The Emperor of Video Games Has No Clothes

• Report this Comment On March 02, 2010, at 2:40 PM, TyrantBone wrote:

  I've said it a dozen times, but digital distribution cannot be supported with the current wave of consoles. They can't fit enough games on the drive!! If Sony's Bluray discs come with 25GB of space, even a 300GB version wouldn't be good enough (which don't exist). Also, good luck downloading 25GB over a network (over a day download), convincing consumers they can't take their games to a friends house, and having everyone onboard. Digital distribution is a long ways off.

  I don't like GameStop for other reasons, but I'm sure the price will make a small comeback since it's a premature oversell.

• Report this Comment On March 02, 2010, at 2:41 PM, TyrantBone wrote:

  I've said it a dozen times, but digital distribution cannot be supported with the current wave of consoles. They can't fit enough games on the drive!! If Sony's Bluray discs come with 25GB of space, even a 300GB version wouldn't be good enough (which don't exist). Also, good luck downloading 25GB over a network (over a day download), convincing consumers they can't take their games to a friends house, and having everyone onboard. Digital distribution is a long ways off.

  I don't like GameStop for other reasons, but I'm sure the price will make a small comeback since it's a premature oversell.

• Report this Comment On March 02, 2010, at 3:05 PM, flash1939 wrote:

  I like the research TyrantBone put into his article. If game users can,t take their games with them the product will not be used. Another point is will the blue ray players be purchased in numbers substantial enough to make the product viable for use. I thought we were in a recession!! Are sales of blue ray players going that great??? I agree the technology and players are off in the future and over the foreseeable future I don't expect GME looosing sales at great enough numbers to send up a surrender flag. I'm sure GME isn't going to sit back and let their business be gobbled up by competitors!! My money is still on GME!!!

• Report this Comment On March 02, 2010, at 4:52 PM, LAFrankie wrote:

  Once again it blows me away that credible sources such as The Motley Fool can publish ignorant editorials like this. The 'future is now' cries no longer carry much weight behind them, Mr. Bylund. Investors need facts based on today's technology. I understand it is popular to bash brick & mortar stores now-a-days, but let's not get ahead of ourselves with something you don't understand.

  In regards to the gaming industry -- today's consoles are nowhere near ready for digital distribution (DD.) Yes they have hard drives averaging 120 GB, yes they have Ethernet capabilities, but there are other factors at work here. Let's start with bandwidth. 40% of homes lack high speed Internet today (source: Commerce Department Feb 2010 report.) Have you tried to download a full game release over dial-up? It's not happening.

  Growing size of today's games not only include the install disc(s) but also branch out to Downloadable Content (DLC) - smaller installments that extend the life of the game. Single layer Blu-ray (BD) can store 25GB. PS3 demos are typically 1GB in size, hence making it quick and easy to D/L a game, try it out, and then delete it from your limited HD. People are not ready to spend 5 hours downloading a full release. It goes against instant gratification (sorry there is something to be said for walking into a store, dropping your coin and walking out with product in hand.)

  With DD, the gamer is completely robbed of free choice upon completion of the game. There is no resale value, no loaning it to a friend, no trading it in for a new game. You pay, your download, you delete. End of line. Sounds a lot like a waste of money to me.

  There are other reasons why Gamestop should be worried in 3-5 years, but DD is not one of them. Publishers may fight back against the used game trade, they may decrease game titles in favor of DLC to prolong revenues, and then there is the mobile gaming craze which GME gets a ZERO cut. Readers and investors should not be swayed by so-called professionals that cry wolf and say the future is now for DD. It's referred to the "future" for a reason, people.

• Report this Comment On March 03, 2010, at 12:31 AM, easyavenue wrote:

  Please pardon my ignorance. How does gaming online fit into the equation? I thought online is the future of gaming, not digital downloads? Please explain?

  Thanks!

• Report this Comment On March 03, 2010, at 9:40 AM, EquityBull wrote:

  I agree with the commenters above that digital download is not a threat anytime soon. The games are too big, download times for the average internet broadband connection can take well over 24 hours. 1/3 of all US households do not have broadband as stated above. This is fact.

  The ONLY threat I see against Gamestop and the entire console based video game industry is that gamers may spend more time on casual gaming on ipod/iphone/iPad. Also more time is being spent on social sites like Facebook.

