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Is GameStop Really Ready to Run?

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If the Penny Arcade Report is to be believed, watching Sony's (NYSE: SNE  ) presentation at E3 was like watching the San Francisco 49ers take on a middle school football team. Sure, the kicker might be sick. Sure, you fumbled on your own one-yard line. And, sure, you've put in the ninth string QB, but you're still going to win. Jack Tretton, CEO of Sony Entertainment America, laid down the gauntlet.

The PlayStation 4 would let you lend and sell games easily, you didn't need to always be connected to the Internet, and you'll be able to get the PS4 for $100 less than Microsoft's (NASDAQ: MSFT  ) Xbox One. While the implication for sales of the competing systems is yet to be determined, the market has already decided that Sony's move is a godsend for GameStop (NYSE: GME  ) . The retailer's stock has jumped 12% over the last week. Is this really the savior GameStop has been looking for?

The continuing saga of used games
GameStop's problem has stemmed largely from the issue of used games. Last quarter, the company earned 31% of its revenue from used games, while new games made up another 38% of sales. The functionality of used games on the next generation of consoles has been up in the air, with Microsoft releasing an oddly worded statement earlier in the week.

Microsoft said that "[it] designed Xbox One so game publishers can enable you to trade in your games at participating retailers." The statement clarified that GameStop would likely remain in the picture, but didn't make it clear who the retailers were, if you had to use a retailer, or which publishers would allow such trade-ins.

Sony made things much more straightforward. The company summed its position up in one slide: "Trade games in at retail, sell it to another person, lend it to a friend, or keep it forever." GameStop investors loved that news, and it looks like Sony is all set to play ball.

The precedent
Sony's announcement puts Microsoft on the back foot, and demands a clearer response from the company on its used-game policy. The best news for GameStop investors would be Microsoft's capitulation, opening its system up just as Sony has. While hard-core gamers may ultimately make a decision on system based on the lineup of games, many casual users will simply take the one that offers the best features. Right now, PlayStation is winning that war.

That means that GameStop is winning the war, too. I'm still hesitant about the company due to my natural risk aversion, but as I've said before, the whole system is too involved for used games to just dry up. GameStop provides huge sales figures for game publishers and hardware makers. Cutting them out of the loop wouldn't be good business -- at least, not right now.

For now, GameStop's prospects are looking very good. I'll be on the lookout for more good news once Microsoft comes back to clarify and tweak its position. Even if it doesn't, Sony may have just given GameStop the life raft it needs to get through the storm.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In a new premium report on Microsoft, a Motley Fool analyst explains that while the opportunity is huge, so are the challenges. The report includes regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

Read/Post Comments (7) | Recommend This Article (1)

Comments from our Foolish Readers

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  • Report this Comment On June 12, 2013, at 8:49 PM, Mattenth wrote:

    Jesus, TMF is just ridiculously on-board with GameStop without thinking through the future of console gaming here...

    Digital Distribution is going to absolutely kill GameStop, both on the PlayStation 4 and Xbox One.

    This is already one of the contributors to GameStop's decline this year. Sony is literally giving away XCom, Deus Ex, and Unchartered 3 - three games with 89%+ on Meta Critic. Xbox has just announced they're doing something similar.

    The only reason that digital distribution didn't happen during this console generation is most consoles had 20gb or smaller hard drives. Now that consoles have a minimum of 500gb hard drives, you can expect Sony and Microsoft to try to aggressively push out GameStop.

    Expect a continued and steep decline over the next year.

  • Report this Comment On June 12, 2013, at 10:12 PM, Hngnthweb wrote:

    GameStop is a great retailer, they have a very knowledgeable well trained staff and I have NEVER had one of their professionals be anything but polite.

    The biggest problem GameStop will have on the horizon is Microsoft itself. A company they have really carried the torch for over their crappy XBOX 360 red ring, software, memory, and reliability issues. GameStop folks have been saving Micrsoft's bacon for all the years of my gaming repairing issues Microsoft would not touch.

    Now Microsoft wants to ban used games and require internet connection. This will eliminate, number one ME from their product and force me to go to SONY a company I despise because of their crappy customer service....guess my gaming days may be numbered!

  • Report this Comment On June 12, 2013, at 10:28 PM, Junito25 wrote:

    microsoft is only restricting the use of use game by giving the buyers one time use code to legitamize the buyer. this is all about the the people who hack their systems and pirate their games. microsoft said that they and EA are trying not to affect gamestop with this decision but to help maximize the amount of revenue of each company buy battling people who just love pirating games. this is a huge problem for both playstation and microsoft. in doing this through the long run, microsoft and its system will prevail. the ps4 has no restriction there for will be the victim of hacking situations and pirate freaks who love getting the games the illegal way. i believe that microsoft is doing a smart thing and their decisions were made based on it to avoid these issues so gamestop can sell more games. this is what people are failing to understand. microsoft is one of the top grossing companies of the world, they wouldn't make such a huge decision if there wasn't a significant purpose to it.

  • Report this Comment On June 12, 2013, at 10:44 PM, fenrir72 wrote:

    All my gaming life(23 years), only purchased 3 used games. All this going digital as the wave of the future..............there ain't no comparing the experience of owning the hard copy.

  • Report this Comment On June 12, 2013, at 11:53 PM, onebluephish wrote:

    I harped on MS in another Motley Fool article yesterday. Gamestop really needs to figure out how to evolve in this business and not rely on life rafts. If how our technology is shifting away from physical media is any indication they need to realize that discs and cartridges are going the way of the dodo probably in the next 3-5 years. Long term retailers will save millions of money spent on the logistics of going to market versus having the market show up to them. That aside, I still think MS is coming off arrogant and greedy and needlessly is forcing the smaller person (who is a major seller for them ironically) out of business.

  • Report this Comment On June 12, 2013, at 11:55 PM, onebluephish wrote:

    @Junito25, If you feel they are preventing wide spread piracy by enforcing no used/borrowed games you are dead wrong-they want the whole pie for themselves which is basically cutting off their own nose to spite their face.

  • Report this Comment On June 13, 2013, at 3:26 AM, patrick51wa wrote:

    Most of the game designers for both machines are going to a Cloud based delivery system for there games. You will not be able to sell PS4 games either they just did it in more of a sneaky way. The game designers do not want you to be able to sell there games has nothing to do with Microsoft or Sony. Designers license the right to design games from either Sony or Microsoft . Neither Sony or Microsoft make any money from individual game sales unless they made the game.

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