NEW YORK, N.Y. - U.S. retail sales of video game hardware, software and accessories dropped 20 per cent in July to $707.7 million, hurt especially by a sharp drop in demand for video game consoles, according to market researcher NPD Group.

NPD analyst Anita Frazier called July a "very rough month," though she added that for the full year game sales are poised to land in the flat to down 2 per cent range from 2010 levels.

The NPD Group said in its monthly report Thursday that sales of video game hardware sank 29 per cent to $223 million in July from a year earlier. This includes hand-held game systems and gaming consoles like the Wii. Microsoft Corp. says its Xbox 360 was the top-selling console during the month. Even so, NPD said the console saw its first year-over-year decline last month since December 2009.

Sales of software, or the video games themselves, fell 17 per cent to $336.2 million. That's much worse than the 7 per cent decline that Wedbush analyst Michael Pachter had expected. Sales of game accessories slid 8 per cent to $127.8 million.

"There is no getting around the fact that video game sales in the new physical retail channel suffered its lowest month since October 2006," Frazier said, referring to new, packaged video games rather than used games or game downloads, which NPD does not provide in its report.

When including PC games in addition to games for consoles and hand-held gaming devices such as the Nintendo DS, software sales tumbled 30 per cent to $356.9 million.

Because the research firm does not include game downloads and online games in its monthly retail sales data, the numbers can sometimes show a decline even if more people are playing games on Facebook, their mobile phones and elsewhere.

But the big July decline does not bode well for video game publishers that still depend on selling game discs for a large portion of their revenue. Among the month's bestselling games were "NCAA Football 12" from Electronic Arts Inc. and "Cars 2" from The Walt Disney Co.

July's lacklustre sales report comes less than two weeks after Japan's Nintendo Co. cut the price of its portable 3DS gaming system to $170 from $250. The gadget, which allows for 3-D viewing without the need for special glasses, launched with much fanfare but has failed to meet expectations, due in large part to a lack of compelling games for it.