1 More Reason for Gamers to Worry

Microsoft (NAS: MSFT) is turning gamers into couch potatoes -- with a catch.

The software giant's Xbox 360 has become this country's video game console of choice over the past year, and Mr. Softy's push to make its platform the centerpiece of home entertainment is starting to pay off.

Microsoft revealed yesterday that its Xbox 360 is now being used more for entertainment purposes than for actual gaming. Netflix (NAS: NFLX) made console streaming a major priority when it began to roll out its digital smorgasbord a few years ago, choosing the Xbox 360 first. These days Microsoft is letting Xfinity, HBO Go, and MLB.com customers watch video on demand through its box. Kinect owners can even take advantage of the motion-based controller to interact with the programming functions.

I believe it. I have a PS3 in my living room, and it gets far more use through Netflix than it does for disc-based games. The Xbox 360 in my son's room, though, is a different story.

This doesn't mean that folks aren't playing games anymore. In fact -- despite the apparent changing of the guards -- Xbox Live gaming usage is actually up 30% over the past year. Folks are just spending much more time pushing Internet-based content through their consoles.

This would normally seem like a good thing for the video game industry, but let's stack up that 30% spike in Xbox Live usage to the more grim industry statistics. Retail sales tracker NPD Group has been reporting diminishing sales for three years, and that includes a 20% slide in hardware and boxed software last month and a huge 34% plunge in sales of hardware, software, and accessories back in January.

How can that be? Microsoft is telling you that its users are spending 30% more time on its multi-player gaming network, yet retail software sales are plunging at a double-digit percentage clip.

Well, there are really only two possibilities: Xbox users are either downloading more games directly through Microsoft or they're just playing the games they buy longer. Both of those possibilities are bad for GameStop (NYS: GME) and other physical retailers. The latter scenario is bad for software developers.

It may be neat that the set-top box of choice for entertainment just happens to be a slick video game player, but if Xbox 360 owners are gaming more than ever, and the industry's in a three-year funk, then there has been a dangerous decoupling along the way.

The next trillion-dollar revolution will be in mobile gadgetry, but the best investing plays aren't necessarily traditional game developers. If you want to cash in on the upcoming trend, a new report will get you up to speed. Yes, it's as free as this article, but it won't last forever, so check it out now.

At the time thisarticle was published The Motley Fool owns shares of Microsoft and GameStop.Motley Fool newsletter serviceshave recommended buying shares of Netflix and Microsoft.Motley Fool newsletter serviceshave also recommended creating a bull call spread position in Microsoft and writing covered calls on GameStop. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.