Steam and Phones have siphoned off almost every last drop of sales from XBLA. It is remarkable how quickly this service has completely died.
Not just Steam and iPhone, it's also DLC and Games on Demand. As of this month, there will be more Games on Demand available on XBL than XBLA games. When you go into the store, the default tab is "Featured", which mostly shows retail/GOD games. When you go to marketplace.xbox.com, you get (I get?): MLB 2K13, Metal Gear Rising, Tiger Woods 14, Tomb Raider, Nike+Kinect, Kinect Games, and finally XBLA deals. If I pick "Xbox 360 games" from the dropdown, I get new retail releases first. To get to XBLA, I need to scroll beyond the fold and click "View All".
And it's also competition at retail from those titles. Some of the best games of the generation are available for $10-15 at retail. This has a pretty profound effect. This is the "old generation effect" people were talking about. Why buy unknown or iffy quantities when you definitely haven't exhausted all the excellent stuff available for dirt cheap?
There's also the library of legacy XBLA titles. Certainly, absent Castle Crashers or Trials, legacy titles aren't pumping out big numbers individually, but in aggregate every sale for a 2008 or 2006 XBLA title is contributing towards fewer sales to new titles. That's further enabled by pricing setups. There's not much reason to buy a game for $15 on XBLA--if it's a multiplayer game, the price point could easily tank the community and thus render the game useless. If it's a singleplayer game, it'll be there later when a sale rolls around. The effect of these siphoned sales is hard to measure because it's spread across 500+ games, but it's there.
I'd also add non-game content. Microsoft brags about how people use their 360 for tons of non-game stuff like videos and music, but the reality is that some of that is intentional on Microsoft's part. They cultivate space and messaging to drive a particular adoption pattern. I have a friend who pays for Gold and only uses his 360 for Netflix (at least he hasn't earned an achievement in 2 or 3 years and is online almost every single day)--Microsoft is probably happy with this, but it doesn't really bode well for people developing small-scale games
But of course you're right. iOS in particular is going to have a huge effect on the kind of genres people are willing to play on home consoles. Why on earth would you buy, for example, a $5-10 match-3 game or Puzzle Bobble or Yosumin or Scrabble or Sudoku or... when there are countless excellent, polished examples for free or for $0.99 on iOS? And when portability is valuable, when you want a large community to play against, and when there's no possible argument against the controls or visuals of the portable version, that makes it an open-and-shut case. Why on earth would anyone spend $20-40 on Who Wants to Be a Millionaire or Family Feud or whatever on a console when it's free to play on iOS and you can instantly play with any of your real life friends or millions of randoms? While mobile will never 100% substitute for all game types, it's eroded a number of key genres on all other platforms.
For PC I think the effect is more subtle. I'm not sure it's that PC has siphoned off sales versus XBLA (actually, there are a few cases where I think this happens: particularly for the increasing number of games where the XBLA version is abandoned and the PC version is still being developed, or when the XBLA version has a smaller online community and is a few patches behind, or when the XBLA version is priced higher than PC, or when the XBLA version has fewer sales than the PC)... I'd say it's more accurate to say that XBLA has declined while PC grows. Indie Bundles, Steam christmas sales, GOG moving into modern indie games, the growth of Steam as a platform. I hesitate to bring in something like Desura because literally the only thing I've heard about Desura is developers saying they don't crack the minimum threshold so it's not clear to me that much purchasing is going on over there.
I think the challenge for Microsoft is that there's probably not much way or much value in fixing XBLA right now. There's not much way because late-generation isn't a good time to change some of the contractual barriers that are hurting devs or the setup of the marketplace. Much value because as I say I think the most doable thing would be to feature new XBLA content in a way that's to the detriment of old XBLA content, GoDs, and retail DLC... and I'm not sure that's a cash-positive trade for MS. Hopefully they take some measures next time around to revitalize the space.
