The video game industry is still in a funk.

Industry watcher NPD Group reported August metrics last night. It wasn't pretty. Stateside sales fell 10% through the distribution channels that NPD tracks. Hardware took a 5% slip, while software companies went in for a 14% haircut.

The news is uglier than you think. Sales fell 16% last August, so we're looking at a 24% slide in two years. I've been warning about the industry's shortcomings for a while, and I just don't see crow in my diet in the near term.

There were a few upbeat signs earlier this month. Take-Two Interactive (Nasdaq: TTWO) surprised the market with a quarterly profit, raising its guidance along the way. Electronic Arts (Nasdaq: ERTS) bragged about a 5% uptick in August sales for Madden 11 over last year's installment. Net sales, earnings, and even comps were marginally higher at GameStop (NYSE: GME) in its latest quarter.

Buzz still exists over popular releases. Activision Blizzard (Nasdaq: ATVI) broke initial sales records with Call of Duty: Modern Warfare 2 heading into last year's holiday season. Take-Two fared well this summer with Red Dead Redemption and Mafia 2. Microsoft (Nasdaq: MSFT) is going to report blowout numbers when Halo: Reach hits stores next Tuesday.

Unfortunately, there's just not a whole lot of traction outside of the tent pole titles.

It's just flat out telling that Call of Duty: Modern Warfare 2 was one of last month's 10 best-sellers, even though the battle game has been out since last November. Heck, a few of the charting titles are as old as Super Mario games.

The biggest weakness, naturally, is coming from the handheld systems. PSP and DS systems and games aren't as attractive now that Apple's (Nasdaq: AAPL) iPod touch provides countless free or $0.99 app downloads. NPD reports that the portable gaming market has suffered a 25% hit over the past year, though console-related sales are still off by an unnerving 6%.

A year ago, gamers argued that it was the recession slowing sales. How dare I suggest that Facebook and Apple's App Store eat into the appetite for rich console experiences? Well, it's happening. Die-hard gamers may still be spending as much as they used to on hot titles, but casual players -- who apparently are more important to the industry than expected -- appear perfectly fine to be pitting plants against zombies on their iPhones and iPod Touch devices or fertilizing crops on Facebook.

Is it sad that the industry peaked in the 2008 era of fake plastic guitars, or will the new wave of motion-based controllers breathe new life into the industry? Until sales metrics pick up, I'll have to go with my fake plastic guitar gently weeping.

What will it take to get the industry back on its feet? Will David Gardner need to put out a Motley Fool video game where individual investors fend off unscrupulous brokers and talking heads spouting bad advice? Share your rescue plan in the comment box below.