The annual numbers from the NPD Group paint a picture of a healthy industry that nonetheless saw some slowing in the final quarter as consumers tightened their belts. Growth in December year-over-year was 9 percent compared to 53 percent in June.

Despite the recent slowdown, the industry had a banner year and continued to enjoy a shot of adrenaline from Nintendo, which sold about 20 million hardware units last year. The $21.3 billion in 2008 revenue was a 19 percent increase over the previous record of $17.9 billion in 2007.

In December, the industry raked in $5.3 billion, the most ever for a single month and more than all of the revenue recorded in 1997. Software sales for the year hit $10.96 billion while hardware sales registered $7.8 billion. Video game accessories also brought in $2.5 billion in 2008.

"While industry growth has not continued at the blistering pace we saw during the second and third quarters, December's 9 percent increase over last December brings the year in 19 percent ahead of last year, and sets a new record for total industry sales," said NPD analyst Anita Frazier.

Frazier said the positive picture was not consistent for every company. Electronic Arts, for example, announced last month it was laying off 10 percent of its workforce after slowing holiday sales fell below internal projections.

"This is not a case of the rising tide lifting all boats," Frazier said.

One of the clear winners from 2008 was Nintendo, which sold 10.1 million Nintendo Wii consoles and 9.9 million DS handheld devices in 2008. That includes 3 million DS handheld systems sold in December along with 2.1 million Wiis in the month.

The 10.1 million Wiis breaks the record for most hardware units sold in one year, more than the 8.5 million Nintendo DSs sold in 2007. And the 3 million DSs sold in December marks the most hardware units sold in one month.

"Our sales results show that our products are ones that consumers love and will continue to open up their wallets to purchase," said Cammie Dunaway, Nintendo of America's executive vice president of sales and marketing. "Even in an economic downturn they need fun in their lives and that's what our products provide."

Billy Pidgeon, an analyst with IDC, said Nintendo has done a remarkable job pulling in new gamers, especially at a time when consumers are more discerning about their purchases.

He expects Nintendo's strong sales will continue through 2009 instead of dropping off as is the case with aging hardware.

"What we're seeing is families buying into video games. Older women and men who are not gamers see it as a value," Pidgeon said. "It's pretty revolutionary."

The Xbox 360 enjoyed strong momentum from a price cut that brought its base model to $199 and a new online interface for Xbox Live. Microsoft last month sold 1.44 million Xbox 360s, double the 726,005 PlayStation 3s sold by Sony. Sony continues its game of catch-up and is working to expand its appeal with initiatives like PlayStation Home, a new virtual world component for gamers.

In software sales, Nintendo took the top four spots with Wii Play, Wii Mario Kart, Wii Fit and Super Smash Bros: Brawl. Grand Theft Auto IV sold 5.18 million combined through the Xbox 360 and the PS3. The best-selling handheld game of 2008 was Mario Kart for the DS, which sold 1.65 million units.

Frazier said the list of top 10 games, which includes a number of more family-friendly fare from Nintendo, shows how lucrative mass-market titles have become.

"The variety of content on the top 10 list shows just how viable nontraditional content has become," she said. "Not only can these games succeed, they can end up on the top 10 list for the year."

E-mail Ryan Kim at rkim@sfchronicle.com.

This article appeared on page C - 1 of the San Francisco Chronicle