Microsoft has to care about formats. Sony raised the bar, and next generation Microsoft will need to incorporate a next generation player into their system. The format war has a real physical impact on their console business. Which is preferable paying your rival to use their technology, or pay Toshiba for their technology. You even get the added bonus that Toshiba competes with Sony on other fronts.
Does Microsoft love the idea of consumers downloading games, and movies. Well yes they do that is a revenue stream. However that does not mean they are ignorant to the fact that the overwhelming majority of consumers prefer physical media. They like holding a game in their hand, and even after the technology arrives for consumers to burn their downloaded games to disc arrives. You still have the issue of stand alone consoles. Not every console owner is going to get online.
Physical retailers love the idea of online business. After all the overhead is lower, and they can sell to consumers bypassing taxes. Which means more money for them. That said these retailers are not going to close down their physical locations. The same way the Next Microsoft console will still need a physical player. Microsoft has no choice but to be interested, and frankly I am shocked Nintendo is not getting interested. They will probably need a next generation player in their next console.
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