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What's Killing the Video-Game Business? Hint: It's not the economy.

Like pretty much every industry these days, video-game publishing is in some financial trouble. Electronic Arts, the world's largest game publisher, best known for Madden and the Sims, lost $641 million in 2008's fourth quarter. Activision-Blizzard, owners of the cash cows World of Warcraft and Call of Duty, reported losses of $72 million in the fourth quarter of 2008. (They lost $194 million the quarter before that.) THQ, the third-largest publisher in the United States, and known for lucrative licenses ranging from the Ultimate Fighting Championship to Pixar, had $192 million in losses over the holidays and is laying off 24 percent of its work force.

News of development-studio closings and layoffs are being reported around the world. And while publishers focus on internal cuts, many independent developers have closed outright. Such gloom, in a normally raucous industry, has set the talking heads, bloggers, and trade press to a quick conclusion: Losses and layoffs are the direct result of an economic crisis (on the premise that "things are tough all over").

But that idea, which makes intuitive sense, is completely at odds with recent sales numbers. In reality, video games are selling better than ever. The retailer GameStop announced sales of nearly $3 billion worth of games, hardware, and accessories during the nine weeks around the 2008 holidays-22 percent more than during Christmas 2007.

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