Both Sony and analyst Michael Pachter have reacted to the figures, with the well known analyst questioning their validity, saying they were "hard to digest."
"It also makes no sense that sales are below the level from 2004, when games were cheaper and the installed base of consoles was much lower," he told USA Today.
"I don't know if the NPD is getting faulty data, but these numbers make no sense," he said.
Sony meanwhile was keen to look towards February and the launch of its new handheld.
"Following a strong December at retail, PlayStation continued the momentum in January through multi-retailer promotions such as 'Play Days' where we saw a 2x lift over forecast in peripheral sales and solid results for the PlayStation 3," said SCEA's Patrick Seybold.
"February will be a landmark month for PlayStation and the gaming industry with the launch of PlayStation Vita on February 22. Pre-order sales for PS Vita and the launch lineup of 25 titles continue to accelerate as more consumers seek the ultimate in handheld gameplay."
The NPD Group's figures for January are out, and show a troubling fall of 38 per cent for hardware sales and 37 per cent for physical software sales compared to 2011.
Video games hardware fell from $324 million in January 2011 to $199.5 million in 2012, while total physical software sales, including console, portable and PC, were at $379.6 million, a drop from $603.2 million last year. Accessories revenue also fell by 18 per cent, from $237.1 million to $195.2 million.
Despite the steep decline the Xbox 360 maintained its lead on the console market, and celebrated its sixth month running as the top selling machine.
Interestingly in the accessories market Skylanders toys made up 22 per cent of total accessory unit sales.
"January retail performance experienced steep declines with a lack of software launches, and poor hardware and accessory performance partly related to bad comps from Kinect-related success in January 2011," said NPD analyst, Liam Callahan.
"One factor for the double digit declines in new physical software was the lack of new launches. New launches in January 2011 represented 13 per cent of dollar sales and new launch performance dropped 99 per cent in January 2012. Games like Dead Space 2, Little Big Planet 2, and DC Universe Online ranked within the top ten last year, making for a poor comparison in January 2012 where there were no major releases."
He also suggested that without new launches to attract them to retail outlets, consumers also failed to make impulse purchases, further impacting software sales.
The figures are actually worse than those predicted earlier this week by Doug Creutz of Cowen and Company.
"We expect console/handheld software sales to decline -22 per cent y/y due to the lack of any major new releases during the January NPD reporting period," he said on Tuesday.
"We expect total packaged game video game sales to decline -22 per cent y/y, including a -14 per cent y/y decline in retail PC game sales."
He also agreed with Callahan that the reporting period lacked new releases, and pointed out that recent UK chart entries Final Fantasy XIII-2 and Soul Calibur V would fall into the February NPD reporting period.
This left Call Of Duty: Modern Warfare 3 topping the physical retail software chart for the month, followed by Just Dance 3 and Elder Scrolls V: Skyrim in third.