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GameStop's Management Knows Sony's Streaming Service Means the End

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Video game retailer GameStop (NYSE: GME  ) has taken Sony's (NYSE: SNE  ) PlayStation Now announcement in stride. Although Sony's streaming video game service, if successful, could have a devastating affect on GameStop's business, publicly the company's management says it will work with Sony to sell PlayStation Now subscriptions.

Don't take that confidence at face value. GameStop has a history of going to great lengths to discourage video game streaming services. As Sony and Microsoft (NASDAQ: MSFT  ) push cloud-based gaming, GameStop's business is likely to go the way of Blockbuster.

GameStop has tampered with games to discourage streaming
GameStop drew the ire of customers in 2011 after it intentionally tampered with some of its games. GameStop's management instructed employees to open copies of Deus Ex, a PC title, and remove coupon codes that would give purchasers access to the game through the streaming service OnLive.

Sony's forthcoming PlayStation Now grew out of its 2012 purchase of Gaikai, which at the time was OnLive's major competitor. If GameStop went so far as to tamper with games to discourage its customers from going to OnLive, why would it support Sony's streaming effort?

Streaming makes GameStop's business model obsolete
It's likely that GameStop removed the OnLive codes in 2011 because it knows precisely what sort of effect streaming services will have on its business. Although GameStop has begun to branch out into other areas, the majority of its earnings and revenue still come from the sale of new and used games.

GameStop's business would be devastated if streaming services catch on. Sony hasn't announced the exact details for PlayStation Now, but earlier this week it explained how the service will work. When it launches, gamers will have the ability to purchase a subscription. Once they become subscribers, they'll get access to a catalog of games from previous Sony PlayStation (1, 2, and 3) consoles. They can then stream the games over the Internet to their Sony PlayStation 4, HDTV, or mobile device.

Even more than digital purchases, streaming games weigh on GameStop's business by completely eliminating both the hardware component and the ownership of individual games. Access to games will be part of a service, and getting that service won't even require buying a console from GameStop if you have a compatible TV.

Microsoft isn't going to save GameStop
But Sony is just one game company. Even if Sony becomes a competitor, GameStop will still be able to rely on sales of games for Microsoft's consoles, right? Unfortunately for GameStop, Microsoft is also moving in the streaming direction. Various reports have indicated that Microsoft has its own streaming service in the works, and given Microsoft's technological acumen, its offering could turn out far better than Sony's.

Microsoft has been aggressively moving into cloud computing in recent years -- its Windows Azure technology, which drew the attention of activist hedge fund ValueAct, is based around serving up cloud-based applications from Microsoft's servers. Microsoft has already dedicated a number of Azure servers to the Xbox One, allowing game creators to tap the power of the cloud for their titles for that console. Tweaking that technology to allow for full-on streaming certainly seems possible.

GameStop has no place in a world where video games are streamed over the Internet
GameStop, as a seller of physical copies of video games, has no place in a market where video games are wholly digital, particularly if the games themselves are streamed over the Internet and never actually owned.

GameStop management showed its hand when it told employees to rip out those OnLive codes. It understands the effect streaming services will have on its business. Of course, it's possible that Sony's service will never catch on -- but if it does, GameStop is doomed.

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Read/Post Comments (26) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On January 09, 2014, at 11:11 AM, Wisdom2014 wrote:

    Sam Mattera doesn't have a clue.

    Three reasons why game streaming won't have a major impact on disk sales:

    1. Internet service providers apply download caps on the amount of data that can be up and downloaded. Only players in areas with high speed connection will not complain about this.

    2. This server stores the games on the web. Which means that it has to continually be streamed which means, poor performance and horrible lag issues. Players will bail on that model fast than you can blink.

    3. Why would a player pay to basically get a subscription to their game rather than just out right owning it completely and having it to use at their own pace, be able to trade it or resale it, etc... The subscription will not be offered at a significantly low enough cost to make gamers want to move to a subscription based model.

  • Report this Comment On January 09, 2014, at 11:27 AM, Vitabrits wrote:

    Streaming models would only fly in the US where there is little restriction on bandwidth which is why the launch is US only.

    Still anything to bring about the demise of Gamestop is a good thing.

  • Report this Comment On January 09, 2014, at 11:45 AM, ZBlacktt wrote:

    You do realize Jack Trenton himself said physical copies are not going away anytime soon. That streaming will be a "option" to consumers. So you are making something out of nothing here.

  • Report this Comment On January 09, 2014, at 11:45 AM, ZBlacktt wrote:

    "Jack Tretton"

  • Report this Comment On January 09, 2014, at 11:51 AM, ubprnowlin wrote:

    For all the times Gamestop offered to buy my game for $5 so they could turn around and sell it for $35. I welcome the death of their company.

