Third-gen consoles will help video game sales rise to £4.643 billion this year, eclipsing combined music and DVD/video sales for the first time, according to a report from retail analysts Verdict Research. The report estimates that the video game market will grow by £1.37 billion this year, a 42 percent year-on-year rise, helped by a fierce Christmas war between third-gen, online-capable consoles from Nintendo, Sony (NYSE: SNE) and Microsoft (NSDQ: MSFT). In the same period, music and video sales will grow by just 0.6 percent, or £30 million to £4.461 billion, it is predicted.

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—Online technology boosts sales: While physical CD sales have become stale, the report says the technological innovation of video games – such as online interactivity, downloads and gaming communities like XBox Live—have “widened the market demographic enormously and driven phenomenal growth”. And, unlike most areas of commerce, Verdict says that the more severe the economic downturn, the better the games market performs. That is confirmed by the earnings of specialist retailer Game, which in September announced record pre-tax profits of £36.4 million for 1H08—up from just £2.7 million for 1H07.