Video Game Sales Mask Crisis in Industry

Booming video game sales are masking a serious concern for game makers: Their economic model is in peril. Game companies are taking in more money but -- in many cases -- not profits.

The market has expanded greatly, with more women and older gamers playing. People are playing on consoles, computers, cell phones and hand-held gadgets. But a proliferation of free or low-cost games on the Web and for phones limits the amount the major game publishers can raise prices. It also diverts attention from the game consoles, like the PlayStation 3 from Sony and the Xbox 360 from Microsoft .

"The model as it exists is dying," said Mike McGarvey, former chief executive of Eidos and now an executive with OnLive, which delivers games from the Internet. He said consumers were looking at games for consoles and saying, "This is too expensive, and there are too many choices."

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