Why GameStop Is Still Relevant

There is a common comparison between GameStop (NYSE: GME  ) and just about every other single media retailer that's ever gone out of business. Whether it's Borders, Blockbuster, or Virgin Megastore, there's bound to be a similar retailer that went under once people realized that you could buy everything in the world online.

The trend for games is certainly there so what, if anything, makes GameStop different than those other suckers?

The culture
A lot of what I think about the future of GameStop rests on the belief that video games, as a societal phenomenon, rely on the culture of video gaming. This is a culture that is meaningfully different from the culture that underpins books, music, and movies. Video game companies may think that they're making blockbuster games like Hollywood produces movies, but the parallel isn't perfect.

According to the Entertainment Software Association's 2013 Industry Facts report, video gamers average 30 years old, are 45% female, and have been playing games for 13 years. That group has congregated to form a strongly opinionated fan base. Remember earlier this year when Microsoft (NASDAQ: MSFT  ) got pilloried in the press for not making the upcoming Xbox One as flexible as gamers wanted? That's the kind of noise that this group can create.

"Used" is a mantra
Microsoft's woes came, in large part, from its handling of the used-games issue. Gamers have argued endlessly about the future and morality of used games. The demand is clearly strong, for now. As Erik Kain recently argued on Forbes.com, the used-game distribution model isn't going anywhere in the foreseeable future. The culture of gamers and their collectivist demands make this possible.

GameStop relies on used games to make its business work. Let's be honest: If tomorrow there were only new games, GameStop would cease to be, as more and more buyers simply downloaded games. That's not happening. Instead, as the gamer base grows, more consumers are going to trade in used games to get the new ones they now want. GameStop earned $347 million in revenue off used items in its last reported quarter, representing 31% of total revenue. That's a required line item for the future of the company.

GameStop is part of the culture
GameStop is like that guy you hang out with because he knows everybody else. Maybe he smells weird or won't stop talking, but you put up with his annoyances because he's really useful. GameStop fills that hole for gamers. It seems like the more you love video games, the less you like GameStop, but you probably still give them money sometimes.

By hosting second-tier expos and offering exclusive content, GameStop keeps itself in the cultural loop. It just so happens that its financial interests in used games align with gamers' personal interests, but gamers aren't going to turn down an extra voice in that fight just because they don't like the pre-order system for Resident Evil 18: The Cake Factory. GameStop has integrated itself with the culture in a symbiotic manner.

The bottom line
Let me reiterate: If used games disappear, I have no hope for GameStop. What I'm saying is that used games aren't going to disappear because they're integral to how gamers get content. To keep itself alive, GameStop needs to do one of two things. Either it can figure out how to keep the used-game model the same as it is now for years into the future or it can diversify itself into a better business. With the hype surrounding the upcoming Xbox and PlayStation launches, I'm guessing that it takes the used-game road.

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Read/Post Comments (6) | Recommend This Article (2)

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  • Report this Comment On July 30, 2013, at 9:25 PM, Mattenth wrote:

    This article is bogus - it woefully ignores PC gaming, which has abandoned used games despite having an identical playerbase and "culture."

    Digital distribution is going to happen faster than you think, with amazing games like Warframe, Planetside 2, and World of Tanks coming as free-to-play. As soon as Sony and Microsoft can get you to participate in digital distribution once, they'll have you for life.

    The next console wave has...

    - Free games (like Assassin's Creed 2, Xcom, and Project Spark)

    - New business models (Episodic games, free to play games)

    - Massive digital sales

    - Partial download play

    The bottom line? Everyone wants to get rid of GameStop.

    - Consumers want to be able to download games directly to their house and skip going to the store.

    - Developers want to be able to offer sales to get quick revenue spikes

    - Indie developers want an effective means of self publishing

    - Publishers want to get all the revenue for games sold, rather than just new games

    - Console makers want to take a larger cut for games sold on their console

    If everyone wants you out, how long can you really last?

  • Report this Comment On July 31, 2013, at 1:15 AM, peteysa wrote:

    The uproar was about not being able to play your games on your buddy's console. No one cares about Gamestop or the next used game distributor who sells used games for $55 and gives you $10 of trade.

  • Report this Comment On July 31, 2013, at 2:00 AM, TelsaRowe wrote:

    This article is myopic and ignorant.

    Digital downloading of games is good for the publishers and gamers. The margins on digital games is 85% and piracy is mitigated for publishers which means they can offer them for a lower price just like music and movies cost less today. But thats not the important part. The important part is that all the best games of the year and previous year go on a massive digital sale every summer at Steam, Gamefly, Amazon, Xboxlive et al. These digital sale games are cheaper than any used game you can find at GameStop. And whats great is that the more the gaming community switches to digital the more of these digital sales we will have.

    GameStop is a blood sucking middle man that Microsoft, Sony and the game publishers do not want around. The sooner they go the sooner all that money goes to their bottom lines. GameStop is holding the industry back.

    The "uproar" over Microsofts DRM you talk about in this article was nothing but manufactured propaganda that you were stupid enough to fall for. The most beloved game that won all the awards at E3 was TitanFall, a multiplayer digital only title that requires DRM and is exclusive to the XboxOne.

    This whole GameStop situation is no different than music just before mass adoption of mp3/digital albums. Its growing rapidly. Steams servers could not handle the traffic of this years digital summer sale and crashed every time the sale items were updated. Thats hiw fast its growing. This article is nonsense.

  • Report this Comment On July 31, 2013, at 5:26 AM, Fathergod wrote:

    I don't buy any games from Game Stop since I've seen how they rip gamers off.

    1. They are known to open games up so they can let their employees take it home and play it. Then when it is returned they shrink wrap it and sell it new.

    2. They have opened games before to remove special promotions from other companies

    3. Buying a new game for $60 only to sell it back to them and only getting maybe $40 while they sell the game used for $55

    Game Stop can crash and burn for all I care

  • Report this Comment On July 31, 2013, at 10:18 AM, Dewme22 wrote:

    We need GameStop. For a couple of reasons like let's say I have old systems I want to get rid of do I A. Throw it out or B. do I take to GameStop get money off something else. I pick B. Another thing ok you know Xbox One they are going to be using cloud as a hard drive. Ok so what happens when you buy a game and download it and want to play it one day but Oh look your internet is out. Don't you wish you had a disc that you could put in and play something until the internet came back up? I think you would. I would. They have lots of good discounts too speaking of GameStop. So for me GameStop is for me.

  • Report this Comment On July 31, 2013, at 4:19 PM, TelsaRowe wrote:

    GameStop is hurting and holding back the industry. They need to go bankrupt.

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