Updated: Feb. 9, 2011; 5 p.m. PST

It's game over for Guitar Hero.

Activision Blizzard will close its music-game business division, laying off hundreds of employees, and cancel the Guitar Hero game that was in development for 2011, the publisher said in a conference call Wednesday.

The drastic move comes after significant industrywide declines in the music game business. In 2007, Activision sold 1.5 million copies of Guitar Hero III in its first month of sales. Last year, Activision only sold 86,000 copies of the latest game in the series, Guitar Hero: Warriors of Rock. Slowing sales of chief competitor Rock Band led Viacom to sell maker Harmonix and close the MTV Games publishing division.

Activision said that the decline of the genre, plus the high cost of licensing music and producing the games, led it to close the business.

"There was nothing that Activision or anybody could have done to save Guitar Hero," said Jesse Divnich, vice president of analyst services for Electronic Entertainment Design and Research, in an interview with Wired.com. Divnich said that Activision realizes the "opportunity cost" of continuing to make Hero games when it could instead be putting those resources towards more profitable games.

Divnich said that the casual gamers that made up the majority of guitar games' audience have now moved on. "if your primary hobby is not gaming, you get your fill quicker on entertainment products," he said.

The publisher will also cancel upcoming game True Crime: Hong Kong. It said the cancellation of these two projects and the layoffs will affect 7 percent of its roughly 7000 employees worldwide, or about 500 people total.

But Activision said that it expects its net headcount to bounce back to that 7000 number by the end of the year, since it is making further investments into a new massively multiplayer online game from its Blizzard division, makers of World of Warcraft, and into new Call of Duty projects like a free-to-play game for the Chinese market and a suite of online services for players of the military shooter games called Project Beachhead.

Although Guitar Hero is a goner, games built around music "will never die," Divnich said. "Harmonix has [Kinect game] Dance Central, and that took off huge. [Publishers] just need to find the next big thing."