Amazon Respawns, Frags GameStop

Toys "R" Us isn't the only retailer circling GameStop's (NYSE: GME  ) turf these days. Amazon.com (Nasdaq: AMZN  ) is also making a run for GameStop's lucrative video game resale business.

"Video Games Trade-In" is the latest virtual storefront at Amazon. Gamers with titles in original packaging can make a little extra money by selling their former favorites to the online retailer. Amazon covers the shipping fees and credits an account once it receives the shipment.

Since Amazon is selling everything from clothes to food to digital downloads these days, Amazon credit is as good as a suburban mall shopping spree.

The trade-in values are more than fair. Amazon will buy back your used PS3 copy of Tiger Woods PGA Tour 09 for $20, a title it sells new for $46.99. An Xbox 360 version of Gears of War 2, selling new for $53.99, can be sold back for $22 after you tire of it.

At the very least, this will keep GameStop's trade-in values honest. Investors will want to see whether Amazon forces GameStop to work off thinner margins. Blockbuster (NYSE: BBI  ) also sells pre-played games to make room on its racks, but GameStop has elevated this niche to high art.

However, GameStop isn't the only company biting its nails. Video game publishers like Take-Two Interactive (Nasdaq: TTWO  ) , Activision Blizzard (Nasdaq: ATVI  ) , and THQ (Nasdaq: THQI  ) have to be livid. They don't make a single penny on game resales. If the dour economy dries up and folks just start swapping games, the developers are toast. There will naturally be a market for new releases, but as competition for gamers' hearts and thumbs increases, it's shrinking all the time.

Software companies will no doubt fight back. They are already migrating to digital delivery, bypassing the retailers entirely. Since there isn't a market for swapping console downloads, publishers may have the last laugh on masters of resale.

For now, at least, you have to like Amazon's chances. It is responding to both a real-world retailer's successful model and the needs of cash-strapped gamers. Amazon may win this battle, but the war is only beginning.

Other cheat codes for investing:

Take-Two Interactive Software is a Motley Fool Rule Breakers recommendation. Amazon.com, Activision Blizzard, and GameStop are Motley Fool Stock Advisor selections. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz loves playing video games, but he doesn't own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool's disclosure policy pwns noobs -- but politely.


Read/Post Comments (10) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 05, 2009, at 4:11 PM, imalost wrote:

    Amazons is a PR company that puts out constant propaganda to manage their stock price. No substance to anything, they won't tell you how many kindles they sold. They work just as hard in managing their company as they do their stock, meanwhile the insiders constantly sell. Imagine if Amazon's sales doubled, maintaining margins constant. They would make 2.94 a share and still sell for over 22 times earnings. How easy is it going to be to double sales in this economy. Amazon is a scam and the games news is more hyperbole to boost their already bloated stock price up.

  • Report this Comment On March 05, 2009, at 6:20 PM, jlwood830 wrote:

    What makes GameStop special in this niche isn't just the "used game resale", but rather it's the interaction and expertise with the gamers/salespeople in GameStop Stores that entices people to use this particular store's services over and over again. I don't get that same feeling from Amazon. I'm both a gamer and investor.

  • Report this Comment On March 05, 2009, at 8:06 PM, TMFMarlowe wrote:

    Rick, you totally win at headlines today.

    John Rosevear

  • Report this Comment On March 05, 2009, at 9:05 PM, jacoborjake wrote:

    Yes, this headline rocked!

  • Report this Comment On March 06, 2009, at 9:40 AM, rpprnotashrddr wrote:

    In regards to publishers...I'm not entirely sure that resale hurts them all that bad.

    couple things:

    A bunch of kids and adults will trade in games to get hands on newly released must have new titles... not necessarily once must have used titles.

    Did video rental shops crush new game sales back in the rough periods of the 80's and 90's?

    Doesn't the used game market need NEW un-used games to keep the cycle going?

    Something to consider at least, in giving the resale factor proper weight against publishers.

  • Report this Comment On March 06, 2009, at 10:37 AM, rtlairfoil wrote:

    Amazon may be buying the product, but most states, counties, and some cities require all items purchased in their local to be reported to the controlling agency which may be Police(Virginia beach, VA), Sherrif(Broward County,FL), or State department of commerce (Utah). In my experience all of these differing agencies will want the purchase to be reported in their file formats and according to their requirements. Almost all of which are significantly different. In many cases items purchased must be held for for a number of days after they are reported to the authorities. Just because the item was purchased through the mail does not seem to eliminate this reporting responsibility. It will be a major corporate issue if each of these states sues Amazon for conspiring to facilitate the sale of stolen merchandise - across state lines no less making it a federal offense.

  • Report this Comment On March 06, 2009, at 10:42 AM, ChuckFullOfNuts wrote:

    jlwood830 said:

    What makes GameStop special in this niche isn't just the "used game resale", but rather it's the interaction and expertise with the gamers/salespeople in GameStop Stores that entices people to use this particular store's services over and over again. I don't get that same feeling from Amazon. I'm both a gamer and investor.

    ------------

    Man, you must have the world's single best Gamestop in your neighborhood. I am also a gamer and investor and I have never ever ever heard *anyone* speak of shopping at Gamestop as anything other than a pain in the you know where.

    Granted, I don't think I'm in their target demographic, but really, to say the interaction and expertise of the employees is what brings people back is a fantasy.

    BTW, I completely prefer the "atmosphere" of shopping at Amazon.com to that of going to Gamestop.

    There are obviously enough people who prefer each company, as I don't think this is an either-or debate, though. So while I think Amazon's entry will provide more competition to Gamestop, I don't think it's "game over, man" for them.

  • Report this Comment On March 09, 2009, at 1:56 PM, angelcar wrote:

    A little too gloomy and doomy for my taste regarding the imminent demise of publishers at the hands of resellers.

    How exactly would GameStop or any other reseller survive if publishers get driven out of business...?

    Come on...

  • Report this Comment On April 29, 2009, at 11:16 AM, SekouMurphy wrote:

    It'll be interesting to see how this pans out...

    GameStop CEO responded to this question by saying that the model employed by Amazon was tried by GameStop and didn't t work - people who want to trade in games don't want to wait to get a new game. And those who don't mind waiting, are better off selling their games on platforms like Amazon and keeping more of the money.

    I wrote about video games being recession proof. Check it out:

    http://phrenzie.com/2008/04/28/video-games-netflix-amazon%E2...

  • Report this Comment On April 29, 2009, at 11:18 AM, SekouMurphy wrote:

    Btw - seems like publishers and developers should've been upset with Amazon years ago as people sell their video games on Amazon's platform. Publishers don't make any money on those games either...why should GameStop all of sudden be any different.

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