Retailer GameStop has been quite clear about its intentions in the digital space. It wants to be a part of it in a big way, and the company believes that publishers can benefit. GameStop has kicked off its in-store downloads program with the new Lara Croft Xbox Live digital title, but the long-term impact of GameStop's push in the digital space remains questionable.
Following the company's Q2 earnings report, Wedbush Morgan Securities analyst Michael Pachter has chimed in, noting his doubts about the retailer's digital downloads program.
"We remain skeptical about how GameStop will participate in digital distribution," he said. "It has been working with Microsoft for over a year to develop effective point-of-sales technology for DLC, and with major publishers to offer exclusive in-store content (for example, GameStop will be the only company to offer Spartan armor for Halo: Reach when it is released next month). In addition to its efforts with Microsoft, GameStop will also offer Sony DLC for the first time in Q3. GameStop believes that it has a distinct advantage over its competitors due to its store footprint and marketing ability. After a successful trial run in 35 test markets in the spring and summer, the company will complete a full DLC kiosk rollout in Q3. While we agree that the DLC opportunity is large and growing, we are skeptical that it will be a sales growth driver."
In the end, the digital push won't do much to prevent the eventual harm to physical sales, Pachter believes. "We think that DLC will at best forestall the inevitable cannibalization of physical disc sales and allow GameStop to capture a small percentage of this cannibalization, with relatively insignificant margin contribution," he said.
Pachter also noted that program's like EA's Online Pass and THQ's recent online code efforts have done little to hurt the retailer's massive used games business. GameStop "has not seen a negative impact on used software sales from first-use codes or new competitors in the space. The company estimates that only 25% of used game buyers play online," he said, adding that "another benefit of the in-store DLC kiosks is that they will allow used game customers to purchase first-use codes in a more convenient and informative manner."
3 Comments
August 20, 2010
RIP gamestop!
August 22, 2010
Great Job Indy, wish stores that employee 5 or people, X about 4,500 stores go out of work... *bravo*
August 22, 2010
The problem for GameStop is that full-on digital distribution would cannibalize their brick-and-mortar business, or so they believe (probably correctly). So internally they are conflicted... they realize digital distribution is the future, but if they push it hard right now they will lose retail store dollars, which likely won't be made up by increased digital sales. So they take half-measures... which is why they are likely to not end up with a lot of share in the digital distribution space.
GameStop needs to realize that their business is threatened and they are gonna lose sales in any case, so they're better off losing the sales to their own division. But that's a very hard call to make.
Which is a long way of saying I think Pachter's right.