Even with sales shrinking, one analyst sees the video game industry turning the corner this year thanks to Xbox 360 and PS3. Reuters

After getting a typical bump in November and December due to the holiday season, video games were back to shrinking sales in January, according to a recent report.

NPD Group says total sales including hardware and software were $1.16 billion, down five percent from a year ago when it was $1.22 billion. Software sales at $576 million were also down five percent year-over-year, and 76 percent sequentially from December when they hit their yearly high because of the holiday season. Hardware was down eight percent year-over-year and 84 percent sequentially from December.

Wedbush Securities analyst Michael Pachter thought it would be worse. He says a five percent reduction in sales year-over-year actually represents a good sign for the industry.

We predicted an 11 percent decline year-over-year and it was only five percent, Pachter said. What's working I think right now are the PS3 and Xbox 360. The Wii, DS and PSP haven't been working. There is a new version of the DS coming out, so that's fine. The PSP is a flop. And I think the audience that bought the Wii aren't traditional gamers and haven't bought much software recently. But I think it's beginning to turn because the two growers will grow faster than the others aren't growing.

Ironically, in 2007 and 2008, it was Nintendo carrying the video game industry with the hot selling Wii and the others lagging behind. However, since the company over-stepped even the most optimistic expectations with its Wii sales in those years, it's now facing an expected slowdown -- one that has put the entire industry in a sales decline.

The Wii is in decline because it ramped too fast, Pachter said. It overshot everything in 2007 and 2008 and then normalized in 2009 and 2010. It's to Nintendo's credit that they generated so much in sales early.

Along with the growth of PS3 and Xbox 360 software sales, Pachter also expects growth to come from the launch of the Nintendo 3Ds in the middle of the year. He also said price cuts for the three main consoles will spark software sales growth as well.

The most popular game, Call of Duty: Black Ops by Activision Blizzard, was one of the few non-dance games to crack NPD Group's Top 10 Games Sold List. Just Dance 2, Zumba Fitness, Dance Central and Michael Jackson The Experience were four of the top 10 games listed.

Dance is the new music, it's the flavor of the year, Pachter said.

Rounding out the top 10 were Dead Space 2, Little Big Planet 2, NBA 2K11, Assassin's Creed: Brotherhood and DC Universe Online.

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