Online game revenues, which are expected to rise at a compound annual growth rate (CAGR) of 18.7% to reach $24.8B by 2013, will grow the most--accounting for more than 38% of total video game software revenues.

2009 was a tough year for video game publishers, as the current generation game console cycle reached its peak and sales started to decelerate. Physical video game software sales in all major markets declined in 2009, despite last year’s holiday season delivering stronger than expected video game hardware sales. On the plus side, online game revenue streams have been growing steadily, helping the overall market to continue its upward trajectory.

“Strategy Analytics predicts more revenue growth from online sources instead of from traditional physical game sales as broadband adoption continues, which is similar to other media sectors. More gaming devices and games are being connected online and new online revenue models are appearing on the market,” said Martin Olausson, Director of Digital Media Research at Strategy Analytics.

Jia Wu, Analyst in the Strategy Analytics Digital Media Strategies (DMS) service and author of the report, added, “New online revenue streams, such as in-game dynamic advertising and sales of virtual goods, will spur rapid growth in online game revenues in the coming years.”

Strategy Analytics predicts the sales of virtual goods in social network-based video games to be the predominant growth category over the next five years. While the Asia Pacific market will dominate virtual goods sales, North America and Western Europe will experience faster growth.