+ Watch GME
on My Watchlist
The Company is a retailer of video game products and PC entertainment software.
S & P 5 star, 48
Holiday season and new gaming platform releases.
Hopefully Xbox One and PS4 drive revenue in 4Q
new platforms coming
GameStop is actively disliked by consumers, plus digital distribution is the future.
With the new Xbox & PS coming out, I think this stock is getting ready to move.
going with a cramer hunch
I see two main reasons: 1) the shift to digital distribution 2) an increase in mobile gaming (which could lead to stagnation/slower increase in the non-mobile gaming industry)
Kids and adults can not get enough of their video games. The new XBox and Playstation platforms will be huge revenue generators over the next several years.
The shift to digital distribution is going to kill GME's business model.
Ps4 & xbox one
Microsoft's reversal on used game policy will give a boost to gamestop...for now
PS4 and Xbox One
Regardless of which new gaming console dominates the next few years, GameStop historically does well during next-gen console releases and releases of franchise sequels. Since both are set to play a factor in the next 16 months, GameStop will perform very well in sales.
INTRODUCTIONGamestop, as a company, has undergone a massive transformation even over the past decade. What used to be a personal hub for gamers like me, is now fading into the past. A lot of invenstors don't see it in decline, however - Instead, they see GameStop as the major player in the future of gaming. They see a rising and expanding industry, and why not have GameStop at the center? As I've watched, I've been shocked to see GameStop's stock up almost 100% in the past year. It's become clear to me that investors don't understand the gaming landscape, so I started shorting GameStop heavily, and wrote this up to explain my reasoning. Since this is an extremely long article, I've divided it up into four shifts in the gaming landscape, each of which is either likely or just possible. What I really want to stress is that only one of these events needs to happen for GameStop to be in huge trouble. Again, if you only agree with one of these possibilities, you're already predicting the oncoming decline of GameStop.PART 1 - Digital Distribution The first big threat to Gamestop is the shift to Digital Distribution. Now, this has already happened with PC gaming. Services such as Steam, Origin, battle.net, and even Amazon's distribution network have all essentially taken over as distributors of PC games in the west. These networks are so ingrained into PC gaming culture now that when you do buy a game at retail, like Black Ops 2, or Borderlands 2, you have to activate the game through these networks before you can start playing it. So... why the lag with consoles? Well, a lot of people will argue internet speeds, or that console games are different. But I have a different theory. Digital distribution isn't prevelant on consoles because most consoles are limited by hard drive space. When the Xbox 360 first launched, the elite version only had 20gb of hard drive space. To put that in perspective, a DVD has 4.7gb and a blu ray has 27gb. And while newer consoles definitely have more hard drive space, the early ones didn't. It would be hard to try to push a digital distribution network when a significant portion of your base couldn't possibly use it. With the next generation of consoles, we can already see a huge commitment to digital just in the hard drive decision. Both Sony and Microsoft have stated that the next consoles will have 500gb hard drives. That's pretty interesting on their parts - they could have shaved off 25 or 50 dollars on the final price by dropping down hard drives to 60gb or 120gb. Instead, they both said "no, we think digital distribution is going to be big, and we are going to make sure that every console in the next generation can support it." With PCs, you saw a very gradual shift because there wasn't any "new PC generation" - slowly but surely, everyone upgraded to the point where they met the basic requirements to participate in digital distribution. And now, here we are where the majority of the PC gaming market is in digital. I think you'll see something similar with consoles - once you enable people to meet the basic requirements of participation, a lot of people will make the switch, at least partially. The point here is that, until the Xbox One and Playstation 4, most console gamers didn't meet the basic requirements for digital distribution network participation. Now that they do, you can expect a large portion of Gamestop's market share to shift to digital. The last thing I want to say here is that when a lot of people frame digital, they ask "if it will happen," or "when it will happen," but I'm actually going to argue that it has already happened. Minecraft, for example, is one of the largest games in the world, and it was mostly distributed digitally for console gamers. The Walking Dead, which won numerous game of the year awards last year, was dependent on digital distribution for its episodic model to work. The best example, however, is Netflix. Netflix is a digital distribution service. It is - there's no other way to put it. The fact is that most console gamers have ALREADY used their console to access a digital distribution network. The only upcoming change is it will be for games in addition to movies and television. However, you might say "no, console gamers are different - they want to trade their games, and they won't tolerate digital." I don't think so - there are just so many benefits to digital distribution. The most obvious is the convience factor of being able to get your game delivered to your living room - no going to a store, no paying for shipping and handling. The bigger benefit, however, is that games themselves aren't constrained by inventory and shelf space. This means