Publishers have only two options: Support Digital Downloads or Support Piracy - whether they like it or not.

The ESA's Michael Gallagher exclaimed that piracy is scourge.  Last year, publishers lost an estimated $50 billion dollars to U.S. companies alone.  China, piracy's "Great White Hope", averaged 80% in illegal software downloads in 2008, and even they have been eclipsed by Georgia and Bangladesh.  Each of whom average well over 90%.
 
 
Apparently In the Gaming Industry, we've been working so hard to prove we're a legitimate business over the last two decades that we haven't noticed what's been going on with the music industry.  We woke up one morning, and realized, suddenly, that the internet is fast enough to download whole games in a matter of hours.  Learning nothing from record label's violent reactions, our response was also reactionary.  Gallagher called it a scourge, Sony's Peter Dille called it sickening.  Although not directly aimed at consumers themselves. aggresive statements like these are seen as personal attacks to anyone who's so much as downloaded a Sinclair ROM  for an emulator.  Pirates, providing free, available, DRM-removed software, again become heroes to the masses.  By creating an enviornment of "You Vs. Me", companies unwittingly increase piracy levels.
 
Given our track record, it's only natural that the only thing we've gleaned from iTunes, is the "digital" part.  The iTunes model is a combination of convienance, price, & availability.  Steam, and services like it, could be the answer, but publishers must actually support it; instead of simply submitting to it.  Where Apple can practically force its model and pricing on the music industry by tying iTunes to the iPod, Steam must cater to the development community.  Two of the key factors to the success of iTunes - pricing and availability - are largely left up to the publisher.  Instead of working to make this model competitive, we've decided it would be better not to alienate retailers.  In siding with them, gaming has attached itself to their particular public image.  Retailers are already struggling with their own relevancy to their install base, & are seen by most consumers as an antiquated model, flawed by design, and declining rapidly.  The industry won't stop piracy by appearing old, flawed, and out of date.  It won't even slow it down. 
 

It isn't like retail is doing publishers any favors.  In the Retail Model, publishers host huge events, all trying to generate excitement for their individual products.  A single booth can cost, literally, hundreds of thousands of dollars - the last event I attended, organized by Best Buy, we were charged $500,000 for a 20ft.x20ft. space. Once a publisher has convinced the retailer to carry their title, buyers aggressively negotiate greatly diminished profits in favor of the retailer; sometimes as much as 30% lower than originally requested.  Failure to comply results in the store not carrying your product, and companies must decide if profits lost through negotiations are smaller than profits lost by not being in the space altogether.  There's also no guarantee or promise of support.  Retail chains promise to transport products from a publisher's warehouse to the retailer's store...that's it.  I can't imagine Capcom getting excited when they see the PC version of Lost Planet in back corner of a store by the restrooms because the retailer felt it wasn't as relevant as the console version.  If I were a developer who spent millions producing a game, only to find it "spined" on the shelf because the employee thought Halo 3 was "way cooler" so they needed the space; I'd be pretty upset. 
 
Console manufacturers, now putting their own Steam models in place, are being met with the same resistance as Steam itself.  Since these models cater to publishers, they take the opportunity to treat these new models the way they have been treated.  Companies set ridiculous prices, and if digital distributers fail to comply, they risk not being able to carry product.  We wrongfully assume there is some sort of "battle" between retailers and Steam, and we think publishers choose the bigger side.  The problem is, Steam isn't fighting retailers.  They're fighting pirates.  By not working to make the Steam model competitve, the industry is actually siding with pirates themselves.  There is no neutrallity in any of this.  If we are not for one, then we are for the other. 
 
Consumers make purchases emotionally, not logically; and the industry needs to admit this to itself.  It actively maneuvers people one direction or another using their emotional connections.  Brand-Loyalty is considered as important as technology and pricing,  Consumers know the general concept of production: trees are cut down, plastic is forged, discs and boxes are cut, manuals are printed, products are transported; and humans merchandise the games.  All of this obviously costs some money, and the lack of said items would, in turn, save the considerable amount required to produce them.  When nothing is reduced from the overall cost to the end-user, The industry is saying they either believe customers unintelligent enough to realize these facts, or that they, simply, do not care about the user beyond the investments they make.
 
Pirates, on the other hand, deliver software to the masses, prostelitizing how information should be free to all.  It sounds like rhetoric to anyone over the age of 25, but to a teenager, it actually makes a lot of sense.  No amount of threats involving jail will have any effect on this group; whose principle activities can include vandalism, underage drinking, theft, and violence.  Seeing as how many of the largest franchises involve at least one of these activities, oftentimes many, not only do publishers fully understand this fact; they practically depend on it.  Pirates create an emotional connection that gaming propagates in the artform itself.  They're given an unfair advantage to start.  The last thing a company wants to do is look like is "The Man".
 
Digital Downloading isn't coming.  It's already here, and the sides are being polarized.  Pirates have the advantage of appearing philanthropic, but the industry has the advantage of communication.  The way the industry and pirates are perceived comes directly from the fact that the industry communicates daily with the population.  This is the part scary part of the digital age.  To drive consumers to your cause, one actually has to drive.  This is the part of the Retail Model companies enjoy.  You can be as self-righteous as you want.  A store becomes the "fall guy" in your success.  Publishers can stick their corporate "head" in the ground, blindliy blaming the chain for any failures they may have.  

 The Digital Model requires responsibility.  Distributers are, largely, background clients; and one can't hide behind the iconic image associated with retail.  You control your own image.  To succeed you must set fair prices, answer questions - honestly, and choose not to charge for products you produced 10 - 20 years ago, simply because you can.  Free software doesn't hurt a company as much as a tainted image - for questions elaborating on this, please contact Sega regarding the year of the 32X.   Pirates are taking their advantage; while the industry seems to discard it with threats.  For the millions it costs to produce the latest DRM software method, how many viral PR employees could be retained?  How much less piracy would there be if publishers collected the same royalties from digital content as they do from retail?  How much more could be made?  If a consumer is willing to spend $45, but unwilling to spend $60, the industry's own arrogance has created another pirate.
 
In the end, publishers can do whatever they want, it's their right; but so can consumers.  If the industry won't change, they can't expect customers to change.  If the system works, companies can stop complaining about it.  Just carry on with Retail channels, DRM, and violent threats.  It's worked pretty well so far.