This is not due to any failure of the digital distribution service, according to Wolf. Xbox Live Arcade titles are getting more and more ambitious, and as they grow, the line between them and "large scale" retail titles are getting blurred.
"Personally, I'd say absolutely, yes," Wolf replied when asked if XBLA would eventually be phased out of existence, "I think digital distribution has to be like that. I don't think XBLA will be leaving soon. It is an incredible platform. We have XBLA fans, I don't think it's going to be announced anytime soon. One thing Microsoft has proven is that we continue to try and adapt and innovate in experiences."
Alan Wake's American Nightmare was pointed out as an example as an Xbox Live Arcade game that might have been released as a disc-based game in retail last year. American Nightmare is only nominally an Xbox Live Arcade game. In the future, the distinction of a game being an XBLA title may become meaningless.
XBLA titles are far different than they were when the Xbox 360 system launched. Back then, the typical title was Ms. Pac-Man and Geometry Wars. One could say the trend began with the Penny Arcade Adventures titles, which were large scale, premium priced (for an XBLA title) roleplaying games.
Part of it is due to the larger hard drives. Back in 2006, many 360 owners didn't even have a hard drive, just memory sticks. Now, the least expensive 360 comes with a 4GB hard drive, and the average 360 comes with a 256GB hard drive.
Alan Wake's American Nightmare was released two weeks ago on Xbox Live Arcade.
Microsoft: Xbox Live Arcade will be phased out eventually
03 March 2012 | By JonahFalcon