Seems every year there is less and less games coming out and then software sales are down and everyone is like amazed by the news. There isn't much that has came out beside Mass Effect 3. Diablo 3 and Max Payne come out this month. You think studios would break up the release time frame for games. Imagine a game like Battlefield getting released now. There would be no CoD competition. Instead studios release all major games in the same month as there competition and they all have to share a piece of the pie.
Most of the decline is not due to lack of demand, but rather a shift to digital sales that don't show up in the report. Virtually all games can be downloaded directly to your PC and consoles now and fewer people are buying the hard copies. That combined with the fact that no new console deals or upgrades have been released makes it a certainty that sales will be seen as lower. I actually think a 25% decline is less than what should have been expected given the huge transition to digital.