Game stocks tank; nobody does anything about it

The New York Times reports that in the last month and a half, video game companies have lost $6 billion in market capitalization, a 25 percent decrease. The story talks about the problems with a transition to newer consoles, and the rising cost of game development, and everything else we've been hearing since the Xbox 360 came out. What's annoying is that, other than a quick nod to a distant future of full game downloads, nobody in the article talks about doing anything other than waiting for the new systems to come out and hoping for another boom.

The great problem for video game companies is that they rely almost exclusively on one revenue stream: selling video games. That sounds reasonable -- they're video game companies, after all -- but it's a narrow business model that's probably unsustainable. Movie box office returns and TV ratings get a lot of press, but the movie and TV companies make most of their money from licensing, syndication, DVD sales -- not from ticket sales or people watching a show on first broadcast. Video games need to start finding other ways to make money.

The most obvious thing to do is put every old game online and make it downloadable to the 360 and PlayStation 3, when that gets released. Make a video game iTunes, and start earning some money from the back catalog. Nintendo is planning to do this with the Wii's Virtual Console, but Microsoft and Sony should make deals to host as many non-Nintendo old-school games as possible. The development costs shouldn't be scary since it's all online, and it's otherwise pure profit. The games are already there, just sitting in their old cartridges gathering dust and making no money for anyone. Put them online, and watch the royalty checks come in.