Physical distribution is actually less profitable. Obviously you're going to invest in the creation of your piece of software or media but now you have to pay s

Physical distribution is actually less profitable. Obviously you're going to invest in the creation of your piece of software or media but now you have to pay someone to press a certain number of discs, find a distributor willing to sell them for you, and then pay someone to go out to stores to convince them to buy discs from the distributor and sell them to customers. Product doesn't sell too well? Well you're still on the hook for the pressing and paying all the people who got it into stores. Product sells too well? Now you've got to get more pressed ASAP before a competitor can drop their version. For better or for worse, there was no margin for major bugs or exploits. You couldn't easily issue a patch without wasting money on another pressing. Once the Internet got fast enough and storage space got large enough, it really didn't make sense to rely on physical copies as the sole distribution method. Games can now be sold cheaper. Developers can take home a bigger cut of the profits. CD-ROMs made perfect sense for the era. It followed the music distribution system which again made sense because how else would someone buy music? You could distribute 700MB per disc of content to someone that might not even have dialup. One problem with what you're suggesting is that everyone has a different steam library. If Valve offered a service where they could send you an update pack for your library every week or month, it would require a custom build for each customer. Is that something that would even be affordable?