8:37 am: Sony chief executive Howard Stringer will be out shortly. Meanwhile, Consumer Electronics Association chief executive Gary Shapiro began with a Yoostar video where he used the service to insert himself into classic movies, with funny effect and jokes about how crucial consumer electronics is to the economy. On stage now, Shapiro said the country has faced tougher problems before. Though we are “gripped in the worst economy since the Great Depression,” Shapiro said free economies will both fall and rise. He said the consumer electronics industry isn’t seeking bailout money. That might make him more welcome in Washington, D.C., as the industry’s chief lobbyist.

“Innovation is the best medicine to end economic stagnation,” he said.

Only a few times in the last four decades has the consumer electronics industry shrunk. In 2008, it grew 4 percent. But it will see a 0.6 percent revenue drop in 2009. In 2001, the industry shrank 3 percent after the 9/11 attacks and the collapse of the Internet bubble.

On the policy front, Shapiro urged President-Elect Barack Obama to expand H-1B visas to let in more students in engineering and science. He says the show will have 2,700 exhibitors across 1.7 million square feet of exhibit space. The show is expected to draw 130,000 people through this weekend.

9:02 am: Howard Stringer has not quite taken the stage. Instead, Sony is showing a clip from Angels & Demons, another Tom Hanks movie based on the book by the Da Vinci Code Author Dan Brown. And Tom Hanks is now on stage regaling the crowd with a stand-up routine. “I have no voice as a consumer electronics visionary,” he said. “I bought a laser disc. Before I begin with my remarks written by a lowly Sony marketing executive ….” He mentioned his Bluetooth video player. (Ha). “They write the lies, but I tell the truth.” If Bluetooth works, out, “he will be known as Lord Howard Stringer.”

9:10 am: Hanks brings Stringer on stage and says he’s here “because you keep writing it into my contract.” Stringer’s first demo: glasses where you can watch a movie and see what’s before you at the same time. Hanks ridiculed the technology. The technology truly did suck. Why would you want to wear these glasses and see two different things at the same time?

9:18 am: Stringer, on stage for his third CES, says the prototype technology will be sent to Hanks as soon as it’s complete. Hanks says, “You mean it can get even better.”

Hanks has left Stringer to do his speech, who says there are a bunch of things that the industry can do to create a better experience for consumers. Products have to work together, be multifunctional, access multiple types of content, be service-oriented, and support open technologies. He says “closed systems are being disintermediated.” That’s pretty far from the old closed Sony philosophy. Devices have to be connected. By 2011, 90 percent of Sony’s products will be connected to the Internet, he said.

9:24 am: He is talking about Sony’s first last year, like a Bravia TV with 240 Hertz refresh rates, something that every TV maker has now talked about this year. He is waving around a new Cyber-shot G3 digital camera with Wi-Fi picture uploading. It will work with nearly 10,000 AT&T Wi-Fi locations. This model is available now at select Sony Style stores for “an extraordinarily reasonable price.” (Laughs).

9:26 am: Now Sony is going to do a Wi-Fi connected clock radio that doubles as a digital picture frame. It’s a joint design with Chumby, which is also working with Samsung. “Wouldn’t you like to wake up with Big Ben, uh, the clock?” You can customize it for your own music preferences through Pandora, and it does a bunch of other functions like news, sports scores with selected video clips, and weather. He repeated a David Letterman joke: it’s so cold in New York that Bernie Madoff is looking forward to burning in hell. He said that, “for those of you who are really lonely, it could be the perfect bedside companion.” I have to say that Sir Howard has much better joke writers than Steve Ballmer.

9:30 am: Sony launched a 0.9-inch thick organic light emitting diode TV. Those screens are incredibly crisp, but expensive. It will follow that with 20-inch to 30-inch screens this year. Meanwhile, Stringer showed off a flexible OLED display that can fit in your hand. He displayed it with a Beyonce video and squeezed it, saying, “How many people have a chance to squeeze Beyonce?”

9:32 am: more than 28 million Blu-ray titles were sold in the U.S. in 2008, he said. John Lasseter, of Disney’s Pixar has come out on stage to promote the Blu-ray high-definition experience. He believes BD Live — which lets Blu-ray users interact with videos — is just in its infancy. You can, he says, play games while you’re watching a movie such as Cars. “Blu-ray doesn’t stop here,” Lasseter said.  He says the technology will be complete when you add stereoscopic 3-D for the home, a technology that most TV makers — as well as Nvidia  according to an announcement today — are producing. Lasseter closed with a clip from his latest animated movie. Stringer came out and thanked Pixar and Disney for their support for Blu-ray. Lasseter says he is in production on Toy Story 3 for the summer of 2010, with Tom Hanks returning.

Sony has just thrown a lot of spaghetti at the wall to see what’ll stick. It’s launched new line-ups across a broad array of consumer electronics products. It’ll be interesting to see if consumers go for the company’s high-end brand at a time of economic austerity.

