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Microsoft says there is ‘no question’ that the sale of downloaded games will overtake the sales of games at retail in the coming years.

According to David Gosen, Xbox Europe’s VP of strategic marketing and Live, There’s no question digital will overtake physical. It happened in music and will happen to our industry."

He was talking as part of his keynote speech at Microsoft’s UK Gamefest developer event in central London today.

Gosen told attendees that "convergence is happening" in the industry as consumers turn to games consoles to deliver content digitally, be that games or movies.

He said that the success of premium downloadable content for games like Rock Band and Guitar Hero, plus the success of Xbox Live Arcade proved that digital will be the dominant force in future”.

Gosen urged the rest of the industry to be ready for the digital distribution "step changes" heralded by Xbox Live.

"We have to think about how the consumer is changing and how the ways they are accessing media is changing."

He also said that Microsoft is preparing to spend big on promoting Xbox Live in Europe as a means to attract more 360 owners and offer an active channel for those ‘actively digital’ consumers.

"We believe Xbox Live as the key differentiator in the business," he said. "But we haven’t taken advantage of Live in Europe as much as we could have – it’s been our best kept secret."

He revealed that Microsoft is preparing to make key announcements for new content available via the Xbox Live Marketplace as it looks to increase the investment supporting its digital distribution offer.

"Expect to see some big announcements coming from us about Live, specifically for Europe, in the coming month."

Speaking to MCV sister magazine Develop after his talk, Gosen hinted that the announcements would be for more Xbox Live Arcade games and more Video Marketplace content.

He said: "We’re going to focus on Live in Euope and we need to make sure that the content we offer is really strong. So in the US the deal they announced with Netflix is a big coup; it’s transformational in providing a significant amount of content on the video marketplace.

"We’ve got a good amount of content on the video Marketplace for UK, France and Germany but we’re going to be working very closely with local studios in the European markets to bring more and more content to Live. We’ve already announced a deal with German studio Constantine to release films for that market – and we’ll be doing more and more of those types of deals for that kind of content.

"And I think you will also see more activity from an Xbox Live Arcade perspective – plus, as I’ve said, premium downloadable content."

The comments on the rise of digital distribution over retail echo similar remarks made by SCEE CEO David Reeves at Sony’s own developer conference two months ago.

But Gosen’s views differ with Sony’s on one key point – which next-gen console will rule the generation. He said that digital distribution can help Microsoft towards its goal of doubling the Xbox 360 instal base globally.

We’re going to invest in this region to ensure we win,” he said, leaving attendees to look at his last presentation slide, which bullishly proclaimed ‘We WILL outsell the PlayStation 3′.

For more comments from Gosen at Gamefest, check out the report on our sister site Develop here.