Even Microsoft's (Nasdaq: MSFT) highly anticipated Halo: Reach and a trio of annual EA Sports powerhouses from Electronic Arts (Nasdaq: ERTS) couldn't save the gaming industry last month.

Market watcher NPD Group claims that its channel checks show an 8% year-over-year decline in industry sales last month. Hardware sales slumped 19%, with software taking a more modest 6% hit. Accessory sales did inch higher -- likely the result of Sony (NYSE: SNE) introducing its new motion-based controller -- but once again I find myself chronicling the gradual fade of the video game industry as diehard gamers know it.

It's been nearly two years since the industry turned lower. It may not have kicked in with investors immediately. After all, niche retailer GameStop (NYSE: GME) continues to expand its small-box universe. Blockbuster titles still sell well, with Activision Blizzard's (Nasdaq: ATVI) Call of Duty: Modern Warfare 2 breaking initial sales records last November when it sold $550 million during the first five days.

However, something clearly is amiss. NPD doesn't cover all of the industry sales. It doesn't track digital distribution, used game sales, and rentals -- all areas that are likely growing. Even Best Buy (NYSE: BBY) is diving into the used game market these days, and Blockbuster is trying to take on GameFly with mail-delivered rentals. Those metrics don't necessarily help developers, though. They don't receive any money on hand-me-down resales, for example.

There is potential with digital distribution, as long as you're not GameStop or the other physical retailers. The rub there is that price points are substantially lower in that space.

When will the industry turn the corner? It probably won't be this month. Negative reviews have gunned down this week's EA release of Medal of Honor. It probably won't be next month either. Yes, Activision Blizzard is going to have a winner in Call of Duty: Black Ops, but it's going to be pitted against last November's franchise smash.

One can argue that the video game industry isn't dying, but leadership is clearly moving away from the conventional console makers and perhaps even the software giants. No one should have been surprised when Nintendo warned investors about soft results this year. Beyond Take-Two Interactive's (Nasdaq: TTWO) surprising profit in its latest quarter, the trends continue to point to casual gamers moving on to other diversions.

Satisfying diehard gamers is noble, but when the goal is mainstream growth it's simply not enough anymore.

Do you think the traditional video game industry will bounce back? Share your thoughts in the comment box below.

Best Buy and Microsoft are Motley Fool Inside Value recommendations. Take-Two Interactive Software is a Motley Fool Rule Breakers choice. Activision Blizzard, Best Buy, and Electronic Arts are Motley Fool Stock Advisor recommendations. Motley Fool Options has recommended a synthetic long position on Activision Blizzard. Motley Fool Options has recommended buying calls on Best Buy. Motley Fool Options has recommended writing covered calls on GameStop. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Activision Blizzard, Best Buy, Microsoft, and Take-Two Interactive Software. Try any of our Foolish newsletter services free for 30 days.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Longtime Fool contributor Rick Munarriz wonders why his son always kicks his ax when they have a Guitar Hero face-off. Rick does not own shares in any of the companies 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, and it could beat Jordan in Expert mode if it had to.