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Games on Demand are just retail games that did very well, and we're put on that service a year or so later. If what you're saying was the case then we would see a whole lot more than we currently have. No. Microsoft cleans up on the Arcade games.
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I fail to see how anything you said disagrees with what I said. My point was that Microsoft probably make a larger profit off retail games than Arcade games. Also that they only want to pay for the storage and bandwidth of selling large games after they've been sold in stores (thus reducing the number of people who will want to download them).