I'll go one further and say that digital distribution will become dominant for all media, not just games. It is just so much easier than buying a library of hard copies. You don't have to store them or worry if the disk itself is scratched or anything. There's even a variety of ways to get these things. You could purchase each individually either as a one-shot download or have a virtual "bookshelf" where you can download the purchased media for as long as you want. You could subscribe to a service where a monthly fee allows you access to an entire library to download, delete, and re-download at a whim.
Yes, there are people who still prefer owning a hard copy, and to those of you who fall into this category, I have some bad news for you: one day you will be dead. Then who will still want to own a hard copy? It's not good business sense to cater to dead people. Dead people don't buy anything.
More to the point, look at your collection. How many of them are items you really want to own and how many of them are not. I suspect a print-on-demand-like service to get a hard copy if one desires will be possible but used infrequently because not many people need to own a hard copy. Certain not every piece of media has enough fans who want to own a hard copy. I mean, really look at your media collection. How much of it do you use every single day? Or even every week? Or month? Year? For the stuff you use infrequently, wouldn't it be nice to not have it just collecting dust and you can easily re-acquire it the next time you decide to use it? I have several book shelves filled with books, comics, movies, music CDs, games and I have to tell you, I would much prefer to not have "cluttered library back room" be my living room decor style.
There are issues, such as the loss of a secondary market, which is a big enough topic to have spawned several threads, mostly around Gamestop. But priced right so that the cost is similar to that of a can of Coke so that deleting feels like no big loss or a service could offer trade-in "credit" on titles on the virtual bookshelf. There are ways around this.
But the main point is, eventually we'll all be dead, so it will be the buying habits of the next generation that will determine if this is how it will be. Personally, based on what I've seen, that is how it will be.