According to the research group NPD, sales of video games and consoles in the US fell to $848.9m (£512.2m) in July, down 29% from $1.19bn in the same month last year.
Nintendo's Sports Resort game for the Wii console was the month's best-seller with 508,000 copies bought.
The Wii remained the top-selling console, followed by Microsoft's Xbox 360 and Sony's Playstation 3.
About 250,000 Wii consoles were sold, which was roughly half the level from the same month last year, BBC News reports.
However, Anita Frazier, an analysts at NPD, said the worst should now be over. "While year-to-date results are weak, there are some big titles set to be released over the next several months, including Madden this month, which should help spur sales," she said, Telegraph.co.uk reports.
To climb out of the red zone, sales from August through December would need to grow 11% from a year earlier, she said, The Los Angeles Times reports.
Wedbush Morgan analyst Michael Pachter said the July results were weaker than he had expected, but he also noted that the worst is over.
"I think the silver lining is, we're in the trough of the decline," he said. "The bottom is worse than I thought, but I'm certain we've hit bottom," Reuters reports.