Digital distribution is, I think, going to remain as a supplement to the hard copy game, not a replacement. Broadband would have to become a LOT more widespread and bandwidth prices would have to go down a lot more for DD to become the only sales outlet for the publishing world. Even Valve, who has the most successful digital distribution system out there in the form of Steam, still puts their games in boxes to sell at Wal-Mart. I don't think this guy really has any idea what he's talking about, or he's engaging in wishful thinking.
Of course, if Atari's games are going to go in the direction he's describing, I won't be buying many of them in any form. It almost sounds like he's taking Atari in the direction of being a casual game only developer, in which case digital sales may work. The games tend to be smaller and less expensive, so there's a lot less margin on retail sales. The online model works for those. I'm just not one to buy that kind of game.