Watch stocks you care about
The single, easiest way to keep track of all the stocks that matter...
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
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?
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.
It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.