For a couple of years, it was actually getting kind of good to be a media consumer. Digital distribution, thanks primarily to things like Netflix Watch Instantly for movies & older TV, Hulu for newer TV, or Steam for video games, was actually making it cheaper and more efficient to pay for media than before. Naturally, this is coming to a stop: Netflix is raising their prices on hybrid streaming/disc options, while Steam is fighting with EA, who are trying to set up their own distribution system.
And this here is the main issue - the distinction between publisher and distributor is blurring. This was most notable when Netflix announced that they were picking up a TV series, but it's also subtler in Steam's case - they're run by Valve, one of the great developers in video gaming, who can drive critical mass to Steam by making games like Portal, Half-Life 2, and Left 4 Dead. But Valve is also an underdog. They're one of the few companies which develops and publishes their own games - and the only company which also distributes them.
As an underdog, I think Valve understands what makes digital distribution work: it needs to be easy. The point of the exercise is to create an environment where you can type in a game's name, buy it, download it, and play it. This model can break down at several different points: if the game isn't available, if the game is too expensive, if the download is inefficient, slow, or broken, and if the game can't actually be played.
And - this is the most important point - those things have to work in order to prevent would-be players from jumping to the next-easiest option. The next easiest option is not conventional retail. It's not online retail. It's piracy. There, you type in the name of the game, download it, and play it. Steam can beat piracy by being more moral and having games that work without having to hack and crack. EA...well, EA is doing it wrong. They're still acting like digital distribution is an alternative to physical retail, half an alternative to piracy/retail, and half its own thing.
Likewise, while Netflix might still be a great deal, its recent price change combined with the pressure from Hollywood and the studios' attempts to get into the digital distribution game for themselves have started choking off Netflix's selection, or charging higher prices for it. The first results in frustration - as I and anyone following along with my Veronica Mars reviews felt last month - and the latter results in higher prices. Both make Netflix look like the bad guy.
Hulu, too, is losing its effectiveness in the face of "publisher" pressure. One side of FOX may have helped to found Hulu, but another side has rendered it more useless, moving its new streaming episodes from the day after to eight days after.
There's also the growing trend of ISP's trying to cap bandwidth, and behaving like it's a finite resource. This isn't just frustrating to the consumer, it's also frustrating to the distributor.
It's not like I don't expect growing pains in digital distribution. But I do think that this trend towards publishers and distributors (and creators and ISPs) merging is one which is likely to leave the people who benefited from low prices and digital distribution in a worse situation in a few years than they are now. Publishers are inherently conservative, trying to milk the most profit they can out of existing methods. Distributors have to be more experimental, trying to find and exploit new revenue streams. As long as they're underdogs, I'll root for them, but they're underdogs for a reason - the publishers have more power.
And the pirates, just outside looking in, are the ones most likely to benefit from this struggle for power. I think Steam and Netflix understand this, implicitly if not explicitly (GOG.com, which sells old games for cheap but makes sure they work, is explicit). It's not going to be easier to be legal for quick media acquisition if this continues. Likewise, the consolidation of creation, publication, and distribution of media is a direct path to monopoly. And it's not just media, either, I think we'll see providers of services on the Internet start to become Internet Service Providers over time. It may be a few decades after it was supposed to happen, but the corporate cyber-dystopia of Snow Crash is looking more and more likely.