@Groucho: People aren't saying everyone will use this immediately... Look at Steam, it's implemented and it works, it's not expensive. That's proof of concept right there.

If you're going to keep defending this is economically impossible, at least explain why Steam (and many other examples of online distribution) can work and console game online distribution wouldn't.

I think inclusion of this criterion represents a fundamental flaw in your logic.  I bought Braid yesterday and it can't be bought from any physical retailer.  Doesn't the exclusivity of that game to DD indicate stronger support of the format?  I think that it does.

The US median speed as of June last year was 1.97 Mbps. If you factor out dial-up users, who more than likely aren't interested in DD anyways, the median would go up substantially.

Now, there are several million people who are interested in DD and this group has a higher than average technology interest which means the vast majority of them will be on the high side of this median.  In short there is a massive market already available for it.

That is why there are companies who are already in these markets, a fact that contradicts your position. I'm interested in how you explain the fact that companies are already basing their businesses on these DD networks and their profitability.  Frankly, I think you have a very warped view of the bandwidth situation in the US.  My guess is that it is probably a valid view for your area only.

Volume. I thought we were discussion MS going 100% online, not just supplementing? If MS goes 100% online, then so are all the movie retailers and other game publishers as well. The internet backbone doesn't have the muscle to support that. Steam is big, in small circles, and for a relatively few products, really. You can call it successful (and it is, because its relatively small scale), but we're talking about supplanting an entire media economy via online service, not just doing some minor supplementation.

If Steam were an example of how MS could replace physical distribution with digital distribution, we wouldn't be discussing this topic at all. MS would have already purchased Steam.

Some are claiming that, since a small business can support a successful service over long distances via this medium, that MS and every other major media publisher can do it as well. I'm saying that once you increase the volume of traffic to that magnitude, there isn't enough transport to go around without a signifigant increase in expense. Then we're back to square one, and we're wondering why we don't just physically produce the goods and ship it to the consumer, because its cheaper that way. Technology isn't the issue. Economy is. The backbone of the internet has not become larger, in the past 30 years, to the same degree that physical media, and game/movie data volume has, and has nowhere to grow really, without huge expenses.

We've grown into the internet, and now its about ready to burst. Making it bigger just isn't as feasible as some might believe. Its not like the number of routers and hardware we have to support the internet can double every 18 months, like in some wierd Moore's Law-ish phenominon, without some *serious* price increases for the infrastructure.

Steam and its ilk only succeed because they are small, and because to this point, bandwidth on the internet is available enough to be cheap (like cheap oil, or power). The remaining bandwidth will shortly hit a supply/demand wall... well before digital distribution of massive amounts of large digital products can become a reality.

Being interested in DD and relying upon it are very different beasts, and leaf nodes aren't really the issue at hand -- I shouldn't have mentioned it, since its the common user perception, and many people believe that since their leaf-node speed has gone up by leaps and bounds in just a few years, then the backbone must also be increasing in size by that rate. Its not, and cannot without large increases in expenses. Physical storage media, and the amount of data that goes into modern media products has increased much faster than the backbone could ever hope to keep up with.

I'm not saying that its impossible to increase available backbone bandwidth to accomodate masses of DD. I'm saying that doing so will increase the expense of internet usage to the point of making it... pointless. Physical distribution would then be more profitable.

If the backbone was large enough to support such services, I believe that the corporations that run it (Sprint, AT&T, MCI, etc.) would have to start charging for "long-distance" network time, etc., and that would come through on your ISP bill as well. Thus DD would become ineffective as a means of garnering profit, since someone shipping physical media could do the work much cheaper.

The current DD services only work because, to this point, internet bandwidth has not been at a premium -- but large switches to DD service would increase the demand to the point where it would be a supply/demand issue. The costs of sustaining the internet's infrastructure has motivated the government to turn over control of most aspects of the internet to private corporations over the past decade. Corporations don't have some magical money-maker to allow them to pay for bigger/better service where the government cannot -- they have to charge their customers for it. In this case, that means charging both the endusers and the commercial sites to an extent much greater than you're seeing today.

