Activision Blizzard, Electronic Arts, and GameStop are Motley Fool Stock Advisor selections. Microsoft is a Motley Fool Inside Value pick. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz loves playing video games, but he doesn't own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.