Sounds like releases dropped more than demand did.

People bought less games because there were less games released. But more people bought said released games.

This is not an analysis of the overall industry though - it's an analysis of video game retail sales.

That's fair, but they tend to try to identify industry-wide trends from this data, because the data from non-retail revenue streams isn't shared to the same degree.

" You need digital distribution and micro-transaction data as well. "

??? The numbers include digital distribution and micro-transaction data:

"Estimated digital sales: $765M"

This means, even if you count every last smurf berry, your kid bought with your credit card, the numbers of digital sales are still only 50% of retail sales.

@ Ashley -- now one might ask: "What it the point of measuring video games retail sales in isolation?" Unless, I own a retail games store, I would be hard pressed to come up with an answer.

@ Christian -- True, but that's a very vague description of digital sales. Does it actually include an estimate of in-game purchasing (e.g. smurf berries) and DLC (which EEDAR typically calculates separately) or does it (as I suspect) refer to the digital sales of console, PC and handheld games.

Regardless, any fulsome analysis of how the revenue models in the games industry are evolving should (I submit) include a more nuanced understanding of the sources various digital revenue.

@Kristian: Yes, valid point. We can't really say whether the industry is doing well or not based exclusively retail sales, but metrics for digital sales are notoriously difficult to obtain. Hence the line 'Estimated digital sales'. These numbers may (or may not) be valid representations of the current state of video game sales; nevertheless, the information is still pertinent.

@ Kristian

" Does it actually include an estimate of in-game purchasing (e.g. smurf berries) and DLC (which EEDAR typically calculates separately) or does it (as I suspect) refer to the digital sales of console, PC and handheld games. "

Digital sales include everything from subscriptions, over mobile to digital distributed games, at least this is what Matt Matthews said about the NPD numbers here:
http://www.gamasutra.com/view/news/173434/Growing_digital_game_sal %20es_not_enou
gh_%20to_compensate_for_weak_retail.php#.UPCO3_Kq9xZ

"Why bother when you buy it off steam cheaper, keep it forever without having to worry about losing the disc or having it get scratched."

Right why bother? Of course only if Steam will be there forever, running it's servers forever.
I can still put my VCS2600 cartridges in my VCS or play Jetpac on my ZX Spectrum, even if Atari and Ultimate are long dead and gone. Good luck in playing your Steam games, when Valve is gone one day.

Well given that Steam is used as DRM for a lot of retail games (AFAIK CoD is a Steamworks game since MW2 or so) too it sadly doesn't matter much anymore. Not to speak of any additional DRM or other publishers systems.

Well different customers value different things...some folks remain romanced by the prospect of handling physical media (and perhaps the figurines and body pillows that are offered with them) and some folks like that they can resell that game after they have finished with it.
Personally, I think DoDo is a bit too harsh of a case, but on the other hand I'm not going to be running out to buy up some Gamestop stock anytime soon (ever). How about "brick and mortar shops will go the way of the kagu"?
http://animal.discovery.com/guides/endangered/birds/kagu.html