GameStop Downplays Digital Distribution
Video game/entertainment software retailer GameStop Corp. expects that the retail market for video games should remain strong for several years, with digital distribution not posing a significant threat to in-store sales until 2014. According to Gamasutra, GameStop management discussed results of proprietary research into digital video game distributionwith analyst firm Sterne Agee.
In a research note, Sterne Agee analyst Arvind Bhatia reported that GameStop management conducted research indicating digital game distribution will not have an “addressable market” until 2014, at which time only 25% of consumers will possess the technology to download full games. Even then, GameStop predicts online customers will have to pay as much as $100 per month in unspecified costs to download games and will need significant storage space. According to GameStop research, consumers will only pay $39 for a downloaded game, less than the typical retail price for a new video game cartridge, which can cost $69.99 or more.
GameStop’s financial results suggest in-store video game sales are still healthy. In fiscal 2008, GameStop reported a 38% net earnings increase to roughly $232 million, and a 24% total sales increase to $3.5 billion. During fiscal 2009, GameStop expects total sales growth from 10-12% and comparable store sales growth from 4-6%. GameStop also expects new video game software sales to increase 5-10% during the year.
In addition, GamerDoc, a privately-held franchiser of video game stores which does not release financial figures, is showing signs of financial health through aggressive franchise expansion plans.
Struggling consumer media entertainment retailer Blockbuster attributed domestic same-store sales increases in Q4 and fiscal 2008 to improved sales of games, game merchandise and consumer electronics. However, in Q1 2009, Blockbuster cited game inventory obsolescence as one of several factors contributing to declines in operating and net income. Blockbuster opened a game-themed concept store in The Colony, TX in May 2008, and also may distribute both physical and downloaded video games via its Blockbuster Express self-service kiosks.
Despite GameStop’s predictions, Blockbuster is hedging its bets on in-store video game sales. The retailer is piloting an online video game program in Cleveland, OH this summer, with plans for national rollout by year’s end. Online retailer Amazon is also in the video game download mix, having launched a casual games portal in February 2009 that allows customers to purchase digital downloads of video games. Online media entertainment retailer Netflix, a major provider of digitally downloaded DVDs, does not currently offer video games. And GameStop itself currently offers video game downloads at full in-store price, demonstrating the retailer is hedging its own bets, as well.