June NPD data showed the game industry’s sharpest decline since 2000, with overall sales dropping 31% from this same time in 2008. The sales decline contrasts sharply with the fact that 4 million new gamers have entered the industry in the past year. The rise in audience size alongside a sharp drop in sales signals an emerging trend that players are increasingly turning to affordable digital content, free-to-play online game portals and casual games for interactive entertainment.

With Gamestop openly stating that their margins are being buffered by used game sales, protecting them from the sharp decline, one has to wonder if the sales slump is a temporary trend, or a permanent change. GameStop’s stranglehold on the used game market has caused many publishers and developers to explore alternative distribution outlets via online distribution platforms and console based marketplaces, and thus the quality of digital content has increased monumentally over the past year.

The interesting question in this situation is whether it’s a lack of dispensable income that’s driving consumers to turn to more affordable content, or if the increasing quality and accessibility of this content is stealing attention away from pricey AAA titles. The answer to this question will determine the future growth of the industry, and we may not know for sure until the economic recession ends.

But this holiday season will surely give us a hint. Compared to 2008, 2009’s Holiday Lineup is lacking, but it still features some mega-hits like, Halo 3: ODST, Call of Duty: Modern Warfare 2, Assassin’s Creed 2, New Super Mario Bros. Wii, Borderlands, Uncharted 2 and Brutal Legend. Arguably, the relative success of these titles will be indicative of the health of the industry and its future going into 2010.

With less money to go around for expensive AAA titles it makes sense that highly acclaimed publishers like 2K Games and Capcom would push their launch window to the beginning of the year to avoid the competition of the Holiday Season. If the 2009 Holiday lineup garners disappointing sales, more and more publishers might consider staggering their large game releases throughout the year to adjust to their customers’ shrinking pocket books. If that happened it would likely spell certain doom for AAA games, as iterated content via DLC and episodic games would become more commercially viable.

Obviously it’s too early to make any predictions. Call of Duty: Modern Warfare 2 could make 2009 the most profitable Holiday Season ever. There are also plenty of other factors to consider, like the possibility for Microtransactions and Digital Distribution to replace brick and mortar sales, effectively bringing large AAA titles to the digital universe. In any case this Holiday season will surely be an exciting one, and a particularly significant milestone in the history of the industry.