Lazard Capital Markets analyst Colin Sebastian has forecast that that online games will generate more than $11 billion in revenues this year, accounting for around 25 percent of global game sales.

“With roughly one billion internet users worldwide, the gravitational pull of the internet is driving publishers to integrate online content and services more explicitly within and on top of traditional games,” he said in a research note. “As consumers have already demonstrated a willingness to pay to access interactive entertainment, we believe that videogames are an important part of the migration of content ‘into the cloud.’ In fact, videogames account for the largest portion of paid online content, well ahead of other forms of content, such as movies/video and newsprint.

“We estimate that online videogames will generate more than $11 billion in revenues this year, up from $3 billion in 2005, and account for roughly 25 percent of industry game sales worldwide. In this respect, we continue to believe that the internet is emerging as an important growth driver and content platform, weaving together communication, information, commerce and entertainment.”

Despite the disruptive force the internet is having on traditional retail, Sebastian says that physical goods aren’t going to disappear any time soon.

“At the same time the industry contemplates the inevitable shift of content into the cloud, the bulk of revenues are still clearly dependent on core gamers, who relish traditional console and PC-based shooting, racing and fantasy games, among others.

“Importantly, the majority of new content at E3 appeared to fit this mould, and suggests we are still years away from a profound shift away [from] physical (disc) media, given that the internet is not yet the most efficient distribution channel. As such, the industry continues to take modest steps toward the shift to online platforms, despite the willingness of consumers to pay for online games.”