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When Prime Minister David Cameron recently confessed that he was such a fan of Angry Birds that he has completed every level, it was clear that mobile games have gone mainstream. The rise of Angry Birds, made by Finnish firm Rovio, is part of a major trend as consumers embrace games on online, mobile and social platforms - at the expense of the traditional console-based video games market.
The Angry Birds app has been downloaded more than 600 million times on smartphone and tablet devices in just two years since launch. Other popular mobile and online games include Cut The Rope (devised by Russian company ZeptoLab), Moshi Monsters (created by UK start-up Mind Candy) and the Facebook hits Farmville and Mafia Wars (run by US firm Zynga).
The key to their success is that basic versions are free. Users only have to pay if they want to play a better, more sophisticated version. This business model is known as "freemium" because it combines free and premium.
Many of the paid-for apps are very cheap. Angry Birds costs just 69p, which compares to a top console game that can sell for over £40.
For much of the last decade, the packaged games business appeared to defy the rise of the internet, which hit other areas of the media such as music and newspapers. But not any more.
US retail sales of "physical" video games and consoles such as Nintendo Wii, Microsoft Xbox and Sony Playstation fell 21% year on year in December, according to new figures from research firm NPD. US sales fell 8% to $10.1 billion (£6.4 billion) across 2011, despite the shoot 'em-up thriller Call of Duty 3 being the fastest-selling launch of all time in November and family-friendly Let's Dance 3 being a big hit at Christmas.
The £2.9 billion UK market for games hardware and software, the third largest after America and Japan, is also taking a battering. Retailers such as Game Group and HMV have reported falling sales and issued profits warnings, with industry estimates suggesting revenues in the sector fell 13% last year. Enders Analysis reckons the "packaged" software market has fallen by as much as 25% in the three years since 2008.
"People talked about the gaming market being recession-proof. Clearly that's not the case," says Sanjay Vidyarthi, analyst at Espirito Santo bank. The outlook does not look great either.
Anecdotal evidence suggests some games firms are slashing their marketing by double-digit percentages in 2012. The console market is suffering in part because the leading manufacturers have not brought out new devices and that affects software sales. Sony's Playstation Vita comes out next month but Nintendo's new console, the Wii U, is not due for release until the end of the year and there is no sign of Playstation 4 or the Xbox 720.
The success of Call of Duty 3, which notched up $1 billion in worldwide sales in 16 days, shows consumers will still pay. However, analysts warns there are now fewer big sellers like this.
There will always be a hard core of players who value sophisticated graphics. But there are plenty of casual gamers who are now happy with a simple game that is easily accessible on an app or via Facebook.
"Playing games over mobile and with your friends is taking over from playing them on your TV," says Ian Maude of Enders. "It's quite possible console gaming may have peaked."
According to ComScore, 14.8 million mobile users in Britain played a game during November - the most recent period for which figures are available. In the same month 16.8 million people accessed an online gaming site from a home or work computer. The UK mobile gaming audience has grown by nearly 40% since last year.
Little wonder that investors are betting on mobile and social. Zynga, which was only founded in 2007, floated on the US stock market last month with a valuation close to $7 billion. That made it more valuable than Electronic Arts, producer of FIFA 2012, despite EA having revenues three times larger than Zynga's.
The fact that many of us now spend so much time on smartphones and tablets is also reducing the amount of time left for traditional consoles.
Indeed the Wii, Xbox and PS3 themselves are no longer being used just for games. Now consumers are using them to access the web to watch internet-enabled TV such as BBC iPlayer and NetFlix - yet another reason not to buy the latest console game.
The new gaming firms still have to prove their business models when they charge so much less for games. In this context, it is striking that firms such as Rovio and Mind Candy are looking to generate revenues through physical goods such as merchandising and toys.
Success will also depend on these companies continuing to innovate and come up with new games. Online users are fickle and games have a shorter lifespan. And everyone recalls how Eidos, maker of Lara Croft, struggled.
Expect losers as well as winners.
