In my previous article, "The Video Game Business is Broken" I went out on a limb and said "the Emperor Has No Clothes" and that the video game business is clearly broken and is in desperate need of fixing. In this final article in the series I will outline a recipe for fixing the most complex part of the equation—the retail relationship. My solution includes slashing retail prices to drive product demand and I'll show how doing this will generate greater profits for both retailers and publishers.

As a recap here are the issues of why the game industry is broken. Games are media, not discs in DVD boxes. Rapidly increasing development costs have led to "playing it safe" licensed titles and decreasing creativity and original IP. Increased hardware and software prices threaten consumer demand, and the industry needs to grow the game market in a meaningful way to new consumers beyond the usual hardcore audience.

The key to fixing the game market and positioning it for future growth as a viable mainstream entertainment medium is a radical overhaul of the current retail system and the relationship between publishers and retailers. I received many comments about my column that the game business is broken and interestingly everyone agreed there was a problem with the current market. The key culprit is the dysfunctional relationship between platform owners, retailers and publishers that is stifling the business.

As the holiday retail purchase season gets into full swing, the annual dance begins with sales people pitching their holiday lineup to a handful of retail buyers with promises of better games. This year the dance is magnified by the duality of promise and uncertainty of 2 new platforms. The momentum is clearly swinging towards Nintendo as analysts and press question Sony's PS3 strategy.

As the publisher of GameDaily, we have no retail or game publisher interests. Therefore, I have a fairly objective view of the market dynamics. This is how the process works as it looks to me: Publisher sales people confidently promise retailers great games, amazing demand with slick Powerpoints, sizzle videos and marketing timelines showing lots of TV ad spending. They meet with buyers at places like retail manager shows, Destination PlayStation and Microsoft's new Vision conference. They schmooze, cajole, promise and have nice dinners. Retailers listen, tell of shrinking shelf space and require larger "co-op contributions" to insure prominent marketing of products. Retailers use their moves from the Godfather and Scarface to ensure publishers understand whose ring needs to be kissed. However, no one really has any idea how things will sell. Publishers try to impress retailers with proprietary data, buzz metrics and online tracking data from hardcore game sites that represent a decreasing slice of the market. Everyone feels good, orders are written and when products don't sell as promised that's when the real fun begins. The push is for sell-in and everyone prays for sell-through. When a product sells under expectations that's when things get exciting for this dance. The big winner in this whole process is the platform owner who gets paid no matter what actually gets sold. Retailers are in second place as their profits are insured upfront with coop and other marketing contributions. Finishing last is the publisher who promises their product will sell well, and if it doesn't they quickly need to find more space in the increasingly expensive Arizona desert to retire the rest of their unsold product.

The whole problem with this model is that it's focused on these silly plastic boxes again and not on the games. The retail model has so far totally ignored the explosion of broadband and the new distribution opportunities that technology has created. As the founder of the first large scale game download service, Gigex, I know a thing or two about digital distribution. I have never believed online distribution will kill retail; however, I would not have guessed it would be totally marginalized in the video game space with the exception of casual game downloads and some smaller scale PC game try-before-you-buy direct sales. The answer is a combination of several things.