Several video game industry analysts feel that the Xbox 720 will offer both physical and cloud-based software.

Gaming website IndustryGamers spoke to several notable individuals. All of them had the same final opinion: the Xbox 720 will retain the physical disc drive from the Xbox 360.

M2 Research analyst Billy Pidgeon said: "I don't expect vendors to leave physical media formats out of next generation consoles. Gaikai and OnLive are viable game delivery systems but in the near term, cloud gaming services can't yet allow access on a scale to realize their inherent disruptive potential. Again, back to boring basics, next generation game consoles and dedicated gaming handhelds must link to user accounts stored on servers rather than locking down identity and content ownership at a device level."

"I agree with Microsoft's assertion that cloud-based game delivery as a replacement for physical media is in the long-term future,” Pidgeon added.

Colin Sebastian of RW Baird said the Xbox 720 would take advantage of both means of media offerings.

 "I think any smart console manufacturer will want to offer a mix of distribution points for consumers - both in the cloud and at retail stores. There is such a broad spectrum of games that consumers are playing, and there is not a one-size fit all solution,” Baird continued.

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"So I would expect a company like Microsoft to leverage what they've built
in terms of online services, cloud computing and Xbox Live, to offer a menu of games. For large-scale games such as "Halo" and "Call of Duty," I think it would make sense to offer on disks, unless we see a meaningful increase in broadband speeds, network reliability, and storage capacity,” Baird added.

EEDAR's Jesse Divnich noted that the Xbox 720 would arrive as a "true hybrid console."

"The digital transition will be just that, a transition, and neither Microsoft nor Sony will force consumers to go 100% digital," said Divnich. “The digital transition will ultimately be at the choice of the consumer and Microsoft and Sony will continue to support physical media until the mass market has reached the tipping point of acceptance on digital."

Microsoft is currently incorporating cloud saves for its video gaming console. Its next console could take this feature to a completely new level.

French gaming website Xboxygen broke a rumor that claimed the “CES 2012” event will focus on the actual hardware. The date of the forthcoming CES show will be Jan. 12, 2012.

Several gaming industry analysts said that gamers should expect to get their first glimpse of the console at E3 2013, months before its official release.

Video game website Develop previously reported the company and its industry associates are working towards a 2013 launch of the next generation Xbox.