Stan Glasgow, president and chief operating officer of Sony’s U.S. electronics unit, said the economic malaise of the last few months was staggering. But he claims he’s stayed optimistic. Sony Electronics sales were down overall during the holidays, but he said sales were strong at Sony stores. Bravia TVs, Blu-ray players, and home audio products sold well, he said. And he said Sony is now managing the Internet TV business and the electronic book Sony Reader business in the U.S.

Sony is showcasing a bunch of new Walkman music player models and new phones from Sony Ericsson at the CES show in Las Vegas this week. The phones focus on taking photos and sharing them effortlessly. The company also has new cameras and camcorders and four new digital photo frames.

Among the cute products: colorful Webbie high-definition camcorders that let you upload video quickly to the web. The Webbies are available now for $199. Sony also has high-end camcorders that record data onto hard disks or flash memory in high-definition.

There are new Vaio computers, including the world’s smallest eight-inch screen laptop computer. The $900 laptop weighs 1.4 pounds and has 3G wireless broadband so you can pretty much use it anyway, assuming you’ve got a data plan.

Like the other TV makers, Sony’s new Bravia TVs will have widgets, or Internet applications that run directly on the TV and deliver web-based information. Sony’s TVs will be able to access YouTube, Yahoo widgets, TV shows, sports, music and content from Amazon.com’s new service, Amazon Video on Demand.

Like the other TV makers, Sony has shifted to 240 Hertz technology that refreshes a TV screen 240 times a second and thereby eliminates motion blur, or blurring that occurs in fast-moving videos. Those TVs will be out this spring. Sony also has an eco-friendly TV, a 3-D glasses TV line, and a bunch of other stuff.

Sony will also have a new organic light-emitting diode TV, to be announced tomorrow at Sony CEO Howard Stringer’s keynote speech. The OLED TVs are ultra-thin, but in the past year the lone 11-inch model was expensive. Glasgow also said Sony would hold an interesting camera announcement for the show. I’ll keep you posted.

As always, my other top-ten games lists were chock full of the violent fare that I enjoy. But family games are big in my house too, so here’s my list of the best family games of 2008:

1. Wii Fit (Nintendo Wii) Nintendo. May 2008. Yes, this game made multiple lists, but for a good reason. It’s fun. Itgot gamers off their couches and running around in circles, jumping up and down, and trying to keep their balance. Talk about a great social achievement. I love logging in and measuring just how lousy my posture is and how far short of my weight-loss goals I fall. The game came with the Wii Balance Board, an ingenious device that is nothing more than a scale with a lot of springs under it. It can measure which way you lean and thereby capture your movements in a way that no controller can. The device is flexible enough to be used for everything from yoga to step aerobics. With this innovation, Nintendo redefined video games and pioneered a new category of fitness games — an area littered with boring titles. Nintendo makes exercise fun by getting players to block soccer balls, walk a tightrope and play with a Hula Hoop. It’s no wonder that Wii Fit is on its way toward selling 10 million copies.

2. Mario Kart Wii (Nintendo Wii) Nintendo. April 2008. I don’t have a lot of sophisticated commentary about this Nintendo game featuring classic characters. It’s just a lot of fun to go racing round zany tracks, tossing banana peels or turtle shells for the other racers to trip over. In any given race, you can hear lots of cheering because there are so many little power boosts and tricks in the terrain that force frequent changes in the leader rankings. The tracks are where the game gets creative. You can race in the sky, inside volcanoes and underwater. The game makes use of the little plastic Wii Wheel peripheral, which makes it easier to drive with the Wii controller. You can play up to 12 other players and battle online using the Nintendo Wi-Fi Connection.

3. Little Big Planet (PlayStation 3) Sony/Media Molecule. Sony invested heavily in this creative platform game. It’s a two-dimensional side scroller, but with a highly realistic animation style that makes it seem you are looking at Mr. Roger’s Neighborhood come to life. You team up with a group of “Sack Boy” hackey sack creatures who solve puzzles together. They ride on skate boards, somersault and do other circus-like tricks to get past obstacles. It’s also highly customizable. You can add your own content so that it shows up in the game.

4. Spore (PC) Electronic Arts/Maxis. September 2008. The most-hyped game of all time didn’t live up to the highest expectations and angered some who hated its limited digital-rights management policy. But Spore was still a fascinating and original concept. You create your own creatures and play with them on a scale that ranges from a single-cell creature to intergalactic combat. The meat of the game is in the creature, tribal and galaxy levels. You can upload videos of your critter creations to YouTube and post your creatures to the Sporepedia. In turn, they are used to populate your own single-player world and compete against a rapidly-evolving enemy. Spore has sold millions of units, but it doesn’t look like it will match its spiritual predecessor, The Sims, which has topped 100 million sold.

5. Wii Music (Nintendo Wii) Nintendo. Wii Music promised to take the burgeoning music genre to a higher level. It did so by introducing the user into active creation of music. While other games let you play back somebody else’s hit, you create your own music in this game. You use familiar melodies from Twinkle Twinkle Little Star to Every Breath You Take, and then make them your own, on your own or in a band. The Wii controller becomes your instrument. You swing the controller and its Nunchuk like drum sticks to play the drums. You strum an air guitar to play a guitar, and turn the remote sideways to play a flute. There are dozens of instruments to master, and the settings make a difference in how things sound. You can, for instance, record in an outerspace venue that creates an echo. Making music is easy. But doing it well is the challenge. Once you record a song, you can make an album cover for it and share it with others via the web.

