GameStop Falls on Microsoft's Stupidity

They're shoveling more dirt on GameStop (NYSE: GME  ) , but this time it's not the retailer's fault.

The small-box seller of video games and gear is stumbling after a renewed report suggesting that Microsoft's (NASDAQ: MSFT  ) new Xbox will not support used software titles. GameStop's shares fell as much as 11% this morning, and rightfully so. If there is no longer a market for secondhand games, the retailer will miss out on its most profitable business of buying back old releases for a pittance and reselling them at juicy markups.

Edge -- a U.K. magazine and website for die-hard gamers -- reports that the next generation of Xbox consoles will require activation codes on software installations that can only be used once. Since the state-of-the-art system also reportedly requires continuous online connectivity, there's no legal way to circumvent this safeguard.

This isn't a new story. Gaming enthusiast website Kotaku reported the same thing last summer.

"I've heard from one reliable industry source that Microsoft intends to incorporate some sort of anti-used game system as part of their so-called Xbox 720," Kotaku's Stephen Totilo wrote at the time.

Well, more details are starting to come out on the anti-used game protection, and it's not going to be pretty for GameStop. The shift to digital delivery was already making the strip mall staple scarce, drying up the supply for new releases. GameStop has hosed down its same-store sales guidance four times over the past year. Now it's getting hit with what will be a problem with the supply for old releases, too.

It's not just GameStop that's going to be hurting with this move, though.

Does Microsoft really think it can get away with this? Edge's report claims that Microsoft is finally following rival Sony (NYSE: SNE  ) into supporting Blu-ray as its optical disc platform of choice. The new system discs will have as much as 50 gigabytes of capacity, so the potential for these immersive environments to blow players away is huge.

However, does Microsoft really expect gamers to pay $60 for a game that can't be traded in or passed over to a friend when complete? Has Microsoft gotten that cocky? Yes, it's been the leading console maker in this country for two years, but this is a shrinking pie. Nintendo (NASDAQOTH: NTDOY  ) thought it would raise the bar when it introduced the Wii U in November. It has sold just 3.06 million Wii U units. Nintendo last week slashed its Wii U target for its fiscal year ending in March from 5.5 million to just 4 million units.

If gamers aren't buying systems that still offer secondhand value in the titles, how is Microsoft going to convince players that they should upgrade? The early adopters will storm in blindly. They always do. However, the more sensible mainstream gamers will have every reason to be apprehensive. Microsoft is gambling with something that will cost more than GameStop's highest-margin business. 

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  • Report this Comment On February 06, 2013, at 6:25 PM, techy46 wrote:

    Well it seems that if Microsoft spends the resources to do the R&D to build Xbox 8 (720) then gamers will just have to pay to play. Why is it we get article after article about the poor consumers and their right to get something for nothing. Go to WalMart buy a cheap console and games and shop your dollars and jobs overseas to Apple's goolog full of $45 a month laborers and quit complaining and whining about capitialism.

  • Report this Comment On February 06, 2013, at 6:45 PM, SuntanIronMan wrote:

    People pay full price for Stream PC games that can't be traded in (and general consensus is that Valve and Steam have been very successful; though since Valve is a private company, there is limited information about that). That isn't the problem.

    I think the real problem is who is going to keep on playing console games at all (for any console, using any distribution and authorization method)? Console and console game sales haven't exactly been stellar in recent years. If Microsoft and the Xbox 720 fail to product the same sort of numbers this next console generation, it won't be because of an anti-used game measure. It will because of other more long-term problems in the console gaming space.

    Microsoft did find success with the Kinect in the middle of the 360's console life. If Microsoft can delivery on more unique gaming experiences like the Kinect, that (among other things) will decide the fate of their next console. Not anti-used game authorization.

  • Report this Comment On February 06, 2013, at 6:48 PM, SuntanIronMan wrote:

    *If Microsoft and the Xbox 720 fail to -produce-...

  • Report this Comment On February 06, 2013, at 7:00 PM, Nomadder wrote:

    People don't always pay full price on Steam. Quite often there are sales giving as much as 75% off of titles people actually want (which is something you will NEVER see on Xbox Marketplace where games always cost more than used copies...).

    People sometimes pay full price, but Steam makes a boatload off of a (in all likelihood) much larger demographic that simply waits for those huge sales to come around.

    The used market has filled this need in the console sector until now. Take this away and it will be a problem, for many. I promise you that.

    I seem to remember GS issuing a statement that showed a high percentage of trade in dollars being used to purchase new games... Too bad they didn't send a copy of that report to MS.

    Look, if people have to pay $60 for every game, prices come down at MS's discretion (which is demonstrably more stingy than what is forced by relying on GS), there will be fewer games bought. With fewer bargain bin games (MS will never have a $5 section for older hits. If the current Marketplace is a guage, you will rarely see them drop below $20), then you will have fewer people buying new sequels to bargain games they tried on a flyer at GS.

    I could go on. There are so many ways in which this is typical short-sighted greed that will only harm the industry in the long run, but I guess it doesn't matter if MS (and Sony? I've heard rumors there as well) pulls the trigger on this.

  • Report this Comment On February 06, 2013, at 7:37 PM, SuntanIronMan wrote:

    @Nomadder

    And people don't always pay full price for console games as well. I never did (before I stopped playing console games completely about two years ago). There are sales of console games all the time at Amazon and Best Buy.

    This anti-used game system isn't forcing people to buy from the Xbox Marketplace (not yet, maybe the next console after the 720, if there is one). People can still purchase new games at a discounted price. They just can't purchase used games. Which is comparable to Valve and Steam.

    The problem is not going to be used-games. It is going to be people continuing to not buy console games. This has been a trend already. A trend I don't see stopping (or one I see getting much worse because of anti-used game measures).

    Will there be people who think twice about purchasing a game they cannot trade-in later? Yes, of course. But will there be many more people just naturally stop playing console games (no matter what) because of changes to the entire gaming industry? I think that's the real problem for GameStop, Microsoft, Sony and Nintendo.

  • Report this Comment On February 06, 2013, at 8:56 PM, Nomadder wrote:

    You're right, I seem to have gotten a little ahead of myself on the digital distribution thing. In my head I just link greater MS control with used-restriction and digital distribution simultaneously.

    That being said, the lack of used game sales will mean prices come down on newer ones much slower (no competition). The disposable "income" created by used game sales will no longer be spent on new games. Less cheap access to older works at will decrease sales of brand new sequels. Fewer new games will be bought as a direct result of all this, and the effects won't be at all negligible.

    But it does seem like we agree on the bigger issue here.

    While I do hold out hope that the extended console cycle is providing a false-positive on the supposed death of the industry,I also think that moves like this, along with similar customer-hostile moves from some other big gaming companies might end up making it a moot point in the end.

    At least gaming itself won't die.

  • Report this Comment On February 06, 2013, at 9:12 PM, Clint35 wrote:

    Why is Microsoft doing this? What are they going to gain from it? Do they hate Gamestop? Do they hate consumers who buy used games? I really don't get it.

  • Report this Comment On February 06, 2013, at 9:15 PM, Nomadder wrote:

    They think that by cutting out used game sales, they will force gamers to buy (more expensive) new games (that they actually get a cut from).

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