August was another forgettable month for the video game business. Marketing research specialist NPD Group is reporting that total hardware, software, and accessories sales collectively fell 16% last month -- the sixth consecutive monthly drop for the industry.

The top seller was Electronic Arts' (NASDAQ:ERTS) Madden 2010, but this winner was a loser. It may have sold 1.9 million copies across all of the consoles last month, but that's well shy of the roughly 2.2 million units sold last year.

I warned about the dangers of pinning the industry's turnaround hopes on the Madden franchise last month. The game comes out every August; it's been a potent, yet stagnant juggernaut for EA.

"On an apples-to-apples basis, it's a flat orchard," I said on CNBC. In retrospect, I was being generous. The orchard isn't flat -- it's a sinkhole.

Some suggest that slowing hardware sales are to blame for the weakness on the software front, but I'm not buying it.

There are now more Microsoft (NASDAQ:MSFT) Xbox 360s, Sony (NYSE:SNE) PS3s, and Nintendo (OTC BB: NTDOY.PK) Wiis in homes than there were a year ago, yet there were still fewer Madden sales for the Xbox 360 and Wii this time around. The PS3 saw a marginal uptick, but it wasn't enough to offset the sharp decline on the PS2 version.

Optimists will argue that gamers were just saving their pennies for September. Fresh installments in the Guitar Hero, Rock Band, and Halo franchises should make this a month to remember. Recent Microsoft and Sony console price cuts should conveniently stir up demand.

I won't argue against that theory. This should be a bounceback month. However, the trend remains negative. Gamers are spending more time playing free, ad-supported games in cyberspace. Apple's (NASDAQ:AAPL) App Store has flooded the smartphone market with free -- or nearly free -- casual games, disrupting the gaming industry just as iTunes shook up the prerecorded music market earlier this decade.

I'm not suggesting that the video game industry is in the same kind of death spiral as the major record labels, but I do think the days of conventional $50 - $60 video games have peaked. If you're not reading this grim reality from Madden's numbers, you're just being out-coached.

Where do you see the future of gaming? Did it peak for keeps? Let us know in the comment box below.

Apple, Electronic Arts, and Nintendo are Motley Fool Stock Advisor picks. Microsoft is a Motley Fool Inside Value selection. Nintendo is a Motley Fool Global Gains recommendation. Try any of our Foolish newsletter services, free for 30 days.

Longtime Fool contributor Rick Munarriz loves playing video games but he doesn't own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.