THE KING IS DEAD. LONG LIVE THE KING.
It's a foundational truth of the internet that it's very hard to make people not copy data.
You can ask nicely, and you can try to make the data finicky about where it runs, and you can refuse to give them the data at all - but, at the end of the day, once you give a copy of your game, movie, or song to somebody with an internet connection, the battle is pretty much already lost.
The grand experiment of DRM is a complete and utter failure. Millions have been sunk into R&D for DRM that is generally cracked within a day - and that's when it doesn't cripple the game entirely, as in the SimCity debacle. Among young, technologically-literate students and professionals (the market for mainstream videogames), piracy is rampant and has minimal to no stigma. The probability of prosecution for piracy is so low that copyright is, for all practical intents and purposes, unenforced and unenforceable.
Various industries have adapted to this truth fairly gracefully: film has theaters, which offer an experience (now with 3D and a less pronounced smell of urine), which a pirate cannot reasonably simulate without sinking many thousands of dollars into home theater equipment. Music has concerts and merchandise, which operate on much the same principle. Even broadcast television has found Netflix and Hulu, which hit exactly the right balance of inexpensive and convenient that the value proposition for piracy more or less evaporates.
Gaming, however, continues to struggle to find its place in a post-copyright world.
The most recent salvo of the console war can be seen as a proxy battle for the larger trends at work in content protection. Microsoft, with the original incarnation of the Xbox One, proposed a new, ambitious, and extremely restrictive solution to the problem of piracy; by drastically curtailing users' rights to the software they'd purchased licenses to, and by adding deep restrictions to the hardware, they created an environment that, they felt, would make them attractive to publishers. When the market became aware of the solution, they voted with their feet so rapidly and with such fervor that even those publishers who would benefit from the plan distanced themselves from Microsoft to avoid being tainted by the flood of bad PR. Microsoft was forced to rapidly backpedal and Sony quietly took notes in the back of the class.
However, the lesson to take away here is not that Microsoft is deliberately evil or anti-consumer - the real world doesn't work that way. The lesson here is that the market will not tolerate that kind of solution to the problem - at least, not all at once. We've seen that system work before: cell phone gaming is subject to restrictions as or more draconian than anything that Microsoft proposed, and, if we're honest with ourselves, many of the things that Microsoft was proposing are already present in Steam, which is near-universally beloved.
Microsoft's mistake was trying to push too many changes too quickly, without the faith and good-will of their customer base. It might even have gone better if so many other things hadn't gone wrong with their launch: the ill-fated focus on network television integration (akin to anchoring your yacht to the Titanic), the poor stock of exclusives, the high-price, the hardware, the privacy issues. After all of that, the draconian limitations on the hardware were a step too far, and Microsoft has been duly punished - at the very least, Sony will have a major PR lead that Microsoft will need to make up before launch day.
So, is Microsoft's plan the future? Will the PS5 be saddled with these sorts of restrictions? If I had to guess, I would guess no. The value proposition of consoles is growing increasingly thin - at some point, consoles begin to compete directly with PCs, and gamers, given the choice between PCs and PCs with crippling restrictions and limited functionality, won't choose the latter forever. The sales numbers bear this out: the PS2 was the best-selling console of all time, and there are no indications that the next generation will reverse that trend.
So what, then? If not hardware-based DRM, then how do you make money, as a game developer, when you can't force people to give you money for your product? At the end of the day, there are still people who want to make games, and people who want to have games - it would be a tragedy of economics if the market were unable to connect these people in some sort of mutually beneficial relationship. What could those relationships look like? Well... it's complicated.
There are a few things that clearly work: as I mentioned, Steam is, by any standard, a huge success. It combines convenience and extremely low prices so effectively that much of its customer base simply can't be bothered to pirate; the same is true of the hugely successful indie bundles. Then there's Kickstarter, which allows, at the cost of gamers knowing less about the product they're buying, developers to get their money before the launch of their game, essentially holding their content hostage until they've been paid a fair wage for their product. Can Kickstarter ever raise the ~$80 million development budget of modern triple-A titles? That's unclear -- but it can certainly fund a lot of promising indie titles, piracy or no piracy. Finally, there is what we might impolitely term 'the EA approach' - in short, multiplayer everything, microtransactions everywhere, and continuous DLC over the lifespan of the game. If you force part or all of your game to run on a server that you own, you can assert a much deeper degree of control over your content, and suddenly you can start to see the value proposition of charging $0.99 for a new gun or hat. While EA has given this approach a bad name, it's important to remember that this is also how generally benign games like League of Legends, and Team Fortress 2 operate. If your game can be made multiplayer, and can have optional aesthetic elements which don't directly impact gameplay unfairly, it isn't a bad way to monetize a game. Freemium is, at minimum, sustainable in the long haul.
If I had to guess which of these trends is likely to dominate, a few things seem clear: first, Kickstarter is here to stay - it has been and continues to be a huge boon to indie game developers, and that value proposition isn't going away. Furthermore, freemium is clearly the most stable market niche for multiplayer games - that trend is already well established, and by no means finished. That does, however, leave one big question left: what of triple-A singleplayer game? Games like Portal 2 and Bioshock Infinite are likely just too expensive to finance on Kickstarter, and don't lend themselves well to multiplayer and microtransactions. The only place left for them is on platforms like Steam, which offset their DRM with convenience and extremely low prices. Developers have claimed in the past that Steam is destroying the gaming industry by charging so little for games. It's possible that this is true: it may be that the only way for Steam to compete with The Pirate Bay, convenience or no, is to charge unsustainably low prices for games. However, I wouldn't bet on this; it seems to me that Steam represents market growth, rather than decay, and I suspect that, when the market finishes adapting to the post-copyright world, Steam will continue to be on top - of big-budget singleplayer games, at least.