For developers to take on the funding role is a start - but to really solve the problem, we need to...
Blow Up the Retailer
The casual game space shows that it can be done. Some of these games get into the conventional retail channel (there's a boxed version of Bejeweled, for instance), but 90+% of all sales are through portals like Yahoo! Games, RealArcade, and the rest.
Broadband is spreading. More than 50% of net-connected homes now have it - and the proportion is higher for gamers, and higher still for online gamers (80+% for MMOG players). With broadband, even a multi-hundred megabyte application can be downloaded in reasonable time.
Not, it should be noted, in the casual space; casual game developers say there's a big dropoff in sales if you go from 10 megs to 15. But that's casual gamers; hard-core gamers will spend a half hour on download, if they want a game. Hell, it takes at least that long to drive to the mall, park, and find the Gamestop.
When I first downloaded NetHack using my 1200 baud modem back in pre-Internet days (I was on GEnie), I had to let the download run over night (at $6/hour connect-time, too). And I was glad.
Technology is not the problem. There are any number of cheap e-commerce suites that can handle sale via direct download. And yes, there are Digital Rights Management issues, but they're solvable.
Many niche publishers are doing this today. Matrix Games, for instance, still publishes its games in boxed form - but they say they sell far more copies of games like Gary Grigsby's World at War via direct download than they do at retail.
The reason that's happening is simple: Many PC game styles that, in years past, got huge attention from the PC game zines and consumers now have a hard time getting distribution. Retailers don't even like stocking PC games - they take up too much space, and they don't sell as well as console - and have cut way back on the titles they'll stock. As a result, if you're a computer wargamer, a flight sim fan, a fan of 4X space conquest games or of graphic adventures, or even of turn-based fantasy - you're going to have a hard time finding product you like on the shelves. Those gamers are beginning to learn they can find what they want on the net.
But "if you build it they will come" doesn't work; stick a game up on your own website, and you'll be lucky to sell a thousand copies, even if it's good. And even for the gamers who have migrated online, it's not ideal; you may know about Matrix's site, but there are a lot of other decent computer wargames out there, and to track on the field, you have to visit a half-dozen different sites. And the magazines and review sites no longer bother with the kind of games you like, so it's hard to figure out what's good and real.
There are any number of developers out there just itching to find another path to market, a way to develop games outside the conventional model - and to make a decent living by so doing. But at present, they don't have a clear path to market - and though the technology exists, the Internet can act as a distribution mechanism, it's not obvious to them how to reach their potential market.
In other words, technology isn't the problem...
Marketing Is the Problem
Even though the PC magazines are starting to devote some attention to "indie" games, it's still scant. And in general, download-only product isn't taken seriously; the assumption is that if it doesn't get published conventionally, it isn't "real," it must be of lower quality. And, of course, the conventional publishers buy most of the advertising space, so the magazines naturally pay more attention to them.
Additionally, a box on a shelf serves as a billboard for your product; someone browsing a game store might see it, pick it up, and decide to buy. If you look at it as advertising, you're reaching a highly targeted audience - people in a game store are there to buy games.
