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Gamefly's IPO: It's Bloody in the Video Game Biz

Quick-growing startup Gamefly applied for its IPO this week, which not only isn't representative of a rebound in video game industry growth, but actually shows that the slump will continue.

Like Netflix, Gamefly allows users to rent games via mail instead of having to purchase them. Games can be held technically forever, so long as users pay the monthly fee. The company has attracted about 340,000 subscribers since its 2002 launch. According to the IPO filing, GameFly boosted sales 21 percent in the six months through September to $47.7 million.

The actual video game industry, however, isn't fairing as well. According to the NPD Group, U.S. video game sales dropped 11 percent in 2009. GameStop, the biggest video game-only chain, had spectacular growth - - until recently.

Leading US games retailer GameStop has reported flat sales for the nine-week holiday period ended January 2, 2010. Total sales for the period were $2.86 billion, largely in line with the previous year's performance.

While new software sales increased four percent, driven by top sellers Call Of Duty: Modern Warfare 2, Assassin's Creed II, New Super Mario Bros. Wii, Left 4 Dead 2 and Dragon Age: Origins, hardware sales declined eight per cent due to recent console price cuts and a decline in unit sales on a year-over-year basis. Used game sales grew ten per cent, but this was "less than forecast".

Keep in mind that last holiday season was an unusually popular time for video games: New Super Mario Bros. Wii sold 10.5 million in a couple months, while Call of Duty: Modern Warfare 2 sold 7 million in one day. The only comparable numbers come once in a blue moon from a new Grand Theft Auto or Halo release. In other words, with major titles coming out now and no AAA games expected for holiday season 2010, we can expect this year to be equally flat, if not depressed.

The twist is that Gamefly's popularity represents the consumer need to play games without spending $60 a pop. The IPO isn't an indication of a video game rebirth, but more a reminder that this slump is far from over.

Image from Left 4 Dead 2.