that you have access to almost ANY game, even ones that retailers wouldn't have in stock. Just to use an example, let's say you're a late comer to the Call of Duty franchise, and you wanted to go and get a copy of the original Modern Warfare. Right now, that'd be pretty tough! It's a 6 year old game. It's unlikely you'll find a new game at a retailer, and it's even pretty unlikely to be found as a used game. Being able to access this digitally is a huge win for most consumers, and arguably a much bigger threat than the day-1 new release games. As soon as you start gamers on the path of "get older games digitally," you're cutting out GameStop from future sales. And lastly, digital distribution enables business models that previously didn't exist. I already mentioned The Walking Dead, which has an episodic business model. I also mentioned Minecraft, which was originally an indie game that offers a non-triple A experience and was sold for $20. Dust 514 is on the Playstation 3 and is a 100% free to play game. "But no," you'd say - "what about people with bad internet connections?" Well, first, I'm not saying that retailers will go away, just that they're going to lose a lot of market share as games distributors. Second, if you have a connection right now that can stream Netflix while still normally using the internet, odds are you have a connection that's good enough to participate in digital distribution. But lastly, and perhaps most importantly, is that it's naive to think current broadband capabilities will be the same over the current console generation. Over the past console generation, we went from having DSL internet to having the same connection speed on your smart phone. We've gone from barely touching cable to now mainstream cable and barely touching Fiber. Our internet networks are going to continue to improve over the next 8 years in both speed and capability, so even if you can't access digital distribution now, odds are that you probably will be able to sometime over the next 10 years. Now I know that's not everyone, and I'm personally sensitive to members of our armed forces in particular, but I do think that this is the direction we're heading, and saying that the internet just isn't good enough for digital distribution is a big red herring. Now, the one argument I have heard that has a lot of merit to it is that Sony and Microsoft will have poor execution. And yes, this is possible, and if it does happen, it will severely hamper the rise of digital distribution on consoles. Let's be clear here: distributing gigabytes of data to millions of people is a very hard thing to do, and if Sony and Microsoft can't do it consistently well, people will lose faith. And because there likely won't be alternatives on your console, it will turn people away from digital all together. There's already evidence that this could happen, too - the Playstation network was down for almost a month in 2011 after getting hacked. If that were to happen on the next console generation, it would be even more catastrophic with digital distribution built in. The only bit of redemption I can given sony and microsoft here is that they clearly know how important their networks are to the next console wave. In fact, I'd argue that the single most important part of the Xbox one and playstation 4 is the online network. And I think some of the evidence I mentioned earlier points that way too. An interesting question to leave you with here is - will the next generation have disc drives? Is it even possible that the Xbox two or Playstation 5 won't have disc drives? Again, we're already seeing a similar trend with Music. We've seen this with mobile gaming and the wave of lower-end Android consoles coming out. If we admit that there's even a chance that digital could take over during the next console generation, how can we not think that GameStop is in trouble? To close out this point, the shift to digital is already happening. It's not an "if" or a "when" - it's already happening. And we're already seeing major investments from both Microsoft and Sony to make sure that it's successful, with decisions like 500 gb hard drives, announcements of Day 1 digital availability for all games, and a premium library of older games free to online users. And as it continues to happen, it will have a multiplicative effect on GameStop's business as it impeeds on both new and used game sales. To be clear, I'm not saying that digital distribution is going to kill retailers - please don't take my point that way. But I do think we'll see companies like Gamestop experiencing a rapid decline.PART 2 - Cutting Out Used Games Shifting gears here, but the second big threat to GameStop is publishers eliminating resale possibilities. Or more simply, killing used games. We now know from both Microsoft and Sony that the next wave of consoles will give publishers the option to
Overbought on the news. Little room for growth. Digital gaining more ground in new consoles.
Technology and competition are making a brick-and-mortar gaming store obsolete.
"Game over for used games: How Xbox One and PS4 could gut gamers' wallets"http://cnet.co/13Q22lbWe will probably learn more at the E3 conference in June 2013.In case SNE also switches to a fee model: More bad news for GME - although MSFT said it will somehow involve the retailers, details fuzzy at the moment.In this scenario, Nintendo's Wii U (so far very slow sales !) would be the only remaining console vendor allowing the sale of used games in 2014 as in the current cycle (PS3, Xbox360, Wii)!PS: GME will of course also continue to lose sales because more and more sales are digital via Steam (PC) or via console online shops (SNE, MSFT, Nintendo) - completely bypassing GME retail.
late to the underperform game, but still expect more decline to come.
New xbox does not support preowned
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