Though every console, both home and portable, already has a significant online distribution platform, Broadpoint AmTech analyst Ben Schachter doesn't think digital content will threaten Gamestop's (GME) retail business until after 2014, when Schachter predicts the next console cycle will begin.

Schachter offered three reasons why the "digital revolution" isn't quite ready to take off, hard-drive space and bandwidth being the first two:

"Technologically, full game downloads to a console are feasible already (and there is already a small library of full-games available on Xbox Live), but limited hard drive space (we estimate approximately 70% of current-generation consoles have no hard drives) and bandwidth limitations (full games can be 20GB+) create significant barriers."

Read on for his final reason, and how Schachter is missing an important part of the distribution picture.

The final reason, Schachter says, is the value physical products still retain.

"We...note that consumers attribute a value to having a hard/physical product that can be sold, traded, and is portable. GME's own study put the residual value of physical game disc at approximately $10-20 dollars vs. a download-only version of a game.

"In our view, a key issue that is often lost in the discussion over digital distribution of video games is its impact on the ability of game publishers to market their games at physical retail locations. The retail channel remains critical to the sales experience for games."

"...The Grand Theft Auto (GTA) franchise is among the most well-known and successful brands ever created in the video game industry, yet having digital-only distribution of a product [The Lost and the Damned] tied to GTA's most recent console title led to very disappointing sales. The bottom line is that retail still matters."

This is all well and good as far as consoles go, but in talking about the "digital revolution" Schachter has completely ignored console-free distribution platforms. Streaming services like OnLive and Gaikai eliminate the need for hard drive space or high bandwidth. Meanwhile, the value of a physical product may not seem so high when you could be getting access to almost any game on almost any platform all for a flat monthly rate.

While digital distribution via consoles may not be in a position to compete with Gamestop, gaming on-demand services may soon be in a position to compete with both console manufacturers and retailers.