GameStop and the Hard Truth

Jul 03, 2012 02:22 PM EDT | By Luke Caulfield

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    (kotaku.com)

With EA's recent announcement to go completely digital soon, it's difficult not to ponder the possible long term effects of such a move. First off, EA is one of the largest video game publishers in the world. As such, they carry an enormous amount of influence and sway within the industry. You can expect other companies to follow suit and pursue digital content to compete.

We've seen this sort of thing happen before with the music industry. Been in a Tower Records lately? Coconuts? FYE? Didn't think so. Why? You already know the answer, but for argument's sake, it's because the majority of people today get their music digitally. Four years ago, iTunes surpassed Best Buy and later Wal Mart to become the number one music seller in the US. And if for whatever reason you don't have "the app for that," which, as of this past March, has been downloaded over 25 billion times, there's still a whole slew of places to get your music, just not from traditional brick and mortar stores.

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Moving back to the movie and game industry, digital and on-demand services are also responsible for the downfall of Blockbuster. Faced with competition from Netflix and its own streaming video service, and movie onDemand services from various cable providers, Blockbuster went from having over 6,500 stores worldwide in 2010, to closing down more than 540 stores in the US the same year, and 400 in Canada in 2011. Its last hurrah was to introduce Redbox style kiosks to keep up competition, all the while continuing a steady financial decline. $900 million in debt, the store that was to local video stores that Starbucks was to mom and pop coffeehouses filed for bankruptcy in September of 2010, and was later acquired by Dish Network at an auction for a paltry $233 million.

It's even the same case for books (for those who still read), with e-reader devices like Amazon's Kindle. Like Blockbuster, massive, warehouse style bookstores like Borders that brought local, independent shops to their knees are now doing the same, due to the rise of their product becoming available in a digital format. It's arguable that its competitor Barnes & Noble has only been able to hold on by introducing its own e-reader, the Nook.

Based on these examples seen in the fall of Blockbuster, Borders, and various music retailers, it's not difficult to see where video game retailers will wind up provided they don't adapt to the marketplace. But that's very difficult to do when the medium is rendering them largely ineffective. Currently, almost half of GameStop's quarterly profits come from the sale of used games. Analysts believe that if GameStop loses its used games market, it will have to double its digital business to 80% of quarterly profits within the next year - a nearly impossible growth trajectory. The majority of GameStop's digital business has come from selling digital subscriptions to games like Call of Duty and Diablo. But when you can get games directly from a publisher, via a direct download through PSN, or XBLA, kiss any idea of selling a game back goodbye, and GameStop with it.

But good riddance, right? It's a dog eat dog world, and maybe it is a good thing that the big chains are finally getting a taste of their own medicine. By no means am I defending the retail or gaming industry. I don't make the games; I merely report on and write about them. As such, I'm primarily a consumer, and that's the side I support. Like EA President Frank Gibeau said, "the ultimate relationship is the connection that we have with the gamer. If the gamer wants to get the game through a digital download and that's the best way for them to get it, that's what we're going to do." Admittedly, I was late to the party when it came to downloading games to console. I don't think I hooked my PS3 to the internet for about 2 years. But when I did, I fell in love with my newfound ability to try out demos for upcoming games. Especially since at that point, my local Blockbuster was on the brink of going out of business.

However...I like something tangible, something you can touch and hold. Books and games on a shelf are almost like trophies. War and Peace? Oh yeah, I read that. Demon's Souls? Well, I'm still working on that one. Looking through someone's collection of albums or CD's can tell you things about them. 3 Nickelback albums? I think I have to go. Ultimately, I think it's ridiculous that you need a battery operated device to read a book. Also, despite my ripe old age of 26, I still do oh-so-enjoy my pre-order toys.

Maybe this is the best thing for consumers. But there are unfortunate limitations to the internet that have me worried about other publishers following EA's move to digital, and away from traditional stores.

As anyone with a PS3 learned last spring, networks, even game ones, are far from infallible. Sony was forced to take down its own network after suffering a security breach resulting in over 77 million accounts being compromised. Obviously, the intrusion and security risk was a major annoyance to anyone that had linked a credit card to their PlayStation wallet. But what really irked me was that I couldn't do anything involving online until Sony got its act together, fixed the breach, and got the network back up. What actually helped was that I could still pick up new games. I did suffer from severe Netflix withdrawal though.

Now, imagine that all publishers follow EA's move, and go online, and the network goes down. Again. That translates to no new games for you for the foreseeable future. 

It's events like this that make a move towards solely digital content questionable. Hopefully all the kinks will be ironed out before other publishers follow EA's lead...

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