I came across an interesting article today. It drew a parallel between a dominant brick and mortar retailer of entertainment of today, GameStop, and one of yesteryear: Blockbuster:
It’s 100% obvious that over time all game software is going to be downloaded. This is the same or worse than with movies. Already, 100% of the game content on smartphones is downloaded, and the same will quickly happen to consoles and to PCs. It’s just more convenient to download something that’s 100% digital versus going out to a store to buy it.
It’s also nearly 100% obvious that the digital content channel will be controlled by specific parties. There are Apple (AAPL) and Google (GOOG) (NASDAQ:GOOGL) when it comes to smartphones, through the Apple Store and Google Play. There are the console makers when it comes to consoles. And then only in PC gaming is there something of an open market, where for now Steam is the leader, with individual publishers and Microsoft also trying to be in the running.
Given the above, GameStop’s slide into oblivion selling gaming software is a near certainty, much like Blockbuster’s was. Gaming hardware is generally amenable to being sold online (standardized, bought on price), too, and is lower margin than software. Used game trading ends with digital sales.
Hence, GameStop has this permabearish thesis on it, and this thesis is real. Even before COVID-19 hit, GameStop already was reporting near 30% declines in revenues.
So online, GameStop leads in no part of the market. One area where they do lead, re-sale of used games, is probably going away because the games will be 100% digital. Ouch.
If they want to muscle their way into the online market, they’ll have to contend with giants like Microsoft, Tencent, and Apple that can crush them for a tiny fraction of their massive profits.
Their e-commerce business is growing rapidly, but it’s hard to imagine such a financially strapped and marginal company taking on so many wealthy and digitally native competitors.
What’s more, I would expect Amazon and Netflix to make major pushes in this area to compete with Google and Apple. Both are big players in entertainment and are unlikely to neglect the vast video game market.
For more on GameStop, check out these posts:
- The 2nd GameStop Hearing Just Happened. Here’s What You Need to Know.
- GameStop Short Squeezes Are Over
- Pattern in GameStop Bonds Spells Trouble For Reddit’s Favorite Stock
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