Brick-and-mortar still dominates the video game landscape in today's industry, but digital distribution has carved out a nice chunk of the market as well. For now, many would argue that the two are complementary to one another, but as times goes on, the balance is likely to shift heavily in favor of digital. Some believe GameStop won't be affected significantly by the digital surge until 2017, but that hasn't stopped the leading games retailer from preparing for the digital future.
The company has already stated that it intends to become the "world's largest digital aggregator" and today further details regarding that strategy were revealed, thanks to Lazard Capital Markets analyst Colin Sebastian. At a GameStop hosted sell-side only analyst meeting at the
NYSE, with new CFO Cathy Smith and IR Manager Matt Hodges, the retailer highlighted three key points to accelerate its digital aggregation plans: 1) increase in-store sales of online point cards; 2) expand the company’s digital distribution platform for PC and casual games (digital revenues doubled Y/Y); and 3) make a strategic investment or acquire an aggregator of online games.
GameStop currently has a market capitalization of nearly $4.2 billion. The company is a juggernaut at retail, in large part thanks to its used games monopoly, but if it's looking to become a leader in the digital space, we think an acquisition might be the only way for that to happen. For example, what would happen if GameStop bought Valve's Steam service? Valve probably wouldn't be too keen on letting that happen, but it certainly would give GameStop the digital boost the company is seeking.
In other GameStop news, the retailer's stock (GME) dipped about 8% to under $26 following the barely more than flat industry sales for September. Shares in GME today closed down 1.2% at $25.34. This fall and holiday season may prove a bit more difficult for the company than originally anticipated. "On the last earnings call, GameStop management guided to roughly flat industry software growth for 2009, which we believe may prove to be overly optimistic," said Sebastian. "At this point, we believe software sales for the year are trending to down 5%."