6. Rolando (iPhone) Ngmoco/Hand Circus, December 2008. The iPhone isn’t the greatest gaming device, considering there are no buttons to mash. But its multi-touch screen and tilt-sensitive accelerometer make for some unique game mechanics. Ngmoco has exploited them in Rolando, in which you tilt the screen to make your little Rolando balls move where you want them to go. It’s a lot like Loco Roco, but the control schemes are different. You can select multiple Rolandos at once to get through a particular puzzle, or tap to use just one of them. You roll them one at a time or as bunch into different landscapes to solve puzzles and keep them moving.

7. Bloons (PC) Ninja Kiwi. This is an addictive Flash game for the web. Like Solitaire, it’s a wonderful way to while away the minutes when you’re bored. You use a little monkey to throw darts at balloons, trying to pop as many as you can. You can unlock as many as 50 different levels. Taking out many balloons with one shot is kind of an art. Who would have thought that popping balloons with darts could be this fun? This title came out as the most popular Flash game of 2008, according to a list compiled by game ad firm Mochi Media. It’s fairly primitive in terms of its interface, but the price is right — free — considering how many hours people have put into it.

8. Lips (Xbox 360) Microsoft/Microsoft Game Studios. This is a karaoke game set to some of the most popular music videos. It’s part of Microsoft’s attempt to come up with a game that can broaden the demographic reach of the Xbox 360. The Microsoft console is a hardcore gamer’s box that has reached 25 million. But to get beyond that, Microsoft needs to pull in the gamers who enjoy the social nature of the Wii. This party game is surprisingly good, considering how it’s turned my youngsters into singers, when few other animated karaoke games have succeeded. Your score is measured based on how well the sounds you make into the microphone are synched with the words that appear on screen. It’s the quality of the videos, from Duffy singing “Mercy” to Alicia Keyes belting out “No One” that keeps gamers crooning. You can also download additional songs when you run through the 40 included with the game. With the motion-sensitive microphone, you can shake it to change songs. It compares well to Sony’s SingStar series for the PS 3 and the PS 2.

9. Mario and Sonic at the Olympics (NIntendo Wii) Sega. This title from earlier in the year made wonderful use of the Wii controller to get players active to simulate a variety of Olympic sports. You can play familiar characters or insert your own Mii avatars into the game to play the various sports. Much like Wii Fit, you have to exercise to get through a lot of the games. After a session playing this game, my kids are usually winded. Their favorites include jumping on a trampoline, swimming and running races. All of them involve shaking the Wii controller as much as you can. Score another point in the cause of getting gamers off their couches and actively involved in something healthy.

10. World of Goo (Nintendo Wii, WiiWare downloadable game, PC). 2D Boy. This game is one of the indie hits of the year. It’s a puzzle game with a lot of physics-based play. You do something and it causes a chain reaction of events, helping you solve puzzles and build things. Your construction tools are little balls of goo that you use to build towers to bridge chasms and what not. The goo balls are escaping from the oppressive World of Goo Corp. The graphics are cute and the music is creative. It scored the top prize at last year’s Independent Game Festival and is the surprise hit of the year.

Please check out our link to VentureBeat’s inaugural game conference, GamesBeat 09, on March 24.

Also, see our top 20 game stories of 2008.

The top 10 iPhone games of 2008.

The 10 most-anticipated games of 2009.

The game and virtual world fundings of 2008.

And Dean’s top 10 picks of the holiday season.

THE BIGGEST U.S. TECH TRADE SHOW WILL FEATURE EMERGING MARKET TECHNOLOGY, 3-D GLASSES, AND DIGITAL CONTENT, ACCORDING TO SHOW CHIEF GARY SHAPIRO

The International Consumer Electronics Show coming up next week promises to be a sober extravaganza. It will have all the splashy booths and big parties as in past years, but it won’t be the best-attended show in history because of the economic slowdown.

Even with the economy in a funk, the show should be a guidepost for the changes in store for the electronics industry during the year ahead. Costs are lower for convention goers, as Las Vegas hotels have dropped their rates a couple of times to fill rooms. That should keep the place from being a ghost town.

The show will be smaller than last year, but not dramatically so, according to Gary Shapiro, executive director of the Consumer Electronics Association, which runs the show. There will be an estimated 130,000 attendees, down about 8 percent from 141,000 a year ago. The number of exhibitors will be the same at about 2,700, though the square footage of the show will be down 5 percent from 1.8 million square feet a year ago to 1.7 million square feet this year. The show is being held Tuesday, Jan. 6 to Sunday, Jan. 11 and is not open to the general public. I’ll be one of thousands of journalists attending.

Exhibitors tend to book their space a year ahead of time, so exhibit space is a lagging indicator of a tough economy. But Shapiro notes that the average trade show will be down 22 percent in attendees in 2008. In that context, the expected drop in attendance is not so bad.

