Well firstly because 90% of the industry is Consoles and hand held so on-line distribution is not as much of a priority right now for PC platforms. However where it is booming is consoles with Xbox Live, Wii Classic, and PlayStation Online.
The reason most DEVELOPERS don't do on-line distribution is because they will upset their publisher who is the hand that feeds them i.e. Vivendi Universal and Valve are at each others neck. And the reason most Publishers haven't done it already is not just the poor performance of the PC as a platform but also so they don't upset the delicate contracts they have had with traditional retail stores, shops like Wallmart have threaten to black list certain company's if they go the on-line distribution path.
However that's not to say company's aren't working on online distribution, in fact most of them are are working on it;
EA
http://www.dmwmedia.com/news/2006/11/02/electronic-arts-to-launch-retooled-online-game-distribution-serviceEA are of the oppinion (which is not something I necessarily agree with) that this is the last generation of consoles that will have a physical medium for it.
Atari
http://au.gamespot.com/pc/rpg/greyhawkthetempleofee/news.html?sid=6093029Xbox goal from the very beginning was of course to have a Microsoft Operating System at the centre of a lounge room to work in conjunction with the Windows Media Centre Edition. Microsoft for over a decade have predicted PC's as we know them will be obsolete and will eventually just be Media Centres connected to lounge rooms. Xbox Lives continued compatibility with the PC is testament to this fact with MSN and Xbox live friends list compatibility - it's obvious that modern games will eventually be available via Xbox Live and this will also include PC games.
No doubt Ubisoft have an on-line distribution plan, and their are even rumours of Vivendi Universal (who own Valve) to release their own on-line distribution system.
Company's have been using online distribution for ages, especially in the days of Shareware via the Appogee Model using Software Creations BBS system. (
http://en.wikipedia.org/wiki/Software_Creations_BBS). Nintendo, Sierra Online and Sega have all done on-line distribution methods in Japan but for a time became infeasible as game sizes grew and Internet Connections didn't increase at the same rate. Of course smaller software companys have been doing On-line distribution for years, PopCap is one such success story, as is Introversion, but their are literally thousands of others.
A traditional publisher distributes the games to a brick and mortar store. Each retail store does not have an investment in which game sells, it just wishes to sell games to whomever wishes to buy them. But if Electronic Arts or Valve or Nintendo started to open massive chains around the world selling their games and other peoples I would be VERY suspect. In fact if I was a developer I would do everything in my power to make that store a failure. Imagine an Electronic Arts store, it would prioritise their games first, it would provide more shelf space to there games and their is nothing anyone could do. Content produces such as EA, Valve, Sony, Nintendo should NOT be in charge of selling other peoples games. On-line distribution runs the very same risk of corruption, the only safe way is to make sure content producers never own retail stores and never run on-line distribution that sells other peoples stock. We should always push for independent 3rd parties who will treat all developers/publishers equally.
That is why it would be better for Steam to fail and something like GameXtream (or dare I say Phantom) succeed.