  • Report this Comment On January 09, 2014, at 11:54 AM, Ebby720 wrote:

    Another stupid Fool article....streaming won't stop physical copies unless one of the consoles has the stones or stupidity to stop trading in....that would mean you can never trade in, you never get anything back and you better hope you love that game to play it for life. You also better like paying full price and paying full price for everything your kids want to try out.....never gonna happen...sorry.

  • Report this Comment On January 09, 2014, at 11:55 AM, ubprnowlin wrote:

    That being said, I do have stop by there to pick up a cheap copy of Arkham Asylum for the PS3 tonight. Damn you Gamestop!!! Why can't I quit you.

  • Report this Comment On January 09, 2014, at 11:56 AM, sn00perz wrote:

    "previous Sony PlayStation (1, 2, and 3) consoles"

    Am I missing something here? as the owner of a PS4, why would I want to stream older games? While this is useful for some, I would think their business would still survive with the need to sell and trade PS4 games..... Anything to write a story I guess. I don't think Gamestop makes most of their money off of games they sell for 5 dollars. It is the newer releases that they buy for $15 bux and sell for $50 that give them their money.

  • Report this Comment On January 09, 2014, at 11:58 AM, Ebby720 wrote:

    And what you get for the game depends on when you trade it in....most of the time I've gotten 35-50%, which when you have kids, play a lot of games, is better than baloney on the stick with streaming....I have games I've bought and streamed, played through and are now stuck with them and gotten squat for them. Streaming is great in the Summer or when the kids are on vacation or when the weather is brutal out and the kids want something new.

  • Report this Comment On January 09, 2014, at 12:00 PM, AnthonyLucynski wrote:

    Wow, Sam Mattera! Two articles in two days on the same foolish topic! And you even linked to your own article from yesterday! Listen kid, you have spunk, I'll give you that. But you're wrong. Wrong wrong wrong. There are entire generations of gamers that will not embrace software downloads or streaming as a media. Myself included. I got the Special Edition Zelda 3DS XL. Took the download code, sold it on eBay, and bought a physical copy of the game. Because we LIKE physical copies of the game!

    Just like digital comics has not killed the Direct Market for comics and graphic novels, this service will not kill the used/new game stores like Gamestop, Gameforce, Play N Trade, etc. It's just not going to happen. And if you think I'm just talking from an old school "need a physical copy because I'm a collector" point of view...try talking to all the parents and children who are FOREVER soured on online/digital media.

    They got their new Nintendo's with digital downloads for the Wii-U and 3DS...and it crashed Nintendo's servers for four freaking days. Little Sussie couldn't play her new Mario and Luigi game cuz it couldn't connect to be downloaded. Little Mark couldn't play his Zelda HD Windwaker on his new Wii-U because the digital copy couldn't be downloaded. He couldn't read the book either because THAT was a download as well! People upgrading to the 3DS XL couldn't transfer their data from their 3DS's to their new 3DS XL's (had to get to the eshop to set up the software transfer! Couldn't for four days!).

    Maybe, one day, in the distant future, people will embrace this. But it's not going to be anytime soon. And you're a fool for beating this drum.

  • Report this Comment On January 09, 2014, at 12:31 PM, disiskurt wrote:

    Seeing as Gamestop doesn't rent out physical copies of games, I don't understand the Blockbuster analogy. The threat would be more towards the few remaining rental stores and Gamefly. Not that there's any video-only equivalent to Gamestop to point at and say that they're doing fine, but DVD's and Blu-rays are still being made and have places on shelves at Best Buy, Walmart, etc. Then there's the whole, 'internet in 90% of this country blows and is capped at will by the various ISPs' thing, so this type of service will probably not take off in the PS4's lifespan.

  • Report this Comment On January 09, 2014, at 12:49 PM, mehUser wrote:

    It's kinda funny how GameStop did take those coupons out of those copies of Deus Ex. That aside I thought they were taken out of the games because Sony had put those coupons into the product without informing the company and without their permission. I remember reading a related article back when Deus Ex did come out for the PC that the coupons were not a part of the agreement between the two companies as both were providing streaming services for PC games. Digital gaming is here now and it is taking but I don't think it would destroy a company especially if they are on the ball with adapting to the way technology is advancing. I prefer having physical copies of games though, something about buying digital strikes me as never 100% owning my game, because what happens when servers go down or if the providers go out of business? Digital is a convenience, not a must have. My opinion though. I DO think that trading in my games for low value is kinda lame but I kinda prefer getting something rather than nothing. Again, my opinion.

  • Report this Comment On January 09, 2014, at 1:25 PM, MrGeno wrote:

    Wisdom2014 is correct. Also, the people complaining about Gamestop: While I agree it's bs getting $5 back for a game that is under a year old, you've got Ebay, Amazon, Craigslist, and Facebook. There is no excuse for not selling it yourself and making what you think you should get. They're a business trying to make money for themselves, not you.

