The recession is forcing change on the once-invulnerable video game industry.

For years, executives like Nintendo’s Reggie Fils-Aime have said that the video game industry is recession proof. But this year, the $22 billion industry that's responsible for Grand Theft Auto IV for young adults, exercise games for the suckers, and the Mario games for the young and young at heart has been hurting.

To the extent that games provide consumers with engaging interactive entertainment for $60—sometimes 100 hours' worth as in the post-apocalyptic Fallout 3—it's an industry that deserves to fly high in the recession. But the game industry has fired nearly 12 percent of its work force since last July (8,450 folks), according to Wanda Meloni, an analyst at M2. There may be more to come, too.

Beyond closing 13 game-development studios, video game publishers are tightening their belts while, at the same time, desperately trying to show how extravagant they can be by spending millions on parties with famous bands, fancy convention booths, and movie-award-like press conferences at E3, the lavish yearly games convention in Los Angeles that's more like a boisterous, barker-filled state fair midway than a business gathering.

Yet it may get worse before it gets better for the game industry. Ted Marzilli is senior vice president at BrandIndex, a company that polls 5,000 people each day. His research shows that adults' perceived value when it comes to video game consoles has waned substantially in the first half of 2009. "The lesson is that you can't count out parents when it comes to game consoles. These folks have been hit hard economically and may be cutting back spending on things that they do not consider essential. If it's a choice between paying for groceries or buying the newest game to hit the streets, they are going to put food on the family's table first."

Hence, there's increased pressure to introduce new features on the consoles, introduce new titles, and cut prices. Before the recession, for the last two years, E3 had gotten smaller, more staid. Yet in a strange yearning for biggest of the boom times, E3 is huge this year—even though the economics haven't been this bad since the great video game implosion of 1983, when Atari (under Steve Ross and Warner Bros.) jumped the shark, and there were just too many god-awful games on the market to sustain the high price per unit.

Though the game industry won't implode this year, there's an analogy to be made between 1983 and 2009. The Nintendo Wii, innovative when it was released because of its wireless motion-sensing device, has seen too many clones of games. For every Wii Sports, which features the bowling game even retirees like, there are a score of riffs on the same theme. There's a dangerous similarity to many Wii games that makes 2009 look a lot like the badly made games of 1983. Nintendo has lost more than half of its stock value because investors believe the Wii can't sustain its huge, previous sales numbers this holiday season (when 75 percent of the games and consoles are sold).