Comcast (NASDAQ: CMCSA ) could soon allow its subscribers to purchase and play video games through its X1 cable box, according to Reuters. Comcast's technology will leverage its status as the nation's largest Internet provider to beam video games from distant servers to its subscribers' TVs.
While this development poses an obvious challenge to the existing console creators, the company that could be most disadvantaged is GameStop (NYSE: GME ) . If anything, Comcast's new service illustrates the inevitability of digital distribution.
GameStop's business depends on the sale of physical video game discs
Although GameStop has begun to branch out into new areas, its business remains fundamentally based on the sale of physical video game discs. Last quarter, more than half of GameStop's revenue and two-thirds of its profit came from video game software, both used and new.
The increasing shift toward digital distribution, then, stands as an existential threat. As with the retailers that preceded it (Blockbuster, Borders Books, Tower Records, etc.), Internet distribution threatens to make GameStop's core business model irrelevant. Downloading or streaming games over the Internet removes the physical disc -- and therefore, GameStop -- from the equation entirely.
Comcast's video game ambitions
Comcast's newest cable box is (relatively speaking) a technological breakthrough. More than just a way to access paid-TV content, Comcast's X1 is a cloud-based platform, giving subscribers access to an online video store, Web apps, and voice commands.
Video games appear to be next. Like ordering a movie, Comcast could soon allow its paid-TV subscribers to rent and purchase the latest and greatest video games. Comcast's cable box lacks the high-tech processing power available to owners of the Xbox One and PlayStation 4, but by relying on its high-speed network, Comcast could eventually make the concept of a dedicated console obsolete.
Of course, GameStop will play no role in Comcast's video game ambitions. Presumably, Comcast will take its distribution cut, and pass the rest to developers. As a cloud-based service, the games played on Comcast's network will be fully digital -- there will be no discs whatsoever. Gamers using this service will not head to GameStop to pick up the newest releases; obviously, they won't have the option to trade the game back to GameStop when they're done.
Comcast isn't alone
Of course, by itself, the threat posed by Comcast is admittedly limited. Comcast is the largest paid-TV provider in the U.S., but it only has 22 million subscribers -- there are many gamers who couldn't get Comcast even if they wanted to. Moreover, for the time being, Comcast will only offer games from a single publisher: Electronic Arts. Most important, the quality of the service remains to be seen.
But Comcast is not alone in this endeavor. PlayStation Now, another video game streaming service, will debut in the coming months. Meanwhile, console creators continue to go out of their way to encourage digital distribution, adding in features like preloading, and offering discounts on digital games.
Will Comcast's new service kill GameStop's business? By itself, probably not. But it's yet another sign that video game distribution is going digital. With Comcast now actively contributing to the industry's transition, GameStop's future remains uncertain.
Comcast's video game ambitions could help reverse this troubling trend
Why is Comcast moving into video gaming? Could it help stave off a cord-cutting revolution? It looks like cable is going away -- but do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.