Typically, market research firms look at retail game sales for their reports and pay no mind to digital distribution services like Steam. Perhaps looking at only retail figures offers enough of a sample to reach a conclusion, but digital outlets are undoubtedly responsible for a sizable share of overall game sales – as emphasized by IGN’s recent report.

Despite the economic downturn and slow sales abroad, IGN says that sales on Valve’s digital distribution service, Steam, increased a stunning 97% compared to June of 08. IGN’s own Direct2Drive service has witnessed a sales growth of 56% in that same period, and Microsoft has experienced a 73% growth in Xbox Live download sales. By comparison, those figures dwarf that of the retail sector. NPD recently reported that June saw the greatest decline in year-to-year sales since September of 2000, 41%.

At first glance, it may seem like the digital alternative is quickly surmounting retail sales, but it’s not that simple. According to Michael Pachter of Wedbush Morgan Securities, downloads are probably $1 to $2 billion in global sales this year, compared to the $26 billion packaged goods market. While downloads are growing – and growing fast – there simply aren’t enough of them to account for the fall in retail sales.