Imagine you invested millions of dollars to construct a roller coaster. It is quite successful with lots of people taking rides, but at the end of the month you find barely enough money in the till to pay your employees. Closer inspection reveals that you have one booth where paper tickets are sold, which people then just have to show to a guy at the entrance of the roller coaster. So people just photocopy your tickets, or resell used tickets that haven't been properly devalued.
Clearly the physical distribution of the tickets is a mistake. You just need to move the booth selling entry to your roller coaster directly to the entrance, and do away with the paper tickets. You might get some people complaining that not being able to buy physical tickets is less convenient, but those complaining loudest will probably be the people who used to photocopy the tickets. Mostly your new system has a lot of advantages for many people: For you, who will finally make money from your investment. For your employees, who will keep their job. And for your honest customers who will not only profit from you being able to pay for better maintenance on your existing roller coaster, but also from you making enough money to invest in a new roller coaster.
Physical distribution is also a problem for video games. Nobody reads the legal text which tells customers that they are in fact purchasing a roller coaster ride, an experience. People think they bought "the game", and imagine they have all sorts of rights to redistribute the game they bought, when in fact legally they only purchased a limited license to use that game (with reselling rights determined by local laws). But before broadband internet access was ubiquitous, putting a game on a physical medium was the only practical way to distribute it. And that physical distribution has tons of disadvantages: Not just piracy and reselling of used games, but also a "blockbuster or die" game industry developing due to limited shelf space, in which small and medium game companies couldn't compete, and where indie games were hard to sell, and older games hard to get hold of.
Thus the game industry is moving away from physical distribution. Digital online distribution is the future, with distribution platforms like Steam, Direct2Drive, Gamesload, or Origin. By linking games to an online account, piracy is if not eliminated at least made a lot harder. Getting last year's game at half price goes from being a lucky find in a bargain bin to becoming the norm. Indie games flourish. And game companies make enough money to stay in business and make more games.
Some games will require players to be always online, which obviously can be an inconvenience, but on the other hand has the advantage of eliminating cheating. Digital distribution systems which enable players to still play offline after downloading and validating ownership already exist, e.g. Steam has an offline mode. And the digital online distribution also enables different business models. No longer do you have to pay a game before knowing whether you like it. Digital distribution enables easier distribution of demo and free trial versions, or of Free2Play games in which the majority of players never pays anything. Games with a full price of $5 or even $1 become a possibility. A single guy making a brilliant indie game on his own can make millions of dollars with it.
We used to be discussing the imminent death of PC gaming. It turns out the only thing dying is the physical distribution of PC games. PC gaming is alive and well, up to a point where even a game blogger like me can't keep up with all the games being out there. Of course Sturgeon's Law applies, and a lot of games are crap. But if 90% of everything is crap, you need to increase the total amount of games to also increase the number of good games, and there are now more good games around as well. Consoles gaming, which was poised to kill PC gaming, is now rushing to get on the online distribution wagon too. Sony eliminated their physical medium (Universal Media Disk) for the Playstation Portable and went with digital distribution only for the PSP Go. The PS3 has the Playstation Network, and the XBox has the XBox Live for digital distribution of console games. Clearly physical distribution of video games is on its way out. The future of games is online.