A new report from market research firm Parks Associates, Casual Gaming Market Update, has found that playing games remains the most popular online activity in the U.S. Playing games was more popular than watching short video clips, visiting social networking websites, or other common online activities.

Parks' report said that 34 percent of U.S. adult Internet users play online games on a weekly basis, while 29 percent watch short online videos and 19 percent visit social networking sites with the same frequency.

"Despite the growing popularity of YouTube, MySpace, and Facebook, gaming remains the king of online entertainment, driven largely by casual gaming activities," said James Kuai, a research analyst at Parks Associates. "Gaming also has business advantages. Unlike sites for social networking and video streaming, which rely solely on advertising revenue, casual gaming has more mature and heterogeneous revenue models, including web-based and in-game advertising, try-before-you-buy, subscriptions, and micro-transactions."

Furthermore, the number of people playing games online seems to be growing by leaps and bounds. Parks' research found that the year-over-year growth rate for frequent online gamers was 79 percent, which easily trumps the growth rate for users of social networking (46 percent). That said, the growth rate for frequent users of video streaming sites was a whopping 123 percent, and that "could pose a significant challenge to the gaming industry in capturing the online leisure time of Internet users," Parks cautioned.

"The casual gaming industry cannot rest on its laurels," Kuai said. "In order to counter the growing competition from other online activities, the industry needs to continue to grow its fan base and find ways to better monetize its existing audience."

[UPDATE] GameDaily BIZ briefly spoke with Parks Associates' James Kuai and we asked him about how the industry can better monetize its audience. He said, "Besides the three traditional pillars of the industry – trial-before-you-buy, advertising and subscription, we are witnessing fully ad-supported premium games (as compared to web ads), retail and micro-payment as alternative ways to monetize the existing titles. Virtual worlds can be counted too. Another trend is popular casual titles have come to Nintendo DS, Sony PSP, Xbox Live Arcade, Wii, Interactive TV, expanding their footprints."

Although gaming online will face competition from video streaming sites, Kuai said that there are several factors involved. "Gaming is still growing and there are more people from different groups coming on to the scene as we are seeing more diverse content. Online video had a spike because of the YouTube hype and it is even creating jams on the Net. Whether one or the other will become more popular is not a 'Yes' or 'No' question. It depends on what you are asking. Is it the audience size? Time spent? Money spent? Industry size? A lot of assumptions need to be made to make any predictions."

While gaming is king among online activities in the U.S., Parks' report did not cover the scale of online activities internationally. Nevertheless, we asked Kuai what he thought about other regions of the world. "In terms of popularity, what we heard is that Western Europe is similar, if not more popular, and American firms have a presence there. Eastern Europe is small and mainly been used as an outsourcing destination. Online gaming is very popular in Asia too, but Asia is dominated by its local players and represents a different industry landscape," he said.