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Is GameStop the next Blockbuster?

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October 09, 2009 – Comments (6) | RELATED TICKERS: GME , BLOKA.DL

I was thinking about this very subject a few weeks ago as I downloaded a game from the XBox Live Marketplace and the following article reminded me of it, Video-game business still grappling with digital distribution

Why on Earth do people have to buy games on disc at the store any more? 

Hard drives are getting bigger and cheaper by the day.  More and more people are gaining access to high-speed Internet.  To me, it seems as though it will be only a matter of time before most games are downloaded rather than played off of a disc.  If so what does that mean for old-school game retailers like GameStop (GME).  If the trend of downloading games rather than buying them at the store continues, are traditional game retailers doomed like Blockbuster (BBI) was destroyed by the demise of the conventional video store?  It could be a number of years before it happens, but I suspect that there is a good chance that GameStop will eventually be toast.

Thoughts?

Have a great weekend. 

Deej

6 Comments – Post Your Own

#1) On October 09, 2009 at 5:55 PM, Tastylunch (29.28) wrote:

I used to be a gamestop shareholder was a for a long time (actually I liked Electronic Boutique's mgt better and wasn an EB shareholder)

that being said I think Gamestop has some good things going for that BBI didn't

one) it's a specialist/niche retailer not mass market, it's easier to survive on that in some way. they need to appeal to less people.

two) used games, big draw for them and very profitable, plus it helps the consumer *Feel* like they are making money because it gives them an easy dump off place for their used games.

three) very small sized stores. Cheap to setup, cheap to run. keeping games behind the counter really eliminates a  lot of shrinkage issues most retailers have.

four) gamer culture- it' sthe only store that seems to cater to it for better or wors. Teens love to hang out there especially when at the mall.

five) downloads will eventually happen but it will likely slower than people think. Even if they do happen the real growth is in portable gaming (DS, pSP) especially abroad as the consumer trades down and tech imrpoes portable games are a lot lot better than they were five years go quaity wise. data storage is still an issue there.

six) the preorder nonsense actually helps them control their inventory pretty well.

There's intense friction in the industry about who controls the download stream, I expect that to delay implentation. we are a long way away form any sort of standard.

Console makers are desperately fighting to stay relevant as the publishers are looking to circumvent them entirely.

This isn't something that's going to go away overnight, there's too muhc mney fighting it from differennt angles

GME's best growth days are likely behind it (which is why I sold it), but I don't see it going away anytime soon.

the download story of killing GME is already 6 years old. It may be coming but it's a glacier, you'll have plenty of time to get out of the way if you are a GME shareholder.

That being said I don't see the attraction in buying GME now. There are far better plays to be had.

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#2) On October 09, 2009 at 6:37 PM, G8BigBoom (66.66) wrote:

Nothing beats a hard copy of a program or game. I have the xbox360 and every time that sucker freezes you wonder if the hundreds of dollars of downloads and programs are ok. I would sure like a hard copy of my Nazi Zombie downloads just in case.

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#3) On October 09, 2009 at 6:50 PM, devoish (98.36) wrote:

Good post, good reply.

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#4) On October 09, 2009 at 8:12 PM, 1315623493 wrote:

Gamestop has some time to adjust their business model. One thing is for sure. They will be closing stores within the next 10 years. Nobody wants a middle man anymore for console games at least. 

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#5) On October 09, 2009 at 11:48 PM, anticitrade (99.60) wrote:

GME recently showed up high on my (automated) list of most undervalued companies.  This is likely a result of people anticipating lowered earnings in the future for the above mentioned reasons.  However, I think we may be a 5 or so years before we see significantly drop in their sells, so it may still be a good time to buy, if you can get out before the inevitable (at least it seems to be) drop in sells.

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#6) On October 10, 2009 at 12:46 AM, memoandstitch (< 20) wrote:

They aren't doomed but the their golden age has passed (fortunately, buy-and-fold philosophy led me to sell at $48).  We still need a place that sells hardware e.g. xbox, rockband guitar, Wii remote, etc.  It's also harder to pirate games on discs than games on wires (download).  Consumers love buying and selling used games.  Publishers won't be able to command $50 a game if they are sold via download (because those games don't have resell values).  People still line up in front of gamestop on launch days because publishers don't have enough resources to distribute 3GB games to 3000000 gamers via download within 24 hours (that would require a bandwidth of 833Gb/s). 

Of course, these issues can be solved but it will take at least 7-8 years.  Hence a P/E of 9 is fair.

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