“Everybody is being hit by the economy, but we are stronger than almost every industry,” Shapiro said. “The good thing for us is that the leisure business has dried up in Las Vegas and freed hotel rooms.”

This show will be different this year because Microsoft CEO Steve Ballmer will give the opening keynote instead of Bill Gates, who previously gave the opening speech for 11 years in a row. Ballmer may disappoint the crowds if he doesn’t make some mention of the Zune phone that the company has been secretly working on in an effort to take on Apple’s iPhone. Ballmer will be speaking just a day after the Apple keynote by Phil Schiller at Macworld in San Francisco.

Still, there will be keynote speeches from Sony’s CEO, Howard Stringer, and Ford’s chief, Alan Mullaly. John Chambers, CEO of Cisco, and Craig Barrett, chairman of Intel, will give speeches about emerging markets for new technologies. Barrett will likely show off a new version of Intel’s low-cost Classmate PC for children in developing countries. This one will feature a touch screen. What’s interesting is that emerging markets and green technology — once small parts of the show — are now a big part of the affair. Shapiro notes that there are 10 million new cell phones being sold in India each month. In the U.S., the average home has about 25 consumer electronics devices, down one from a year ago, according to CEA surveys.

The CEA is having success recruiting new companies, with about 300 new companies showing this year. One of those is Verizon. NBC Universal (booth pictured left) and Sony Pictures have bigger booths this year, a sign that the content companies feel welcome at what used to be an electronics hardware show.

There are some drop outs. Sanyo has pulled out, since it is being acquired by Panasonic. Cisco withdrew from a big presence on the show floor and is presenting in hotel suites instead. Philips Electronics, which pulled out of the TV business in the past year, is also not exhibiting for the first time in many years.

This is the last show before the transition to digital TV signals happens in the U.S. on Feb. 17, 2009. The transition has been a part of the discussion at every CES for the past decade. But Shapiro said he is relieved that some of the bitter fights, such as the Blu-ray vs. HD-DVD media format war and the XM-Sirius merger, are over.

There will be focus on 3-D displays and glasses. 3-D movies are catching on like never before (as shown with the popularity of Disney’s Bolt film) and Hollywood is launching a bunch of 3-D films in theaters next year. Companies such as Nvidia, Samsung (picture from last year), Viewsonic and IZ3D plan to bring that into homes so that it looks like movies or game characters are springing out of your TV sets or monitors. I have yet to see glasses-based 3-D that looks stunning, so I remain skeptical about these products.

Wireless video — or transferring high-definition video from one device to another inside a home — will be moving past the experimentation stage as a variety of competing networking products are introduced, Shapiro said.

Just as it seemed like liquid-crystal displays (LCD) were becoming dominant, TV makers will also introduce new versions of the organic light-emitting diode (OLED) displays that deliver crisp HD video images. Last year, Sony introduced an 11-inch screen for sale at a high price, but presumably the costs are going down.

CES is also going to show it’s more than a geek event, thanks to areas dedicated to older consumers as well as kids. Mattel will be showing digital toys on the show floor for the first time, a sign that electronics is increasingly important to hooking kids on the latest toys.

Shapiro said that politics will enter into the picture as the tech industry tries to shape the policies of the new Obama administration. Companies are also trying to position themselves as the greenest company, putting new importance on low-power and efficient battery technologies.

As for celebrity sightings at CES, there should be plenty, perhaps as companies try harder to get the attention of the recession-minded press and the public. Monster Cable, for instance, is throwing a concert headlined by singer Diana Ross. From Akon to Stevie Wonder, the celebrities show that companies want to target all sorts of demographics with their products. Maybe inside the echo chamber of the huge trade show, it won’t seem like we’re in the midst of an economic catastrophe.

Here are my picks for the best games of the year. Each and every one of these games was so good that they could all easily be picks for game of the year. It’s a reminder that 2008 was one of the best years we’ve ever had in the video game business.

1. Gears of War 2 (Xbox 360) Microsoft/Epic Games, Nov. 2008. It’s probably no surprise that my favorite game of the holiday season is also my favorite game of the year. Epic livened up the dark and gloomy world from the previous game with more vibrant colors, only to plunge much of the action deep underground. But the theme of destroyed beauty — both on the grand planetary scale and on the individual human level of the loss of a wife — runs through this game and really motivates you to strike back at the damned Locust mutants who come from underground. Flamethrowers, chain guns, and the the familiar chain saw bayonets keep this game as bloody as they come. It has a sick sense of humor, like when your squad has to chain saw its way through the bloody belly of a giant worm. This one is worth playing all the way through to the end of the single-player game and then going online with multiplayer play.

2. Resistance 2 (PS 3) Sony/Insomniac Games, Nov. 2008. This first-person shooter is a big improvement over the original 2006 game in almost every way. There is a constant pressure to move forward because your character, Nathan Hale, is infected with a virus and could succumb at any moment. This one-man crusader has to take down as many of the alien Chimera before collapsing. Big bosses, including a 300-foot tall Leviathan, can seem like insurmountable obstacles until you figure out the creature’s weak points. There are creative new weapons like the Splicer that shoots a circular disk that saws enemies in half. The game has beautiful graphics and a variety of enemies that are difficult to take down, even with a wide selection of choice weapons. But it ultimately falls short of the combat intensity of Gears of War 2.