  I see it with my own son where a year or two ago he would live on the PS3 and Wii. Now he sits down and plays the games on the iPod Touch at least half of the available game time we give him. Could he be typical of the average upcoming gamer? Judging by his friends use of their ipods for gaming I would say yes.

  So as more gamers spend time on these other devices which are solely digital download (again speaking of the ipad/ipod/iphone) we will see some demand softening for all console games. At some point the novelty of simple small screen games will give way to the ever increasing complexity, speed and graphic rich console games as all gamers typically want variety. I see the whole pie getting bigger this decade plus we'll have a full console upgrade cycle in the coming years.

  Gamestop is far from over. The entire industry was down last year about 9%. GME was also down the same amount. The tide went down for all as discretionary spending was reduced. If you wanted to theorize about this being a GME specific issue then you would have to see the game producers having great quarters but GME having soft ones. That would tell you that games are getting sold BUT just not through gamestop. Maybe through Amazon, Best Buy or downloads. However this was not the case. The whole industry was down and GME merely followed it down in lockstep proving the recent softness is not digital related but instead macro-economic and industry related.

  One other point of comparison is that the game industry is one of the few that has tough comps here. While the rest of retail was down 40% a year ago the gaming industry was doing just fine. At 5 times cash flow here the market has it wrong and I am confident we'll see a price north of 35/share within the next 12 to 24 months.

• Report this Comment On March 03, 2010, at 9:41 AM, EquityBull wrote:

  I agree with the commentators above that digital download is not a threat anytime soon. The games are too big, download times for the average internet broadband connection can take well over 24 hours. 1/3 of all US households do not have broadband as stated above. This is fact.

  The ONLY threat I see against Gamestop and the entire console based video game industry is that gamers may spend more time on casual gaming on ipod/iphone/iPad. Also more time is being spent on social sites like Facebook.

  I see it with my own son where a year or two ago he would live on the PS3 and Wii. Now he sits down and plays the games on the iPod Touch at least half of the available game time we give him. Could he be typical of the average upcoming gamer? Judging by his friends use of their ipods for gaming I would say yes.

  So as more gamers spend time on these other devices which are solely digital download (again speaking of the ipad/ipod/iphone) we will see some demand softening for all console games. At some point the novelty of simple small screen games will give way to the ever increasing complexity, speed and graphic rich console games as all gamers typically want variety. I see the whole pie getting bigger this decade plus we'll have a full console upgrade cycle in the coming years.

  Gamestop is far from over. The entire industry was down last year about 9%. GME was also down the same amount. The tide went down for all as discretionary spending was reduced. If you wanted to theorize about this being a GME specific issue then you would have to see the game producers having great quarters but GME having soft ones. That would tell you that games are getting sold BUT just not through gamestop. Maybe through Amazon, Best Buy or downloads. However this was not the case. The whole industry was down and GME merely followed it down in lockstep proving the recent softness is not digital related but instead macro-economic and industry related.

  One other point of comparison is that the game industry is one of the few that has tough comps here. While the rest of retail was down 40% a year ago the gaming industry was doing just fine. At 5 times cash flow here the market has it wrong and I am confident we'll see a price north of 35/share within the next 12 to 24 months.

• Report this Comment On March 16, 2010, at 4:00 PM, LutherCymru wrote:

  Ah, you fools! (sorry). Digital downloads are already here, at least in PC gaming, which has traditionally been ahead of consoles by about this time after their release.

  Those who say downloads are too big, that it's far off, that it's not practical, please take a look at Valve (http://store.steampowered.com/about) software's Steam distribution service which has been distributing PC games now for quite some years now and is soon to be rolled out for Macs also.

  Games on steam are just as large as those on consoles and are often actually the same games that are available on consoles, just with better graphics settings. Games can quietly pre-load in the background, ready to play on the day of release.

  It's fast, convenient and I've bought most of my games this way for the past 5 or so years.

  Bricks and mortar shops have taken huge margins from game producers and publishers, giving back a limited service and hurting the industry with re-sales that make the games industry nothing. Online distribution has an infinite shop shelf and the margins they take are nowhere near those of shops.

  It's sad to see any industry suffering but those who say it's far off - look to the current generation of PCs to see what the next generation of consoles will look like.

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