Do you have any evidence that the business model is untenable like you said?
You'd have to google the old discussions which were big talk, but the Xbox One game licensing fiasco was partly driven by a way to secure revenue from second-hand sales. Sony patented a writeable disc that could record that the license had been consumed; a patent that wouldn't exist if they hadn't considered this an issue to address.
I know how badly the industry wanted to stop the sales of 2nd hand games, however despite not being able to stop it they were still rolling in money.
I vaguely remember they were feeling the squeeze, revenue wasn't scaling. And since then, we've seen costs to produce increase even further. Missing a couple of $60 sales due to second hand sales on a game that cost $50 million to make is one thing, but missing a couple of a $70 sales on a game that cost $300+M is something else. The market may well have been sustainable at the $50M budget games but perhaps not going forwards into 2020.
I know that I personally would not have purchased as many games without the 2nd hand games option.
And your loss to the industry would have meant nothing. Everyone who gamed without injecting more money to the industry wasn't contributing to its upkeep, and only made for headline "x million PlayStations sold" statements while those owners weren't bringing in any revenue. Look at SIE's operating income during the PS1 and PS2 era - they were just bubbling money up and down, all wiped out by PS3. Get to PS4 with digital and network services and now revenue is stable, growing, and they can work with across the company in a big way. PS1 and PS2, iconic consoles, making a fraction of the money they could because of piracy and second hand sales.
The middle collapsing would be pretty sad, and it's already happening, just slowly. God save non indie smaller games, it feels like every new IP is failing, and it's disastrous for the health of the medium.
This is where digital is the great equaliser and stabiliser. There are no up-front production costs meaning AA and indie games can thrive.
I'm not sure if you know how physical worked and how it introduced risk and cost. If you wanted to publish a game, you had to book a printing run. You had to order how many discs (carts) you wanted and pay for that up front. Order too few, you miss sales, so you have to over-order and end up with discs no-one wants that'll appear in budget bins. So now as a game developer, you have this substantial up-front cost you can't afford. You need a publisher to fit the bill, who in turn might well dabble with your game because it's their money on the line and your creative freedom is impacted. As the printing deadline looms, you can't change it, so you have to crunch to get the amount of work still needed to be done in the limited hours until it goes gold.
Finally you get your game published - yay! - and you see it in stores. People buy it. Woohoo! Then they return it and it goes second hand and you know there's people enjoying your game but you aren't getting any money. That is, the retailers paid for stock to sell, but there were often deals that they could sell back unsold copies. Shorter games were far more likely to be returned, encouraging devs to make them lengthy with grind mechanics (now turned into monetisation engagement mechanics) to discourage people from selling them on after the 7 hour campaign.
50 years later, these physical copies are just dead polycarbonate disks. Millions of them in landfill or hanging over vegetables. People who want to play the games do so in emulators at better quality using a digital copy and the actual need for physical copies to play in physical hardware is effectively zero.
If you look at digital, you can publish yourself with no upfront costs so any indie and AA studio can give it a whirl. This spawned the indie revolution! There's no physical reason to have a fixed release date and you can manage your game and work-life balance to release when it's done. There's no redundant stock or physical waste. There's no second-hand sales, so you don't have to worry about someone finishing your game in 5 hours and then selling it on, cannibalising new-game sales, so less need for artificial padding. There's no need for middle-men fees so games can be cheaper.
The problems with digital aren't intrinsic to the medium but are caused by the businesses that operate them who respond to how consumers act. Games cost more on digital because consumers are dumb enough to pay more, but if they value the convenience that much, the businesses aren't going to sell cheaper anyway! Had gamers laughed at $70 digital copies knowing that there's no middleman to pay, and refused to buy until they were $50, that'd be the price of digital games. Games disappearing from libraries is also an issue of licensing and whatnot, which isn't a fault of digital but companies being firstly clueless about deals that are fair, and then secondly jerks about wanting to tap/block ongoing sales that weren't part of the original agreement. Rights holders to music could have just said, "you know what, sure, we made our money from the disc sales 20 years ago. Go ahead and release the game on digital with our audio and good luck to you."
As a developer, physical is obnoxious and it's good its dying. Digital enables devs to make the game they want. Well, it's one less barrier, There's still money and whatnot adding pressures. But having one less problem is a Good Thing.
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