The market researcher said total video game sales grew 43 percent, up from $12.53 billion in 2006. In December, historically the industry's strongest month, Americans spent $4.82 billion on video games, up 28 percent from a year earlier and up 83 percent from $2.63 billion in November.
Video games sold well during the holidays even as jittery consumers were cutting back spending on clothes and other items.
Hardware sales jumped 54 percent to $7.04 billion in 2007, while software sales climbed 34 percent to $8.64 billion. In December, hardware sales rose 17 percent to $1.83 billion, and software sales grew 36 percent to $2.37 billion.
"I think the industry has become much more generally accepted as a mainstream form of entertainment over the last couple of years, and that sets it up well for future expansion," NPD analyst Anita Frazier said in an e-mail.
Much of this growing acceptance has been attributed to the Wii, groundbreaking when it launched in 2006 for its motion-sensitive controller that lets players mimic movements for bowling, tennis or sword-fighting.
Even so, the portable Nintendo DS was by far the year's best-selling gaming system with 8.5 million units sold, 2.5 million of them in December. In short supply all year, the Wii still sold 6.3 million units, 1.4 million of them last month.
Nintendo of America President Reggie Fils-Aime said the company expects to sell more Wiis this year than it did in 2007. To deal with the high demand, Nintendo raised Wii production twice since last April, the last time to 1.8 million units a month. Though the consoles are still selling out soon after they hit store shelves, Nintendo has not said it plans to boost production again.
The year's best-selling game was Microsoft Corp.'s blockbuster first-person shooter "Halo 3," which helped sell 4.6 million Xbox 360s in 2007, about 1.3 million of them in December.
Microsoft spokesman David Dennis said there have been shortages of the Xbox 360 at retailers across the U.S. The company, he added, is working on getting the consoles back on store shelves "as soon as possible."
Sony's PlayStation 3 was the only gaming system that didn't sell more than a million units in December. Nonetheless, sales have jumped since Sony slashed the console's price by $100 and launched a low-end model last fall. There were 797,600 PS3s sold during the month, and 2.6 million in 2007.
Frazier said Activision Inc.'s "Guitar Hero" games remain the industry's best-selling franchise. People spent more than $820 million on "Guitar Hero" games for various consoles in 2007.
Dennis and Fils-Aime said the U.S. economic slowdown had not hurt video games, as the industry has generally been insulated from broader downturns.
"Gaming is about having fun, spending time with friends you want to do it whether the economy is good or bad," Dennis said.