Grand Theft Auto IV (Xbox 360, PC, PlayStation 3) Take-Two Interactive/Rockstar Games. April, 2008. I almost picked this title as game of the year, but it didn’t hold my attention as long as the first two games. GTA IV took the gritty realism of street crime and a living world to a new level. It featured a storyline with the anti-hero Niko Bellic, an Eastern European immigrant in Liberty City (which closely resembles New York). He is surrounded by cowardly thugs, drug addicts, and maniacal bosses. But he is only as good or as bad as you make him out to be. In a game where you can do anything violent, the lesson is that there are consequences to everything you do. You can find the limits of behavior. Kill a cop and you’ll probably find yourself in a high-speed chase that ends in a rain of lead. While there are many copycats for this genre, nobody beats Rockstar in creating interesting characters, realistic environments, and a world that includes both outstanding game play and a good story.

4. Call of Duty: World at War (PC, Xbox 360, PS 3, Wii) Activision/Treyarch, fall 2008. This uses the same graphics engine as last year’s Call of Duty 4. While it’s still eye-popping visually, it is a little too familiar to be considered innovative. But now the action is back in the familiar territory of World War II. It takes place in the Pacific theater and introduces all the elements of a fierce race war, jungle warfare with realistic foliage, and flamethrowers. The Japanese make fierce rivals, with everything from ambushes to suicide attacks. What I liked about this one is that even though it wasn’t made by star developer Infinity Ward, it still lives up to the franchise’s reputation and doesn’t feel like a follow-up product.

5. Wii Fit (Nintendo Wii) Nintendo. May, 2008. This game got gamers off their couches and running around in circles, jumping up and down, and trying to keep their balance. Talk about a great social achievement. I loved logging in and measuring just how lousy my posture was and how far short of my weight-loss goals I was. The game came with the Wii Balance Board, an ingenious device that was nothing more than a scale with a lot of springs under it. It could measure which way you leaned and thereby capture your movements in a way that no controller could. With this innovation, Nintendo redefined video games, pioneered a new category of fitness games, an area that was littered with boring titles. Nintendo made exercise fun by getting players to block soccer balls, walk a tightrope, and play with a Hula Hoop. It’s no wonder that Wii Fit is on its way toward selling 10 million copies.

6. Metal Gear Solid 4: Guns of the Patriots (PlayStation 3) Konami, June 2008. This game took realistic 3-D animation to its greatest height in a video game. It was a signature game that helped justify the PlaySation 3’s high ticket price at a time when there weren’t many other titles that pushed the limit. While the storytelling is fairly convoluted, the game itself is a great blend of graphics, environment, cinematics and stealth game play. You play Old Snake, an aging super soldier in a world where private military companies have replaced governments as ruling entities. It is another game where sneaking around, rather than going in with guns blazing, pays off. It’s one of the few games that stands up to the description “movie-like.”

7. Fallout 3 (PC, Xbox 360, PS 3) Bethesda Softworks, Oct. 2008. You can freeze time for as long as you need in this role-playing game. Much like last year’s Mass Effect, you can then choose the actions that your character will take to make it through a nearly impossible firefight. Then you unfreeze time and watch the action unfold. It thus becomes a thinking person’s game rather than a twitch shoot-em-up. The game is set against the backdrop of nuclear devastation. It has 1950s-style bomb-shelter commercials and cheerful music that are reminiscent of my favorite game from last year, BioShock. If you liked last year’s surprise from BioShock, this one from the makers of Oblivion will suit you just fine. The action isn’t nearly as crazed as BioShock, but it’s still fun to watch your plans unfold in a tight situation.

8. Mario Kart Wii (Nintendo Wii) Nintendo. April, 2008. There is not a lot of sophisticated chatter I can say about this Nintendo game with classic characters. It’s just a lot of fun to go racing round zany tracks, tossing banana peels or turtles for the other racers to trip over. In any given race, you can hear lots of cheering because there are so many little power boosts or tricks in the terrain that force frequent changes in the leader rankings. The tracks are where the game is creative. You can race in the sky, inside volcanoes, and underwater. The game makes use of the little plastic Wii Wheel peripheral which makes it easier to drive with the Wii controller. You can play up to 12 players and battle online using the Nintendo Wi-Fi Connection.

9. Star Wars: The Force Unleashed (PS 3, Xbox 360, Wii, PS 2, PSP, DS), LucasArts, Sept. 2008. Star Wars junkies feared the worst after the end of the last trilogy. But they’ve been pleasantly surprised with the animated film Clone Wars and a new game have extended the life of the franchise to end all franchises. I like the moral dilemma that the main character faces. You start as an evil apprentice to Darth Vader at the beginning of the Rebellion against the Galactic Empire, after the end of the Episode III film. The game also uses two innovations that bring The Force to life like never before. Everything in the game’s setting has physical attributes, meaning you can use the objects in the environment in the game. Everything is destructible, from glass to giant beams. You can toss this stuff around at hapless enemies. And those enemies are smarter and embued with self-preservation. Use the Force to pick up a Stormtrooper and the poor guy will hang on to something for dear life.