  • Report this Comment On January 09, 2014, at 2:31 PM, Ukot wrote:

    All you guys who think this won't affect GameStop probably also thought Netflix and similar streaming models wouldn't affect video rentals and sales? This is the same thing. Do you honestly think it's better to pay $60 for a game or $30 dollars a month to have access to 1000's of games? How many of your games do you really reply over and over? Be honest with yourself on the last question; you may have that one or two games you reply once a year but I'm willing to be 95% of your games just sit there on the shelf (I know mine do). Just like movies, there's very little reason to physically own a game as by the time you complete there are dozens of new titles for you play. Will this completely kill GameStop? Unlikely. But as broadband continues expending across the country and the limit caps raised (Comcast's current cap is 250gb per month and that's waaaay more than the average user will ever hit. If you stream in HD, that's about 125 hours of content per month), the issues of being technologically limited will be almost non-existent. Like it or not, this is where gaming will end up whether its through Sony or someone else.

  • Report this Comment On January 09, 2014, at 3:01 PM, speculawyer wrote:

    LOL. Yeah, streaming is going to become huge and kill off Gamestop. That is why OnLive is a big name in gaming that every knows about and plays on.

    Oh no . . . wait . . . OnLive pretty much went bankrupt and was bought out and is still struggling as they try to transition to more than just gaming.

    Streaming sucks . . . the network can't handle it without annoying latency and degraded graphics. It works OK as a way to provide some backwards compatibility . . . but the quality is lame and gamers won't put up with it for most gaming.

  • Report this Comment On January 09, 2014, at 3:02 PM, speculawyer wrote:

    BTW, digital distribution is a threat to Gamestop . . . but it will come from downloading games not from streaming.

  • Report this Comment On January 09, 2014, at 4:25 PM, scotprehn wrote:

    I buy about 3 games a year and play the #$%^ out of them.

    COD: Ghosts ($45 on sale)

    Borderlands 2 (cheap, maybe $20)

    I buy my son a copy of COD:Ghosts ($45 on sale)

    He plays Borderlands 2 when i'm not or i'm done.

    $110 for 6 months of entertainment. For two people.

    Why would i pay $30 a month, when you know that all the "Map Packs" would run you additional, as this is not a subscription to a game where you get all DLC...

    When i played Fallout 3, i waited until the DLC was on disc before i played it... I Got a good year out of that game for $30 for the game and $20 for the DLC.

    That being said, i don't shop at gamestop because there are so many better places to get a game for much less. Gamestop is a place to get something when you need a birthday party gift and you have 15 minutes to get it... and it's called a gift card. And when my son gets them, i just collect them until black friday and get something that might actually be a bargain....

  • Report this Comment On January 10, 2014, at 9:37 AM, StormFireX wrote:

    This is entertaining. Now, I am no fan of Gamestop, however I think it is more than a bit premature to call for a eulogy. Here is why:

    According to an August, 2013 report from NTIA 72.1% of households have a Broadband internet connection. Part of the problem shows up right there- the definition of "Broadband" is...well...broad. It refers to anything that is not dial-up. It makes no differentiation between the worst 256k connection and a 40Mb fiber pipe. Not all internet connections are created equal, obviously, and this kind of definition makes it seem like almost everyone could stream something like Playstation Now, though that clearly is not the case. Try running anything online via Xbox 360/One or PS3/PS4 on a 512k line. You aren't going to get very far, and you are going to get there slowly.

    Secondly, according to a March,2012 Nielsen report 51% of households have game consoles. Now that sounds really nice, but can we safely assume that the bulk of those 51% have an internet pipe that is 1.5 Mbps or higher? I would say that is a very optimistic/unrealistic assumption. Of course, some of those 51% are going to be in that approx. 30% that have no internet access, and that is a population that Gamestop can still capitalize on. Microsoft and Sony are aware of this. Just look at the backlash Microsoft took for attempting to go Online Required.

    In closing, I think that Gamestop has a good long time before the go down. I also think that before that ever happens you will see them change their business so that they can survive. It is not, as this article clearly illustrates, like no one can see the coming trends.

  • Report this Comment On January 10, 2014, at 3:33 PM, ArtbyMik wrote:

    There are a few factors not taken into account in your article. First, would you expect Ford to carry parts for a Chevy vehicle at their auto shops? That's what you're saying when you go after Gamestop for taking a competitor's product out of another product. Gamestop had paid for copies of Deus Ex to not have those codes in them specifically, which the manufacturer sent anyway, prompting Gamestop to either a) not sell the game, or b) take those codes out so they could still sell the game. The reason for this is they were just starting their own online service at the time, which was offering Deus Ex on launch, and selling a competitor's online service (i.e. the exact same product) would be akin to shooting one's self in the foot. There are a lot of things to nail Gamestop on, but this isn't one of them.

