GameStop Says Addressable Market for Digital Distribution Won't Exist Until 2014

In addition to bringing us word on GameStop's expectations for a meaningful PS3 price cut, Sterne Agee analyst Arvind Bhatia also has reported on the leading video game retailer's thoughts on digital distribution. As the industry moves more and more in the digital direction, brick-and-mortar will no doubt feel the pinch. GameStop doesn't think it'll be a problem for another five years, though. 

Bhatia noted that GameStop's management “has been monitoring and studying the capabilities of digital downloading and its potential adoption over the last several years” and they've recently “conducted the most thorough study to-date on its capability.” The study provided the following key takeaways (as outlined by Bhatia): 

• An addressable market (due to technology rollout) will not exist until 2014 – at that time approximately 25% of population will have access to the technology required to download full games.
• Users would still face issues of price (could cost ~$100/month) and storage capacity.
• Consumers are willing to pay ~$39 for downloadable game so publishers will be less incentivized than some in the industry think.

So what happens when digital distribution does start to directly affect GameStop? “Management... feels that digital growth and brick and mortar growth can co-exist,” said Bhatia. “Through their brick and mortar locations, the company can help facilitate and capitalize off digital. Overall, management did not seem at all concerned about the near-term threat but instead is looking at ways to potentially profit from digital.” 

We're already beginning to see the transformation with Sony's upcoming PSP Go, but according to SCEA's director of PlayStation Network operations, Eric Lempel, retailers are actually pleased with the device. After all, they still get to sell the hardware, and since there's a digital push with the platform, retailers also benefit from selling PlayStation cards, which customers can use to purchase items on PSN.  

Eventually, though, IndustryGamers thinks that GameStop and all retailers will be hurt by the digital revolution in the games industry, as video games move away from the boxed product model and towards the games as a service model that John Pleasants is so passionate about. If GameStop doesn't want to see its stock tank, the company will have to start thinking about how to transform its business for the near future.