10. Fable 2 (Xbox 360) Microsoft/Lionhead Studios, Oct. 2008. I neglected to include this in my top 10 games of the holidays, but better late recognition than never. Peter Molyneux, the head of Lionhead, always gives eloquent demos when he shows off his titles. He creates a kind of reality distortion field, and sometimes there is a comedown when the games don’t come out as good as he says they will be. But Molyneux is going down the right track with the Fable series. He’s trying to make great works of art that provoke an emotional reaction. Fable 2 sets up moral dilemmas and dramas. You can solve them with violence or you can use your pet dog to get you out of them, but you’ll regret it if you let Rover die.

Please check out our link to VentureBeat’s inaugural game conference, GamesBeat 09, on March 24.

Also, see our top 20 game stories of 2008.

The top 10 iPhone games of 2008.

The 10 most-anticipated games of 2009.

The game and virtual world fundings of 2008.

And Dean’s top 10 picks of the holiday season.

2008 has been a big year for the games market. Game sales soared to new heights this year and resisted the onset of the recession. Here’s a recap of our biggest game-market stories this year (including some links for related stories) for those of you who may have missed them:

1. The Nintendo Wii broke all sales records and expanded the market for gaming beyond nerds. The Wii tapped into a need to play more casual and social games. We had a Q&A with Nintendo of America’s president, Reggie Fils-Aime, about the phenomenon.

2. The industry hit a record $22 billion in the midst of a recession. A census estimates there are 44,400 people working in the U.S. game industry.

3. The iPhone emerged as a game platform. With companies such as Ngmoco making iPhone-only games, the market took off. Thousands of games are now available on Apple’s App Store.

4. Activision closed its merger with Vivendi Games, which included the crown jewel Blizzard Entertainment, maker of World of Warcraft. In post-merger life, the crown jewel was left to operate as its own independent company.

5. VentureBeat uncovered the behind-the-scenes story of Microsoft’s Xbox 360 Red Ring of Death hardware failure. Microsoft fired the game tester who talked to Venturebeat.

6. Electronic Arts struck out with its holiday line-up. Spore disappointed, and EA was forced to lay off 10 percent of its staff.

7. Both Microsoft and Sony tried to make console games into a more social experience. Sony launched Home virtual world for PlayStation 3, while Microsoft debuted its new Xbox Experience including movies from Netflix. Sony was able to get a bunch of partners to launch inside Home, but users overwhelmed Home in its early days.

8. Electronic Arts courted Take-Two Interactive with a $2 billion hostile takeover bid, but the maker of Grand Theft Auto IV wanted a higher price and the companies gave up on merger talks.

9. Microsoft cut console prices, finally addressed Red Ring of Death with Jasper-based models of the Xbox 360.

10. Advanced Micro Devices took leadership in graphics chips back from Nvidia. It did so by shooting for the sweet spot of the market. Previously, Nvidia owned the gamer market. But now the tables have turned.

11. World of Warcraft expansion pack Wrath of the Lich King sold 2.8 million units in 24 hours.

12. Google launched, then buried, Lively virtual spaces. But it got off the ground with in-game advertising.

13. The redesigned E3 trade show — once a signature extravaganza that drew 80,000 people — was a train wreck, drawing only a few thousand underwhelmed media and business people. Afterward, the game industry vowed to bring the old show back.

14. Music video games overtook sports games, thanks to Guitar Hero and Rock Band franchises.

15. Nintendo DS ran away with the portable market, outselling the PlayStation Portable by two to one. Then Nintendo announced the DSi improved version of its handheld.

16. Grand Theft Auto IV sold 10 million copies, despite the criticism of anti-violence critics. The biggest game industry critic Jack Thompson was disbarred for unprofessional conduct.

17. Scrabble clone Scrabulous took off on Facebook, Hasbro sued, the game was shut down and the replacement Scrabble tanks.

18. Wii Fit broadened the video game audience and brought the exercise genre — which had been just a niche in the past — to mainstream audiences.

19. Funware — the use of game mechanics in non-game applications — expanded the game industry’s reach beyond games.

20. YouTube became a huge channel for game marketing.

Please check out our link to VentureBeat’s inaugural game conference, GamesBeat 09, on March 24.

Rumblings the past few days had Sony getting ready to unveil its first entry into the currently hot netbook category of computers. Netbooks are small, low-weight and low cost laptops that, while not as powerful as their bigger counterparts, can handle things like surfing the web just fine. The leaked specs for Sony’s Vaio Pocket, as it’s to be called, are calling into question whether this thing will be cheap at all.