    The other point is, is Sony going to pay to replace the internet lines across the country to get them both to a high enough speed to stream games without having to pause for five minutes while the buffer builds back up, like you have to occasionally while watching Netflix or Hulu, or will they work out a deal with internet providers to remove data caps? Until then, physical copies will probably still be sold and resold on a regular basis.

    The final thing to consider is storage space on these systems. With next gen games taking an average of 40 gig installs, you have enough room for about 12.5 next gen games on the included 500GB hard drive (not counting the data already stored for the operating system and apps) before you have to uninstall, losing your save progress in the process, an older title to install a new one. Streaming a game, which I assume will have to install at least part of it onto the hard drive to play it and save your progress, will quickly shrink that hard drive space down to nothing. Not a big deal for those people who don't store their old save files for future replaying, but it's kind of a big deal for those of us who do.

    Will the new program hurt Gamestop's sales? Perhaps. However, gamers who don't have the internet, as well as those who don't have reliable internet without download/upload caps, will probably not embrace Playstation Now as quickly as those who do. Keep in mind, those gamers who are buying Playstation Now will probably go to Gamestop to buy the cards to get Playstation Now, so perhaps it won't hurt Gamestop as much as you might think. Keep in mind, you can buy Steam Cards as well as individual games for Steam at Gamestop now, so perhaps Gamestop coming out in full support of Now is the best business move they could make. Also, by that argument, perhaps Ford should start selling Chevy parts as well.

  • Report this Comment On January 10, 2014, at 4:58 PM, alex1 wrote:

    Can someone tell the moron that wrote this that Microsoft has offered streaming of games for years. Lol. Where do they did journalists without basic knowledge.

  • Report this Comment On January 10, 2014, at 6:19 PM, UVER1 wrote:

    I don't think GameStop is going the way of Blockbuster yet. For one, the casual gamer doesn't care about the wide variety of games a subscription can get. For one, they don't play enough to make use of all these games! Most gamers are casual. Also, many people (like myself) take advantage of GameStop's old/used game prices. I bought FF13 two years ago for $8. I didn't wait any other games. Just that one. Show me where I can do that with a subscription? Most people are picky about what they buy and only make use of it. Now, hardcore gamers are more likely to use the service. As for myself, I could care less.

  • Report this Comment On January 10, 2014, at 6:51 PM, johnmr12 wrote:

    You guys have been claiming the end since the stock was $20. Anyone who was short, including Jim Chanos, have lost their a$$.

  • Report this Comment On January 10, 2014, at 7:10 PM, vicam wrote:

    I know with my ISP I would not be able to stream games all day everyday since they have a cap to how much internet useage you get per month, so I don't see Gamestop going anywhere for a very long time due to having a cap on how much I can do on the internet each month.

    I'm not sure about other ISP's, but I'm sure some have adopted the same mentality when it comes to how much internet is used in a months time frame. Think of it as data plans from cell phone companies, but with your internet.

  • Report this Comment On January 11, 2014, at 12:41 AM, RubenCamacho78 wrote:

    I had to stop reading this article , I could feel myself getting dumber as I got further in. Gamestop has nothing to fear, consoles should fear losing GAMESTOP. that should be your article, not this foolish end of the world scenerio meant to incite. we gamers are smarter than that, don't believe it ? It was our response to Microsoft that made them change their entire model .

    These are FEATURES..not STANDARDS.. Until internet is dirt cheap and superfast, Gamestop will be the best solution for both parties when it comes to gaming. end of story.

  • Report this Comment On January 11, 2014, at 6:07 AM, NErnst79 wrote:

    I feel like the author of this article does not actually play video games. Gamestop doesn't make money off of selling video games for prior consoles, at least not after the current generation has been around for more than 12-18 months.

    And the small market that exists for previous generation console titles likely would not be spending money on a streaming service anyway.

    If this service allowed them to stream games for the CURRENT console generation(Xbox 1, PS4), THEN Gamestop would probably have something to worry about. But until that point, they really don't. They would probably welcome the opportunity to stop wasting floor space on games that they buy for 1 dollar and try to re-sell for 3 dollars(but mostly they just sit there and collect dust).

  • Report this Comment On January 11, 2014, at 7:54 AM, Jarky wrote:

    Word of advice to whoever runs this site, the name makes it way too easy to mock when posts like this come around. And all these posts predicting the path of the video game industry are pretty funny considering they're written by business analysts who almost certainly don't play video games and know nothing about the people who support the industry.

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Sam Mattera

Sam has a love of all things finance. He writes about tech stocks and consumer goods.

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