Digital distributions generate massive profit on PC.
1. Extremely low cost.
No packaging cost, no delivery fee, no material cost - all you are selling is the license to play. The only variable expense per sale is fee paid to the distributor (e.g. Valve, D2D). It's so lucrative that it's no surprise EA wants to start its own Origin to skip the middle-man.
2. Lower price = higher quantity demanded.
Basic economics. Depending on the developers, the digital version purchases are often cheaper than box versions (not always the case at launch). The lower the price, the higher the quantity demanded. Video games in nature are rather elastic, just a pretty non-essential enjoyment compared to some other necessaries. As such, the total revenue is expected to be higher.
3. Ease of access.
A lot of gamers are lazy. If it means that a game can be delivered, then waiting at a store may sound less attractive. Oh wait, delivery is rather slow and you want the game at launch? Well, digital distribution has been the solution. You don't have to leave your comfortable lounge, basement or evil laboratory, nor wait for a game to arrive past its release date. It's just like ordering pizza in WoW with /pizza, except that was lie.
Add:
One of the reasons games on consoles are more expensive than PC is because Microsoft doesn't charge PC developers to run games on their Windows... yet. Developers on console even have to pay MS/Sony for DLCs, even if they plan on making the said DLCs free.
Renting or second-hand trading of console games is just as damaging as piracy, and it occurs more frequently for console platforms. I'm not saying that piracy on PC is somehow better, but the fact remains that whether it's on PC or consoles, gamers have ways to not pay the original developer. How big is the gap between the platforms? Which platforms suffer the most? We don't really know just how much renting there is compared to piracy, and it wouldn't be very useful assuming things without reliable data.
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