The specs, according to Sony Style’s own site, have the Vaio Pocket coming with a 1.33Ghz processor (though it’s not clear what kind of chip it will be — but Gizmodo guesses an Intel Atom), an 8-inch LED backlit display, the option of either a 60GB standard hard drive or a 128GB solid state drive and the option to have either Windows Vista Home Basic or Home Premium installed.

The specs raise a few interesting points. First, the display will have a resolution of 1600×768 which is insanely sharp for an 8-inch screen. In fact, it may be too small for many users who may opt to go with less resolution so they can actually see what’s on the screen. Second, will the 1.33Ghz machine with an unspecified processor and unspecified amount of RAM be able to run Windows Vista smoothly? Third, the weight, battery life and price are all not given yet — and all three are key points.

And price may be the most key. This holiday season has shown that most consumers seem to be interested in the netbooks under $500. But given Sony’s history with more premium pricing and the specs above, it seems unlikely this thing will come in under that. Certainly with the 128GB SSD, which costs over $500 itself, Sony will be hard-pressed to get this thing under $1,000.

And that speaks to a problem that Apple’s chief executive Steve Jobs addressed at an Apple event earlier this year. “We don’t know how to make a $500 computer that’s not a piece of junk, and our DNA will not let us ship that,” Jobs said. It would seem that Sony might have the same issue, and netbook enthusiasts who seem to care just as much about price as about size might not be too happy.

And speaking of size, there’s the whole “Vaio Pocket” name. I don’t know what kind of pants you wear, but unless they are cargo pants, I don’t expect anyone to be able to fit a device with an 8-inch screen in their pocket.

The Vaio Pocket should be formally unveiled at the CES tradeshow in January.

Video game sales defied the tough economy and rose 10 percent in the U.S. in November, according to market researcher NPD Group. Nintendo had another outstanding month, selling more Wiis than Microsoft and Sony combined.

While sales were up 18 percent in October compared to a year ago, the November numbers are strong considering there were seven fewer shopping days after Thanksgiving this year compared to a year ago. NPD believes that the industry is on a course to hit a record $22 billion sales in 2008.

Last month, the U.S. video game industry defied economic doomsayers, the first month of the industry’s critical sales season. That strength was surprising, given the weakness of U.S. retailers in October. It fed the theory that games are at least somewhat recession resistant, because entertainment provides an escape from the real world. Surveys show that gamers view games as offering a good value — $60 per game with many hours of play time — compared to movies or other entertainment.

The strong November sales should keep the perception alive that games are an island in a sea of economic malaise. Anita Frazier, an analyst at NPD, said that the company’s consumer index shows that games are the area where consumers are least likely to cut their spending. Earlier this week, Electronic Arts gave the industry a scare because it said its sales of holiday games were not meeting its expectations and it would have to lay off more people than it previously expected. But that may just be EA’s problem.

Overall game sales were $2.91 billion in November, up 10 percent from $2.64 billion a year ago. Hardware was up 10 percent at $1.21 billion, up from $1.1 billion a year ago. Software was up 11 percent to $1.45 billion, up from $1.31 billion a year ago. Accessories were $255.4 million, up 7 percent from $238.6 million a year ago.

Nintendo sold 2.04 million Wii consoles, and 1.57 million DS handhelds. Microsoft sold 836,000 Xbox 360s while Sony sold 378,000 PlayStation 3s. 206,000 PlayStation 2s and 421,000 PlayStation Portables.

Microsoft still had a big month in terms of game sales. Microsoft’s Gears of War 2 was the No. 1 game with sales of 1.6 million in the U.S. in November. Roughy 13 percent of all Xbox 360 owners bought the game. The Xbox 360 version of Activision Blizzard’s Call of Duty: World at War was No. 2. Electronic Arts’ Left For Dead on the Xbox 360 was No. 8. Nintendo had three titles in the top 10: Wii Play, Wii Fit, and Wii Music. The latter had a slow launch in October but came back nicely in November. Sony’s only top ten title was Resistance 2, which came in at No. 9.

Microsoft has 14 million active Xbox Live members online worldwide, with the average number of unique visitors rising 66% in the past year. Microsoft said more than 1.5 million transactions and nearly 4 million game sessions take place on Xbox Live each day.

Microsoft said third-party revenues were $298 million and total Xbox 360 software sales were $408 million. PC game sales were lifted by Activision Blizzard’s World of Warcraft: Wrath of the Lich King, which sold more than 1.4 million copies.

In October, sales were $1.31 billion, up 18 percent from $1.12 billion a year earlier. Year to date sales are up 25 percent. Hardware sales were $494.7 million, up 5 percent from $470.5 million a year earlier. Software was $696.8 million, up 35 percent from $514.6 million a year ago. And accessories declined 8 percent to $120.2 million from $130.8 million.

September’s sales were down 7 percent from a year earlier. But the problem was that there were big game releases such as “Halo 3″ in September of 2007, making it hard to beat last year’s numbers.

In October, the Wii sold 803,000 units in the month, up from 687,000 units in September. Microsoft sold 371,000 Xbox 360’s and Sony sold 190,000 PlayStation 3’s. Nintendo sold 491,000 DS units (down from 537,000 units in September), while Sony sold 193,000 PlayStation Portables (also down from 238,000 units in September). The PlayStation 2 sold 136,000 in October.

