David Darling, co-founder of Codemasters and currently CEO of social game studio Kwalee, has said Microsoft and Sony need to transition to fully digital consoles if they want to survive the next cycle.
In a lengthy blog post, Darling highlighted increasing competition from digital-only gaming platforms such as Steam, Facebook and iOS, and said consoles need to adapt to remain viable.
"Consoles have become like dinosaurs heading for extinction as their natural retail habitat begins to change. These ancient beasts must now adapt to a new environment where platforms like Steam, Facebook and Apple's App Store are pushing innovation," he suggested.
"People are already playing more games through digital download than physical media. For instance, Angry Birds has had more than one billion downloads, a sales figure totally beyond what can be achieved by boxed games sold in the likes of Game and GameStop. Since 2008, the sales of console games have been falling each year.
"Once Apple add an App Store to Apple TV they could take over the living room games industry like they have taken over the handheld games industry with iPhone with flexible pricing and no distribution costs."
According to Darling, a console transition to digital-only would also take away the reliance on retail and in turn make gaming cheaper.
"Sony and Microsoft cannot let the retailers dictate game prices going forwards if they want to break free from the current over-priced model, their next consoles PlayStation 4 and Xbox 720 need to be digital only, or they will fail.
"Digitally distributed games can reach players all around the world quickly, cutting out physical production, warehouses, distributors and retailers. Therefore, it is no longer necessary to charge people huge prices to play video games."
John Schappert, former chief operating officer of EA and VP of Xbox Live, also recently warned game makers they must evolve or die, saying social and mobile games are eating away at the traditional games business model.