Increasing internet transmission volume isn't the same thing as increasing processor power -- its folly to believe that it is. It just doesn't scale with time in the same manner that processors have in the past few decades. It started out pretty big, and now its reaching its limits. Even if every US household has fiber-optic internet access by 2015 (that was the original goal, now its slipped back), the backbone wouldn't be able to support all those high-bandwidth users using so many high-bandwidth services at once without some serious price increases. As more households get faster downstream internet access, the problem actually gets worse.

@Groucho

Every byte doesn't have to go through the same pipe. Torrents and similar services are a big help.

I recently got a faster ISP and still games take a long time to download from steam. Also, I prefer having a retail disc over having to download the game everytime.

Imagine the strain put on every ISP around the world if everything went online, or the strain put on the internet itself. It would just collapse due to the massive amount of data being transfered every second, causing millions in losses for those companies that got their content online, then they'll ask: "Why didnt we stay with the discs?"

The internet won't be strong enough for that in many, many years.

Jade Empire

Digital Distribution is great and all but why is this suddenly a big issue? Is it because the next Xbox has no choice but to use DD thanks to the BluRay consortium's primary stakeholder-Sony? Could be possible that Sony planned to use BD not only as another source of income to offset high compeition electronics but also to block Microsoft forcing them to throw support behind digital distribution and fragment their fanbase.  

No Sony can't possibly be that forward thinking. I mean their business strategy can't be set decades in the future-I mean its not like the companies been around a long time.

http://www.sony.net/SonyInfo/CorporateInfo/History/history.html

Oh wait...

The only problem with what you're saying is that we've already gone through this cycle and internet costs are not through the roof like you suggest they would be.  It certainly does costs quite a bit for them to upgrade their network but that cost is not part of the overhead of running the network it's simply a one-time expense.  Normal maintenance costs are not increased by switching to an all fiber network, from what I understand maintenance will actually be cheaper if we were using a fiber to the curb system. 

But conceptually what you're saying is really just making a mountain out of a molehill for two reasons.  First, we aren't going to see an overnight switch to DD, there is going to be at least one generation of consoles that offer both PD and DD for their main library before DD becomes the only method(if it ever does).  Supply and demand will handle the problem of expanding the capabilities as companies compete for profit.  You did mention S&D but you only focused on the short term effects and ignored the developmental effects.

Second, DD for games is not going to be a major tax on the current internet operations to begin with.  Looking at where the 360 is now if we assumed they had switched over to all DD this generation we are talking about something like 7 games for the average consumer and average length of console ownership is at 65.26 weeks as of the week ending July 26th.  If we assume each of those games is a full 10GB (they aren't) we are looking at the average 360 owner using 1.8 kBps multiplied across the entire user base we are only talking about 35 gBps dedicated to servicing all 20 million users.  In the meantime they've generated about $3.2 Billion in additional profit (it was already part of revenue) by not having to produce the physical games to begin with.  That 35 gBps is split across the entire global internet BTW, a mere drop in the bucket even during peak times.

Even so the demand for better internet may very well  drive the prices up temporarily as telecoms upgrade their networks and need the extra cash to afford it, but as they reach new levels of capability supply/demand/competition will drive the prices back down and ultimately the prices we pay now will provide faster and better service.

This cycle has been in effect for almost 2 decades now and I really don't see a reason to think we are all of a sudden going to hit a brick wall.  With that said you're absolutely right that internet speeds cannot and will not double at the rates of processors but neither will the size of the games and movies.

Services like Steam,  DTVs VOD, D2D, and a ton of other companies like it are hardly the first generation of DD services.  They are however the first generation of HD content DD, and they will lay the ground work needed to move forward the same way the 2nd generation will.  The driving force behind all of this is money and companies understand that the sooner they get to market the larger their piece of the final pie will be, that alone is a massive incentive.