Sony launched its Home virtual world for the PlayStation 3 today, opening up its beta test to all 16 million PS3 owners. We’ve tested Home in a closed beta so far, but now we will find out if it is ready for millions of people. Jack Buser is the director of Home for the U.S. market. We talked with him by phone yesterday about Sony’s plans for expanding the world and what’s there now.

VentureBeat: You took more than 18 months. That’s a long time. What was the hard part?
Jack Buser: Something like Home has never been done before. It’s a massive undertaking. When you deal as a platform like this, you’re blazing new paths with technology and business. There was a lot of heavy lifting. Now we’re rolling it out and it’s something that can’t be experienced anywhere else. It’s not a game. With a game, you create it, launch it and you’re done. Home is a platform. A lot of the things will be created by third-party partners. You’ll see a lot of people beyond Sony. We had to do all of those application programming interfaces so they could do that.

VB: Can you bring us up to date on who is ready with or preparing content for Home?
JB: Some things we announced will be there on day one. Other things will appear in the coming weeks. Home is this living, breathing platform that evolves over time. We’re really going to emphasize that you’ll notice things later that weren’t there at the start. We have spaces for Uncharted: Drake’s Fortune and Far Cry 2 now. Over time, we’ll see spaces set aside for Resistance 2, Warhawk, Guitar Hero, and Socom: US Navy Seals. That will be staggered over the next two months. We have EA, Activision, Disney, LucasArts, Eidos, THQ, and Ubisoft. You’ll see Activision’s Guitar Hero franchise highlighted in a space, and we’ve already got Ubisoft there with the first two game spaces.

VB: And what about the brand advertisers?
JB: We will have Diesel, an international fashion design brand. They’ll sell avatar custom enhancements such as clothing that will appear in the first few weeks. We’ll have Lignet Roset, a contemporary furniture designer that will sell furniture in Home. It’s quite cool, grand furniture you can use for customizing your apartment. Sony Pictures and Paramount will have content as well, including trailers for upcoming movies. Paramount will bring virtual goods and video content. Red Bull will have Red Bull Island that features an air race world championship. It will be a simulation of the real race that they sponsor in the real world. All of these things are more than just promotional. They’ll give people a reason to come and express themselves about their favorite brands. They can represent how they actually dress in the real world. While most of it is free, Lignet Roset and Diesel will actually be selling things in the mall.

VB: So your e-commerce system is in place?
JB: You got it.

VB: What has come together at the last minute, and how did the beta test go?
JB: We did the beta to test the technology and build a core community that could get excited about the types of events, content, features, and functions that they wanted us to do. We have done load tests to make sure that the system could handle the numbers of people that will come in with the open beta. Some things have come and gone because we were testing them. Now that we’re not testing as much, we’re going to scale it up. It’s going to constantly evolve. Some things we won’t announce, and people will have to find them by exploring. We’ll take our learnings and rapidly build out the world.

VB: Is it going to be fun? A lot of observers have wondered that.
JB: Absolutely. We’ve had beta testers who have gone into the bowling alley and played the mini games. They can play as a group. It’s the kind of stuff you can’t do on any other platform. You can go up to a pool table and chat with someone and get to know them over a game of pool. People told us to have that experience front and center. So one thing we changed was the central plaza, which has a mini game now that four people can play. Bubbles come rising up out of the water and you have to pop the bubbles as fast you can. You can play it with friends or people you haven’t met yet. The other thing we did in the central plaza was make Home much more interactive. You can dance in front of a screen and the people in the dance party can vote on what song will play next. It’s like an interactive social DJ, where they can interact with the music experience now.

VB: You can also create your own clubs now?
JB: When we designed it, we decided we wouldn’t be handing it down from the mountain top. We gathered feedback and they wanted clubs. It complements our suite of offerings to build community. Someone can’t start their own club based on anything they want, based on a movie or TV show or sport. They can invite club members, appoint sub leaders, and schedule events. We have our own club at Sony that we use for internal meetings. You can go to the club anytime, even if the leader is not there. You can stay in touch and form stronger friendships.

VB: How much does the infrastructure cost to operate and how do you make money?
JB: The whole idea of micro-transactions is behind the business model. It’s easy to use. People can come and use it for free. But there is a certain percentage of the people who want to look different. They can buy virtual items. These things are priced appropriately so that you can get designer jeans that you like in the real world. You might want to decorate your apartment with interactive furniture that lets you hang out with friends and do things together. This micro-transaction platform is available to third parties too. They can use Home as a new channel to monetize their brand.

VB: What more is there?
JB: It’s a great platform for promotional events. You can immerse yourself in the world of a game, TV show, or something else in an interactive way. This is the first day in the start of a very long journey. Home will evolve over time and we’ll have cool stuff constantly appearing. It will change the way people play games online. Your friends list will mean more to you now because you’ll be playing together. Ten years from now, we’ll see this launch as an important milestone because it brought the idea of online play and online community and put them together so they are one and the same.