Take-Two’s Irrational Games Closes Its Doors, Threatening GameStop's Future

The shift toward digital distribution is well under way. At some point (likely in the near future), physical video game discs will simply cease to exist, rendering the business model of video game retailers like GameStop (NYSE: GME  ) completely obsolete.

I've already highlighted the myriad of forces threatening GameStop's business model, but more threats keep emerging: game creators themselves have started to come out against physical media. Both Take-Two's (NASDAQ: TTWO  ) Kevin Levine and Cliff Bleszinski, two legendary game creators, have thrown their support behind digital distribution in recent days.

Irrational Games closes down; Levine promises to work on smaller, digital-only games
Last week, the video game industry was stunned by the announcement that Irrational Games will cease operations. While Take-Two's Rockstar Games may be its most famous studio, Irrational Games was well-regarded, and had created a number of hit games for Take-Two, most recently BioShock Infinite -- widely considered one of 2013's best releases.

In an open letter explaining Irrational Games' closure, Levine, the studio's founder and leader, explained that it was time for a change. Gone were the days of massive games worked on by hundreds of employees -- Levin would turn his attention toward smaller, digitally only titles:

In time we will announce a new endeavor with a new goal: to make narrative-driven games for the core gamer that are highly replayable. To foster the most direct relationship with our fans possible, we will focus exclusively on content delivered digitally.

Bleszinski says he'll never to make another disc-based game again
Bleszinski, meanwhile, has been out of the industry since his 2012 departure from Epic Games. Still, he's widely regarded for his work on the popular Gears of War and Unreal franchises.

Like Take-Two's Levin, Bleszinski has promised to focus exclusively on digital games going forward. In an interview with Gamasutra, Bleszinski swore off physical media entirely, admitting point blank that he would "never make another disc-based game for the rest of my career."

Can't sell what isn't available
While GameStop can resist the shift toward digital distribution by cutting the price of its used games or offering customers incentives, it ultimately cannot sell what isn't available.

Other gaming platforms (PC and mobile) have long embraced digital distribution, but the vast majority of games released for current consoles -- the Xbox One, PlayStation 4, and Wii U -- continue to get physical releases. Still, even on these consoles, a growing number of games never get physical releases.

Killer Instinct, for example, is an Xbox One-exclusive that cannot be purchased at any GameStop location -- it can only be downloaded through the Xbox Arcade. PlayStation 4 has its own digital-only exclusives, including Resogun and Flower.

While digital alternatives of physical games is an obvious threat to GameStop, in the long-run, the bigger threat could be creators shifting their focus to digital-only games. Take-Two's Levine and Bleszinski are just two examples, but given their importance within the industry, their decision to focus on digital releases should not be taken lightly.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 22, 2014, at 1:29 PM, RavenFaust wrote:

    Yeah right, the only people saying "game discs are going obsolete" is the motley fool. Half of the stuff they say is full of crap... If i remember correctly they were also the first ones to say Sony is dropping the playstation name for a new one XD There will always be a physical copy of a video game, it will not ever be digital only, because the console has to go obsolete eventually. Not to mention downloaded games takes a lot of space. PC has already proven this point, because PC is still releasing physical copies of the disc based games

  • Report this Comment On February 22, 2014, at 4:50 PM, speculawyer wrote:

    Game discs will drop in popularity but they are not going away permanently any time soon. Too many people have issues like bad (or no) internet connections, data caps, lack of hard drive space, fear of digital distribution, etc.

  • Report this Comment On February 22, 2014, at 8:44 PM, wizardaeon wrote:

    is there a complaint department for Motley Fool? you guys are turning into the tabloid for the financial world!

  • Report this Comment On February 22, 2014, at 11:09 PM, clqtte wrote:

    Digital games cannot be sold back....it's very bad investment for gamers...

  • Report this Comment On February 23, 2014, at 12:44 AM, ShadowOfTheVoid wrote:

    As usual, more FUD from the folks at Fool. Cliffy B is irrelevant these days since he left Epic. Seriously, what has he done? As for the closure of Irrational means the possibility of no more BioShock games, but BioShock was never a huge blockbuster series. It did decent, but that's it. A future with no more BioShock games will hardly cripple GameStop. So long as GTA, COD, Battlefield, Assassin's Creed, Mario, Zelda, Halo, and other series stay popular and as long as shoddy internet infrastructure continues to make an all-digital future a tech geek's pipe dream, GameStop will continue to do well.

  • Report this Comment On February 23, 2014, at 5:19 PM, Ebby720 wrote:

    Seems everything threatens Gamestop with you morons....Global warming...everything....ditto for Microsoft....rake in billions but the Xbox One will doom them while Sony which loses money hand over fist will be saved by the PS4.....LOL

  • Report this Comment On February 23, 2014, at 5:23 PM, Ebby720 wrote:

    As far as disc....I will always buy a disc for retail or less, I will never buy a download at retail or anywhere near retail....only at a substantial discount or when I or the kids want or need something quick on vacation or the weekend.

  • Report this Comment On February 24, 2014, at 11:10 AM, Vold wrote:

    Their is a reason this is site has Fool in its name. Its because none of its articles can be taken seriously as they are all written by fools. Its obviously that you are biased, and you apparently hate Gamestop, as each gaming related article you claim will be the demise of Gamestop. And you claim that this will hurt and destroy Gamestop. But you forget that if games go to an all digital distribution that other retailers will also take a hit, while it might not be as big as one, since games/consoles only make up a small percentage for other retailers, it doesn't mean that Best Buy, Amazon, Target, Walmart, etc etc won't feel the hit to their sales and profits either. Especially since now Best Buy and Amazon also buy and sell used games.

    Physical copies of games will never disappear. Digital Distribution may increase over the next few years, but it will never fully take over. A lot of gamers like to have that physical disc, for some it gives a sense of ownership, especially since if they want to they can sell it to someone else when they are done with it. Digital distribution won't allow that. And for the others the physical disc means that the game isn't taking up space on the HD. Sooner or later the HD space will run out, and you have 1 of 2 options. Delete old games (that can be redownloaded later) or get a bigger HD. With bandwidth/data caps, constantly redownloading old games that you've deleted may be a bit of a hassle.

    The the Xbox One and PS4, may have 500gb hard drives or even 1tb hard drives in them. But they also want to be the all in one media system for the home. Some of that space is for 1 OS and other console requirements, so you have to deduct that, then you have the space that all the apps and services will take up (if you choose to use/install them), and then the game itself being 10-20gigs in size now. Games are getting bigger and bigger in size as well with all the graphical updates and features. This isn't the 8bit era anymore. If you install a game to the 360 currently it can take between 2-10gigs, plus DLC which can get up into the 10 gig range as well with the multiple DLC packs for each game.

    While a digital game may always be at the ready with a push of the button, I still prefer to hold the physical disc. Plus, why would I go with a digital copy of game when the physical copy is the exact same price. If the digital copy was less in price then maybe. But a $60 digital download versus a $60 physical copy, which includes the case, cover art, and booklet. I'm gonna go with the physical copy. Cause I don't feel like having to download the cover art and booklet to my computer if its even available at all or wait for the game to download over my internet connection.

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