The problem here is that the niche in the music market can be catered to easily, as the physical media can be played on any compatible device produced by hundreds of different companies allowing this group of people to be supported by many entities. It's not a "Sony Vinyl" that only plays on the "Vinyl Station 5". In the games industry it would require a single player to continue to support it, the platform holder, and the media produced would be playable on only their one device. Making it an even smaller group and the platform holder has to decide if this group remains large enough to warrant continuing support, especially when digital-only offers many advantage to the platform holder.
Also those music figures you posted show physical accounting for only 6.6% of revenue in the music industry and while vinyl may be growing overall physical is falling substantially which you chose not to include from your article?
"However, the boost in vinyl interest hasn't been enough to keep physical sales from dropping. Physical sales plunged 23% to $376 million"
Vinyl grew 4%, Physical overall fell 23%, Streaming grew 12%.
The core of your belief is that physical software remains in demand and is attributed value from a group of consumers that can't be filled by digital releases. This is of course true, the question is how big this group remains and for how long.
You also mention you only focus on Nintendo only, but if MS/PS do switch to Digital only like PC then the result of the rest of the games industry being digital only may erode the fervent demand for physical from those that play on multiple consoles. Equally third parties that are used to only digital releases on PS/XB/PC will likely only release digital versions on Nintendo even if Nintendo offer physical still.
How low does physical revenue have to drop before a platform holder decides physical isn't worth bothering anymore? Before they decide they don't want to produce, store and organise shipping for millions of boxes around the globe? That they don't want to increase manufacturing costs of their devices by including physical media drive? That the space and weight taken up by the physical drive could be used by something else or just reduce the size, weight and cost of the device? That they don't want to have to think about what storage medium they will use for physical games next generation or worse go through the effort of developing their own? How long before Nintendo see's they get the full $60 from every first party game they sell on digital and push further and harder towards it?
Yes there is inherent value in physical games that can't be replaced by digital, but how many people will still continue to care and how long will it be enough people for the "big 3" to continue supporting when an all digital future benefits them the most.
You're absolutely right that disc-based media will be gone first.
I didn't include more from the article because music and video games aren't similar enough to make it matter, for the reason that actual ownership of a product is a lot more important when the product is more expensive, and that's what video games are in comparison to music. The first half of 2020 was also heavily influenced by COVID-19 measures, so physical as a whole taking a dip isn't surprising.
Xbox and PS heavily emulate PC practices, but Nintendo does not. As I said in my first post in this thread, Nintendo cares about value in their software which is why they keep their game prices high for years, unlike the video game industry which cuts prices fast and often. It won't be a negative thing for Nintendo if third parties forego to release physical games on the Nintendo console, because such a course of action will only increase the value of physical Nintendo software. This is kinda similar to how the video game industry doesn't invest money in a lot of genres while Nintendo does and as a result sees huge game sales. Basically, if there's only company that caters to a certain market, this one company can reap all the rewards.
We've seen lots of digital-only games get physical releases with printruns of only a few thousand copies because apparently even that low of a level it's already a profitable business. These cases are first and foremost more expensive collector's editions, but games can stay at the regular price once a publisher prints several tenthousands of copies. The big Nintendo titles need several million copies for launch week already. In short, the profitability of physical copies on their own shouldn't be a concern. Your question whether the effort is worth it would us have to question if it's even worth it to continue making consoles, because hardware production and shipping has much bigger overhead than software. But of course it's worth it to make consoles when you look at the bottom line of Nintendo.
The thought process that Nintendo could improve their bottom line by taking away the physical option for games works only as long as one believes that Nintendo can do anything and get away with it. But when you look at the sales history, out of the big 3 Nintendo is the company who is most affected by going up against the customers' will. So the most probable scenario that is going to happen is that Nintendo will test the waters with an all-digital console SKU while concurrently offering an SKU that supports physical games. It would be a scenario in which all-digital had to prove its worth to a degree of outselling the physical SKU by a ratio of 10:1 or higher to justify the decision to go all-digital in the future, because otherwise there would be way too much money left on the table. The inclusion of a physical media drive costs in the range of $20-30 in production, so it isn't an expensive part in a console.
The thought process of digital vs. physical sounds a lot like 15 years ago when it was hardcore vs. casual games. How long would it take until Nintendo turns into a company that only makes cheap casual games and the like. None of this fearmongering ever became reality because the premise of mutually exclusive scenarios is inherently flawed when the two sides aren't mutually exclusive at all. So to conclude this post, what's the most profitable venture out of the following three options?
1. Offer only physical games.
2. Offer only digital games.
3. Offer both physical and digital games and let customers decide what suits them best on a case by case basis.
The best option is the one that caters to the biggest amount of customers. More consoles sold means more games sold, more add-on content sold, more subscriptions sold. That's an easy principle and also why physical games won't go away. Never forget that game collectors are all about physical games and among the most profitable customers due to how many games they buy. That's why so many indie games have gone physical.