Physical media will take a long long long long time to be snuffed out. This online service looks not only expensive and unnecessary, but limited in availability and is prone to error. People love consoles for the most part because it works. There's no compatability issues, they simply buy the game they want for the console they own and play it.
Also I see a tsunami of lawsuits and attorneys from every major console making company opening fire upon this service for the innumerable grounds it could violate. If anything the service will give us a taste of what the future could hold, but it won't dominate anytime soon.