Microsoft‘s Xbox Live Arcade game-download service has become one of the hit platforms in the age of digital game distribution. And Foundation 9 Entertainment, a big but little-known game developer, has quietly come to dominate games on the platform, VentureBeat has learned.

Irvine, Calif.-based Foundation 9 (abbreviated F9E) has developed 43 of the 300 games on Microsoft’s Xbox Live Arcade (XBLA), a downloadable game service that is accessible via the Xbox 360 video game console. That’s almost a 15 percent share of the total titles, and F9E believes it has about 16 percent of the revenues on XBLA, said James North-Hearn, chief executive of the company, in an interview.

To put that in perspective, that’s about the same market share that Electronic Arts has on video game consoles. No other developer comes close to the kind of market share that F9E has on XBLA. But no one knows that because F9E is a gun for hire. It mostly creates games that are published by leading video game brands, such as Japan’s Capcom, Electronic Arts, Activision Blizzard, THQ, Nintendo, and Microsoft.

Using the model of developing but not publishing games, F9E has grown into six game studios with 650 full-time employees. That makes it the largest independent developer of games.

“We see ourselves as the game industry’s secret weapon,” North-Hearn (pictured, right) said. “It’s a little-known fact that we want to get across.”

North-Hearn said the company’s stake in the digital turf will become more important over time as XBLA and other digital distribution networks, such as the Sony PlayStation Network and Nintendo’s WiiWare, become a bigger part of the overall video game market. Right now, these digital platforms account for 10 – 20 percent of F9E’s revenues, North-Hearn said. The private company does not disclose its revenues, but it revealed various XBLA numbers to VentureBeat for the first time today.

Since F9E has so many games on XBLA and receives royalty checks for those games, it can triangulate on the revenues for the entire market. North-Hearn estimates that the XBLA market will hit $140 – $160 million in 2010, up 15 percent from a year earlier.

Overall, Microsoft’s Xbox Live revenue, which includes $60-a-year subscriptions for Gold service and movie download revenues, generates an estimated $1 billion a year. Perhaps something like 60 percent of Microsoft’s 43 million Xbox 360 owners go online to Xbox Live, so the potential audience for XBLA games is getting pretty big.

The XBLA revenue isn’t huge compared to the console market itself, which generates most of its revenue through the sale of $60 games at retail stores. XBLA games sell for about $9 on average.

But XBLA is nothing to sneeze at. North-Hearn notes that the market can be more profitable than larger markets. For instance, Apple’s App Store probably generates $1 billion in revenue for game makers. But that revenue is spread across tens of thousands of apps. The $140 million in XBLA revenue — 30 percent of which goes into Microsoft’s coffers as the owner of the platform — is split among just 300 titles.

F9E’s top five games on XBLA have generated more than $22 million in revenue. One of those top games is Bomberman (pictured at top), which has sold more than 500,000 units. Other F9E-made games include Super Street Fighter 2 (pictured at right), Super Puzzle Fighter 2, 1942 Joint Strike, Commando 3, Outrun, and Space Invaders Extreme.

F9E started doing the XBLA games when the field was nascent in 2006. Before that, it focused mostly on making branded console and portable games for major game publishers. But downloadable games, which can be transferred over the internet to game consoles and portable devices, have become a growing part of the market.

F9E doesn’t focus on iPhone games, which can take a few people a matter of weeks to make. The XBLA games are a step up, taking 8 to 20 people as many as six months to make. The higher effort required to make those games is a match for F9E’s core capability of making console and portable games.

F9E’s studios include Backbone Entertainment, Double Helix, Griptonite, ImaginEngine, Pipeworks, and Sumo Digital. F9E is also making games for the PlayStation Network and WiiWare, but those platforms aren’t as lucrative as the Xbox 360’s XBLA for now.

“This seemed like a natural progression for us,” North-Hearn said. “We think that digital is going to be a big part of the future.”

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