“It’s easy to lose sight of the fact that all of these entertainment categories are interlaced with one another, and they are all separately vying for a larger share of consumers’ leisure time and wallet share,” said Russ Crupnick, entertainment industry analyst for NPD. “New technologies, new devices, and digital-content delivery are changing the entertainment landscape in such a way that companies must keep tabs on the latest trends in competitive categories -- not just on their own entertainment sectors.”

Retail sales of video games rose by 41 percent among teens last year, just as sales of CDs to this age group dropped 45 percent. In fact, music sales have continued to decline in all age groups – but especially among teens. Among the top reasons teens cited for buying fewer CDs in 2007, than the year before, was the appeal of video games.

While it’s true that growth was centered on gaming last year, core gamers -- those who played video games daily or several times each week -- still spent most of their entertainment budgets on non-gaming entertainment. These consumers remain more likely to buy a DVD or CD, than they are to purchase a new video game. In fact, 58 percent had purchased a new DVD in the past six months, 46 percent bought a CD, and 43 percent purchased a game for a console.

”We have this perception of hard-core gamers glued to their consoles, and immersed in virtual worlds, when in fact, they are still spending a lot of time with, and money on, music, movies, and other pastimes,” Crupnick said. “To be a winner in the entertainment wars, companies need to make sure they lead at every consumer touch point – from traditional retail to digital to wireless. In doing so, they stand a better chance of increasing their share of the time and money consumers choose to spend on their products.”

NPD notes competition not only among the different types of entertainment software (CDs, DVDs, games) and modes of delivery (physical or digital), but also from other consumer electronics devices penetrating U.S. households. For example, 30 percent of core gamers now have a digital video recorder (DVR) in their homes. As ownership and use of these devices grows, there will be even greater competition for consumers’ free time.