GameStop May Reconsider Digital Strategy
Video game/entertainment software retailer GameStop Corp., which in June 2009 was reportedly expecting digital video game distribution to not pose a significant threat to in-store sales until 2014, may be reconsidering that notion. Yesterday, GameStop appointed Shawn D. Freeman to the newly created position of SVP and GM of Digital Business.
Freeman, who has almost 20 years of senior management experience with various online businesses, will be responsible for overseeing the company’s digital business strategy and work with GameStop’s recently formed digital ventures group to maximize the company’s online retail and digital aggregation business. In a press release announcing Freeman’s appointment, GameStop said Freeman will follow a “multi-channel approach that embraces GameStop’s more than 6,200 stores across the globe as well as the company’s commerce-enabled website GameStop.com.”
This heralds a potentially significant departure from GameStop’s position on digital distribution in June, when research firm Sterne Agee 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 predicted online customers would have to pay as much as $100 per month in unspecified costs to download games and need significant storage space. According to GameStop research conducted earlier this year, 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.
However, slumping financial performance in Q2 2009 may have changed GameStop’s perception of the continuing strength of the brick-and-mortar video game channel. During fiscal 2008, GameStop reported a 38% net earnings increase to roughly $232 million, and a 24% total sales increase to $3.5 billion. During Q2 2009, GameStop reported a 3.7% decrease in net sales, 32.3% decrease in net earnings, and 14.1% decrease in comparable store sales. GameStop attributed the drop in sales and earnings to the effects of the recession and a strong 2008 performance, and cited lower new console unit sales and a lack of strong new software titles.
GameStop is still projecting positive earnings growth during the second half of fiscal 2009, but has lowered and widened the earnings forecast it initially released at the end of fiscal 2008. In-store video game sales are facing an increasing amount of non-store competition, both from digital download and other sources.
Online retailer Amazon launched a casual games portal in February 2009 that allows customers to purchase digital downloads of video games. In addition, media entertainment retailer Blockbuster, Inc. piloted an online video game rental program in Cleveland, OH this past summer with an eye toward national rollout by year’s end. The program allows certain customers to pay a monthly rental fee for the ability to select an unlimited number of video games online and have them sent by mail, one game at a time.
In addition, discount retailer Wal-Mart has been piloting self-service kiosks that allow customers to exchange used video games, and consumer electronics retailer Best Buy is also piloting a kiosk-based used game trade-in service in select Texas locations. GameStop, which does not use kiosks, has been reported by the Wall Street Journal to control 90% of the U.S. used game market. In May 2009, Best buy launched a digital media fund for the express purpose of exploring digital content distribution possibilities, including those for video games.