Nintendo really should have cut its losses yesterday and cancelled its E3 press conference after Microsoft’s (MSFT) Project Natal demo. How could it possibly have trumped Redmond, Wash.’s controllerless game control system? Certainly not with the Wii Vitality Sensor it showed off today.

The peripheral’s big gaming advancement? It records a user’s vital signs. A nice addition to the Wii Fit, but a far cry from Microsoft’s efforts to turn gamers themselves into controllers.

As I said yesterday, “sucks to be Nintendo.” And today, it most certainly does.

Eventually we’d like to make money out of it.”

Google CEO Eric Schmidt on YouTube

It’s been two years since the $1.65 billion acquisition and Google (GOOG) has yet to truly monetize YouTube. And while Google CEO Eric Schmidt insists the company has the “luxury of time” as it searches for ways to recoup its investment in the popular video site, it’s clear the issue is gradually becoming more pressing. “We’re waiting for the innovations,” Schmidt said recently. “The innovation will come. We know it will come. We know it’s there.”

Could the “it” to which Schmidt refers be the new e-commerce platform YouTube is launching? Perhaps. Beginning this week, YouTube is embedding “click-to-buy” links in certain videos on its site, which refer users to affiliate services selling the music featured in them. “Click-to-buy links are non-obtrusive retail links, placed on the watch page beneath the video with the other community features,” YouTube explained in a post to the Official Google Blog. “Just as YouTube users can share, favorite, comment on, and respond to videos quickly and easily, now users can click-to-buy products–like songs and video games–related to the content they’re watching on the site.”

An interesting idea. And should it prove successful, it could begin to justify YouTube’s jaw-dropping $1.65 billion purchase price. “This is just the beginning of building a broad, viable e-commerce platform for users and partners on YouTube,” the company explained. “Our vision is to help partners across all industries–from music, to film, to print, to TV–offer useful and relevant products to a large, yet targeted, audience, and generate additional revenue from their content on YouTube beyond the advertising we serve against their videos. And those partners who use our content identification and management system can also enable these links on user-generated content, by using Content ID to claim videos and choose to leave them up on the site.”

“The amount being paid to the music industry, even though their games are entirely dependent on the content we own and control, is far too small,” Bronfman said during an earnings call today. “There is what I would call a very paltry licensing fee per song. … I think the industry as a whole needs to take a very different look at this business and participate more fully and in a much more partnership way. And if that does not become the case, as far as Warner Music is concerned, we will not license to those games.”

Leaving aside, for a moment, the question of why Warner (WMG) agreed to a royalty scheme it apparently finds unappealing, you’ve got to wonder why the company persists in lambasting these new media that so obviously invigorate the industry and promote its music. And beyond that, you’ve got to wonder why Warner is doing it at a time when games like Guitar Hero and Rock Star are clearly becoming viable distribution outlets.

Of course, we already know the answer. Bronfman himself gave it to us in a speech last year. “We used to fool ourselves,” he said. “We used to think our content was perfect just exactly as it was. We expected our business would remain blissfully unaffected even as the world of interactivity, constant connection and file sharing was exploding. And of course we were wrong. How were we wrong? By standing still or moving at a glacial pace, we inadvertently went to war with consumers by denying them what they wanted and could otherwise find, and as a result, of course, consumers won.”

And while the anti-GTA zealots who blame the game for inspiring real-world violence are decrying it, the press is heaping it with praise (of 31 reviews listed on Metacritic.com, 24 are perfect scores). The New York Times calls it “a violent, intelligent, profane, endearing, obnoxious, sly, richly textured and thoroughly compelling work of cultural satire disguised as fun.” Noting that innocent bystanders in the game now groan in agony when murdered, Slate’s reviewer explains, “what makes Grand Theft Auto IV so compelling is that, unlike so many video games, it made me reflect on all of the disturbing things I had done.” MSNBC says simply: “Grand Theft Auto IV will blow you away.”

Which is likely what it’s going to do to sales estimates as well. GTA IV was inevitably going to be one of the biggest games, if not media events, of the year–one that Hollywood executives worry might depress movie ticket sales as GTA fans drop everything to play the game. And though that might sound like so much PlayStation 3 promoting exuberance, it may not be that far off. With $400 million expected in first-week sales, GTA IV’s debut could be the most lucrative launch in entertainment history.

And then it lowered its bid to $25.74 a share, from $26.

EA (ERTS) did this because last night, Take-Two (TTWO) shareholders approved the issuance of 1.5 million new shares to the company’s management firm, ZelnickMedia–shares that EA claims dilute the value of its buyout offer. A reasonable argument to be sure. But lowering the price of an offer that Take-Two already claims undervalues it clearly isn’t going to advance EA’s cause.

And at this point, that cause needs all the help it can get. As of this writing, EA has gathered a little more than 8% of Take-Two’s shares. It needs 50% for its offer to succeed. And with Take-Two gearing up for the April 29 release of its eagerly anticipated “Grand Theft Auto IV”, it’s not likely to get much more at $25.74. Said Take-Two chairman Strauss Zelnick, “I’m mystified by EA’s strategy.“