In this sense, iTunes.com could be benefiting from the very same up sell long favored by fast-food restaurants and enjoyed by mass market merchandisers as shoppers pick up impulse items to go along with their planned purchases.

Our newest report, Kids and Gaming, reveals that 87 percent of kids age 6-8 play games on some device, while 50 percent of kids in this same age group report playing games online, and 10 percent are playing games on cell phones. Even at this relatively young age, gaming is deeply rooted in kids’ lives. But one of the issues gnawing at the industry at large, the increasing incidence of free gaming - whether on a cell phone, or online, is an issue with the kids market as well. While there may not be as many young kids engaged in gaming on social networks right now, there are plenty of free online virtual worlds to draw them in. Our report found that only 9 percent of kid gamers ages 2-17 had purchased a microtransaction in the past three months. Having spent quite a bit of time myself now on both Cafe’ World and Farmville, I haven’t found anything that would compel me to take out my wallet and spend real money. My kids, however, have been enticed to buy a Grand Chase pre-paid game card at 7-Eleven. So the ongoing debate about how to best monetize these gaming experiences - experiences kids are clearly engaged in - remains one for the industry to grapple with.

Anyway, gotta go. My spaghetti and meatballs are ready to serve.

Hardware price cuts delivered what they were designed to do: all three console systems received a price cut in either later August or September and the month-over-month unit sales increase, taking into account the extra week of sales in the September reporting period, was noticeable. PS3 unit sales increased 87 percent on a weekly sales basis over August, while the Xbox 360 and the Wii realized increases of 31 percent and 33 percent, respectively. Historically, price reductions on hardware have impacted unit sales anywhere in the range of 2 percent to 200 percent, with greater increases usually coming from price cuts that occurred earlier in the lifecycle than this recent round of cuts did. In most cases, unit sales of hardware exceeded what many analysts had expected. So, on the hardware front, the industry performed very well. And a greater install base of hardware provides the foundation for future software growth, and can provide a healthy shot in the arm for the entire industry ecosystem.

But for September, software sales didn’t live up to what many expected, despite having realized a 5 percent gain over last year. All eyes were on the battle of the Bands as The Beatles: Rock Band, and Guitar Hero 5 hit store shelves. While both titles performed well, and are the type of games that can have a long life, particularly through the upcoming holiday season, some were expecting bigger numbers out of the gate. Halo 3: ODST grabbed the top spot for the month, selling an impressive 1.5 million units. It is important not to overlook the fact that Madden NFL 10, which hadn’t performed as well in August as compared to last year’s game, made up some ground this month, narrowing the difference in the first two months sales of the title. Looking forward to October there are some key releases, which should generate some solid sales. They include Wii Fit Plus, Uncharted 2: Among Thieves, Brutal Legend, Mario & Sonic at the Olympic Winter Games, NBA Live 10, and more. The content line-up in aggregate looks very much like it could hold its own against last year.

Overall, based purely on seasonality trends, which put historical year-to-date through September sales in the range of 47 percent to 55 percent of annual sales, the total industry is poised to land in the range of $19 to $22B for the year. Because of how this year has shaped up so far, I would say that it looks more like a year where sales could be more heavily weighted in the back months than average, so the industry ending up flat at $22B isn’t out of the question.

A case in point: NPD recently conducted a study of iPhone/iPod Touch applications using its panel of pre-identified iPhone/iPod Touch owners. Some of the gaming industry questions pertained to the impact that the greater availability of gaming apps for those devices has had on the time those folks spend playing games on other platforms. But what was striking, and a bit disconcerting, was the reported downloads of free vs. paid gaming applications. On average, respondents indicated they had downloaded nearly 10 games, but the paid for only 18% of them. Taking it a step further, of the Lite game apps. they downloaded (nearly 5 on average), only 18% then upgraded to a paid app. So did the Lite app. satisfy their gaming need enough? Or was the Lite app. so unsatisfying that the respondent didn’t bother to upgrade? Either way, it’s not a great scenario, but what could be more harmful to paid gaming overall is if the free app. is satisfying the gaming need for the respondent.

I was contemplating all of this when I read our latest study on Gamer Segmentation, which was recently released. Probably because this free gaming issue was on my mind, I took special note of one particular section of the report that addressed the willingness on the part of the various gamer segments to pay for micro-transactions. Across the types of potential micro-transactions, the amount the gamers were willing to pay decreased over the last year. I can’t help but think that the explosion of free gaming options is exercising at least a slight downward pressure on pricing for gaming. Grappling with the monetization of these new avenues for gaming and assessing the impact it has on the more traditional channels for gaming will be an important issue for the industry to address in the coming year.

Regardless, the Gamer Segmentation 2009 study found a very promising sign for the games industry: that participants in gaming increased by 4.3 million over the last year. So, while free gaming may be a source of concern, surely it is also one of the reasons more have come into gaming as a form of entertainment. The challenge remains: making these consumers more invested participants who contribute to the expansion of industry revenues over time.

While the industry is certainly an ecosystem in which marquee content sells hardware, hardware sales increase the install base and drive more software sales, and both hardware and software spur accessories sales, the truth is that content remains king.  For that reason, at E3, I am most looking forward to what I learn about upcoming game releases.  As has been abundantly clear from the last two months of sales results, when the aggregation of new game releases doesn’t quite measure up to what was released last year the entire industry suffers. Clearly, the first third of 2008 was quite unusual in the number of top-selling games released early in the year - and compared to any other prior year, 2009 is stacking up quite nicely.  This just underscores the importance of big game releases in driving the total industry to new heights this year, as they did handily in 2008.

So while I’m keenly interested in the E3 news around digital distribution, hardware, and corporate announcements, the games are what I’m going for

What are you looking forward to at E3?  We’d love to hear what’s on your mind. See you in LA!

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You see, I have four boys between the ages of six and eleven, and a fifth boy, my husband, whose age will go unstated. I had been living this illusion that because I was kind of hip to the whole video game and toy world, and my job had some really cool side benefits for my kids, that I was actually a pretty cool person. So I’m sitting at this conference having this major life-changing personal image transformation when something occurred to me that was pretty comforting - I may not be cool, but I am large, and in-charge. Like the millions of other moms out there, I do rule the household. I control most of the household spending, I decide what we’re eating for dinner, and otherwise make most of the decisions.

The moms of the world are vitally important to the video games industry because not only are more of them becoming gamers themselves, but we control a lot of the money that is spent on hardware and games. I think that moms have been at the heart of one of the biggest shifts the games industry has experienced with this latest generation, and that shift has been part of the reason the industry is now in its fifth year of experiencing sales growth.

Moms are now a lot more in-tune with the industry and it has helped foster in a more mainstream acceptance of gaming as a form of entertainment. With moms more aware of the industry and more involved themselves, it has paved the way for more households’ cultural agendas to include video gaming as a regular form of entertainment.

Us moms may not be cool, but everyone knows who runs the show.