With 6,244 stores across the globe, GameStop is the largest video game retailer in the world and the company practically has a stranglehold on the used games business. As brick-and-mortar starts to become less important to the games sector (just as it did for music and CDs) GameStop could be in danger; in fact Lorne Lanning of Oddworld Inhabitants recently said retail would be practically dead in five years. As Electronic Arts and other publishers have repeatedly stated, games are moving more in the direction of services and away from the boxed product model.
So where does GameStop fit in? It's obvious that the retailer is aware of the situation it's in. In the last few weeks alone, the company opened up a casual games digital storefront to enhance its PC games online storefront, appointed a new head of digital media, and claimed that it would become the world's biggest digital aggregator. That's certainly a lofty goal - sort of strikes us a lot of chest thumping. The problem for GameStop is that they're way behind the digital wave; services like Valve's Steam, Microsoft's Xbox Live, Sony's PlayStation Network, InstantAction's digital browser platform and others are all making big pushes.
"I think that they are too far behind digital services like Xbox Live. Over 70% of content sales happens on the consoles," Michael Pachter of Wedbush Morgan Securities told IndustryGamers. "If you have a 360, you don't need an aggregator, since Microsoft won't let you go to the Internet and download content anyway. This has been part of Microsoft's strategy from the beginning: THEY want to be the aggregator for their console, and Sony will follow suit with PSN. The Wii Plus (HD) will likely have a hard drive, and the Wii Channel will be the aggregator there. Bottom line, unless the console guys open a gateway to the Internet, GameStop has no place as an aggregator."
David Cole of DFC Intelligence agrees. "Of course, GameStop has been a leader in the brick and mortar retail business and has been one of the most high flying game companies in recent years. However, GameStop's very existence will be perilous as digital distribution becomes more prevalent," he told us. "Physical retailers have a mixed bag when it comes to moving to the online world. Further complicating matters is GameStop's dependence on the used game business which causes some conflict with the publishing community. It makes sense for GameStop to move into digital distribution, but the company's success in this area is far from guaranteed."
He continued, "It is a very different business from what they are used to and the competition will be intense. I think the first goal is to build their digital aggregation business so that they don't go out of business as digital distribution expands. It is nice to say you will become the world's largest digital aggregator but that will be a long road to travel."
It's a tough pill to swallow for GameStop, no doubt. That said, GameStop could use its booming business to make some acquisitions in the digital space. In fact, two different analysts that IndustryGamers reached out to for this piece said they couldn't comment on the record (and analysts rarely turn down opportunities to comment). It's clear they know something, and GameStop may have a big move up its sleeve.
GameStop may still have a chance at a digital future, however, says Sterne Agee's Arvind Bhatia, who provided us with a differing viewpoint from Pachter and Cole.
"I believe GameStop can stay relevant and co-exist in a digital world. They can potentially become the go-to place for customers who see better value in downloading games just like they have in the physical world," offered Bhatia. "GameStop already does this for several PC games, as you know. My view is that if GameStop aggressively and proactively pursues/embraces the digital marketplace, they can be a part of the solution for the publishers. Rather than each publisher developing the infrastructure for downloading, it would be more efficient if Game Stop became a portal. Except in some circumstances, customers usually don't know which publisher developed a given game and thus don't know which website to go to for downloading. But most of them are already aware they can buy a video game at GameStop. GameStop is synonymous with games and they can (and I think will) take advantage of that as the world migrates towards digital downloading in the next 5 to 10 years."
It's certainly far too early to proclaim the death of GameStop, but we're more inclined to agree with Pachter and Cole than Bhatia on this one. Nevertheless, GameStop is a massive corporation, and you can't count them out.
2 Comments
August 31, 2009
In five years digital distribution still won't be where the majority of consumers purchase their content, unless it's for download-only content.
Many consumers(like me) would much rather have something physical(case, manual, disc) to show for our purchases as opposed to nothing at all. And although people download music alot these days, some of us still buy cds and don't have an MP3 player.
Digital downloads won't be the norm for atleast ten years and probably closer to twenty years.
August 31, 2009
THE 1 2 P, I could see it possibly taking 10 years, but 20 seems to far off. Digital distribution is already making big strides right now. This stuff can accelerate pretty quickly.