London (UK) - David Gosen, vice president of strategic marketing for the Xbox and Xbox Live in Europe, threw a big one over the crowd that was listening to his speech at Microsoft UK Gamefest developer event: "There is no question digital will overtake physical. It happened in music and it will happen to our industry."

This quote should not be too surprising from someone who is representing a platform that is more and more focused in the digital delivery of content. And interestingly enough Gosen justified the company’s decision to not pursue a more active role in the Blu-ray vs. HD DVD war with just that focus. According to Gosen, "convergence [between a digital and the traditional retail distribution] is already happening". We will forget at this point that Microsoft offered an external HD DVD player for the Xbox 360 and played a significant role in the downfall of HD DVD as there was no internal HD DVD option.

Valve’s hugely successful Steam distribution platform on the PC and Xbox Live Arcade changed the way how Microsoft looks at digital download and the company is adamant to create a platform that will deliver the content digitally with a few clicks on a gamepad or a keyboard.

Microsoft claims that it is best for the gaming industry as a whole to be ready for the switch from an offline to an online distribution model. E-tail was just a transitional phases between these two stages, Microsoft believes.

At this time, we have a hard time believing that big retail chains selling content such as video games will ever go away, but we have no doubt that the future will bring at least a mix between online and offline content distribution. Fort add-ons, however, there is no room on retail shelves - and this may be the ultimate reason that could lead to the downfall of traditional software and content sales.

As far as Xbox Live is concerned, Microsoft will expand Xbox Live Arcade and Xbox Live Marketplace with Video Marketplace, a service that will offer TV shows and movie content to owners of Xbox 360 console in Europe. The U.S. is getting Netflix, which could be the final nail in the coffin for the video rental station that may still exist in your neighborhood - at least if Microsoft comes to its senses and will offer the service free of charge to all Xbox Live subscribers.