Reports from U.K.-based retail analyst Verdict Research has named the games sector as the most lucrative entertainment sector.

Verdict predicts that by the year's end, total video games spending will equate to £4.64 billion ($7.42 billion), a year-on-year increase of 42%, and will overtake music and video as the highest selling entertainment sector.

Entitled "U.K. Video Games & Consoles Retailing 2008," the report states that as the country heads towards a recession, the gaming industry is seeing increased interest. Despite costing up to four times that of a DVD or other forms of home entertainment, Verdict says consumers are largely choosing to purchase games instead.

There is also the accessories market to consider. In 2008, Verdict says sales have almost doubled and now represent over 10% of the total video games sector.

"Whereas music & video has become somewhat stale, video games have enjoyed an array of technological innovation, which has widened the market demographic enormously and driven phenomenal growth," said Matthew Piner, author of the report, in a statement.

The accompanying "U.K. Music & Video 2008" report outlined that in 2007, the U.K. Music and Video market was worth £4.43 billion ($7.1 billion) and by the end of 2008 it is expected to have grown just 0.6% to £4.461 billion ($7.13 billion). Verdict cites piracy, price deflation, intensifying competition and the decline of the CD format as leading factors in this decline.

In recent times, retailers have responded by dedicating an increasing amount of space to video games and stocking less CD product. Supermarkets' video games sales are now worth over £500 million ($802 million), compared to £100 million ($160 million) in 2003.

Malcolm Pinkerton, senior retail analyst at Verdict Research and author of the Music & Video report added, "The music and video market is not just suffering from a slowing of growth but a massive transfer of spend to online."

To drive growth, Verdict suggests digital retailers offer consumers more innovative features such as superior sound quality, improve catalog range and utilize their brand strength.

The digital market is also suffering from increased fragmentation, according to Verdict. The take-up of DRM-free files is said to be a crucial factor in allowing online growth. "The embracing of the open MP3 format will reignite download sales, as it will remove the issues of interoperability and encourage album sales," added Pinkerton.