BLARG YOOO STUPID PHIZICAL MEDERA IS DUMB AND YOU ARES TOO GDFSGDSGDSAGSHSHADHSDFHSHFSHGHS.
But In all seriousness,
The Beatles just released there entire studio album discography in Vinyl. Other bands are still releasing/ reissuing albums on vinyl wich just goes to show some formats never die.
I don't think physical media will ever go away, I personally don't know many people who mainly buy digital games and DVDs. People use Netflix when they just want to see a movie once, but I think when people want to buy and own a movie, they get it on DVD.
Music CDs have died down, mostly because people ust put it on a MP3 player or just load it on the computer and never touch the CD after you buy it. But some people still buy CDs.
Most people I know who play games on a TV system, even casually and only play COD and Madden, still get the disc. I think it might be that I'm in high school and most people don't have credit cards to buy things off line. Digital gaming is a big road block to anyone under 18 or so, and they are a large part of the customers who buy games.
The few games I bought on line were a pain. I had to get my mom or my sister to go and do it, and they are eater busy or just not in the mood, convince them that the site is not going to steel their info, and with systems you have to teach them how to use it, I think my mom would get frustrated and give up if she had to operate a Wii. She can barely operate the DVD player on a Xbox 360 with the controller. With systems you do have point cards, which help, but you need a store to get them, but you are in a store already so you could just buy the game there, unless its online only.
Also I think it would annoy retailers if the game company stopped selling physical games. They may not Cary the system.
Edit: @ Wiggy, and we could still loose the connection, If all my games required internet then the week and a half when Sandy knocked out my internet would have been very boring.
I also think many people won't spend $60 on something that does not exist. $1 for a song or $5 for a movie is OK, its not a lot of money, but 1/3 of your paycheck may make you reconsider, especially if you can not return/ sell it.