The video game industry is still stuck in reverse.

Data cruncher NPD Group is reporting that the sector suffered a 13% decline in sales last month relative to 2009's opening month. Hardware sales fell a sharp 21%, with games taking a 12% hit.

You know things are bad when the top-selling title is a Super Mario game that came out a few months ago. Even Electronic Arts' (NASDAQ:ERTS) highly anticipated Mass Effect 2 was only good for 572,100 copies. It's not a bad number -- especially for a company that hit a fresh 52-week low this week -- but it pales compared to Activision Blizzard's (NASDAQ:ATVI) Call of Duty: Modern Warfare 2 and Take-Two Interactive's (NASDAQ:TTWO) Grand Theft Auto IV that sold millions of copies within days of hitting the market.

On the console front, the Wii still led the pack -- though unit sales fell despite a price cut before the holidays. Microsoft's (NASDAQ:MSFT) Xbox 360 overtook Sony's (NYSE:SNE) PS3, likely the result of Mass Effect 2 only coming out on Xbox and PCs.

Gamers will argue that this is January. Developers with promising releases try to release their big games before the holidays. However, we're comparing this January to last year's January. This is an apples to apples comparison, and the industry isn't exactly peachy.

There are several factors weighing down the industry.

  • The economy is bad, though other forms of escapism including multiplex outings had healthy showings in 2009.
  • Connectivity is giving games longer lives. Ask around and you'll see that a ton of people are still playing Call of Duty: Modern Warfare 2 through Xbox Live. The extended lifespan is good for blockbuster titles with engaging multiplayer elements, but it's bad news for the industry if it dries up demand for everything else that is shiny and new.
  • Diehard gamers aren't playing Farmville on Facebook or downloading free ad-supported games on their iPhones, but these casual and social games are swallowing down mainstream audiences as their consoles and handhelds collect cobwebs.
  • The fake guitar craze has passed. Activision Blizzard's Guitar Hero and Viacom's (NYSE:VIA) Rock Band had huge runs selling games and expensive gear, but all that did is inflate 2008 sales. The Beatles: Rock Band may have been the last legitimate blockbuster in that genre.
  • Digital delivery is marginalizing real-world retailers including GameStop (NYSE:GME), but it's also lowering the bar on what gamers pay for diversions.

Will February be any better? It should improve sequentially but it will still be grim on a year-over-year basis. Sales were rocking last February, fueled by sales of Street Fighter IV and the resolution-enhancing Wii Fit. The software side will be served well by Bioshock 2 and Heavy Rain, but hardware is going to be a problem.

Comparisons will get better come March -- when Final Fantasy XIII will be pitted against the first of the many monthly dives of 2009 -- but the trend is still unmistakably bearish.

Being stuck in reverse isn't pretty.

Disagree with me? Let me have it in the comments box below.

Microsoft is a Motley Fool Inside Value selection. Take-Two Interactive Software is a Motley Fool Rule Breakers recommendation. Activision Blizzard, Electronic Arts, and GameStop are Motley Fool Stock Advisor selections. Motley Fool Options has recommended a synthetic long position on Activision Blizzard and a diagonal call position on Microsoft. The Fool owns shares of Activision Blizzard. Try any of our Foolish newsletters today, 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.