Game Digital's share price plunged almost 40 per cent after the retailer issued a profit warning this morning.
The group revealed a 6.7 per cent drop in group gross transaction value (GTV) to £466.8m for the 21 weeks to 19 December, while UK GTV was down 11.4 per cent to £353.5m, despite a boost from Black Friday.
Gross trading margins for the UK were down 4.8 per cent to £73.9m.
UK sales and overall margins were hurt by "a faster than expected decline in the market for old format content as well as a slower than anticipated switch to new format content (Xbox One and PlayStation 4)", Game said.
As a result, adjusted EBITDA for the 26 weeks to 23 January is expected to come in at around £30m. On the back of this, Game Digital's share price was down more than 39 per cent in early trading.
Chief executive Martyn Gibbs said: "The trading conditions in the UK video games market have been challenging.
"The switchover from the older gaming formats to PlayStation 4 and Xbox One software has impacted profitability across the UK market. The extent of the impact of this switchover has only become apparent in December which has been compounded by lower year on year high street and shopping centre footfall.
"We remain committed to our strategy of building "the most valuable community of gamers". Game Retail UK has recruited significant numbers of new customers through sales of hardware and content and continues to provide great customer service and competitive offers.
"Despite the market challenges, Game has continued to deliver significant growth from new format content and newer categories such as licensed merchandise and preowned mobile phones and tablets, and we continue to prioritise these areas as well as growing our multiplay business. Whilst we are pleased with strong growth in our newer products, this has not been sufficient to offset the margin decline from sales of Xbox 360 and PlayStation 3 content and other old format software.
"The pre-Christmas period and the winter sale are very important to our customers and with market leading offers we remain well prepared in our stores and online for the remaining peak trading period."