Electronic Arts Declares War on GameStop

If Electronic Arts (NASDAQ: EA  ) succeeds, GameStop (NYSE: GME  ) could fail. On its earnings call last week, Electronic Arts' CFO, Blake Jorgensen, set a target for the company -- one that should make GameStop executives very nervous.

"We're excited that we're reaching the 50% mark in digital business and what we're really focused on is how do we get closer to 100%. We believe that there is a huge opportunity and that the business is indeed changing."

Electronic Arts is betting big on digital distribution
Last quarter, Electronic Arts' digital revenue accounted for 45% of its total revenue -- more than the company had anticipated. This revenue is coming from a variety of sources, including mobile games and add-on digital content (DLC).

But it's also coming from full game downloads. In fact, Electronic Arts' singled out full game downloads as helping to drive its better-than-expected digital revenue. In total, they brought in $112 million last quarter, up 13% from the prior year. In terms of the newest consoles -- the Xbox One and PlayStation 4 -- Electronic Arts said it saw two to three times more full game downloads compared to the prior generation.

The Xbox One and PlayStation 4 are terrible for GameStop
These results are not surprising in the slightest -- the PlayStation 4 and Xbox One are far more friendly to digital purchases than the Xbox 360 and PlayStation 3 that preceded them.

Any game released for either platform can be purchased the same day it's available at GameStop -- PlayStation 4 owners can even buy in advance, and download it to their console (though they won't be able to play it until midnight on the day of release). Downloading a full game can take hours depending on one's Internet connection, but both consoles allow for gamers to start playing before the game has completely finished. Occasional digital sales have even led GameStop to reduce its prices.

The more gamers choose to buy games digitally, the worse it is for GameStop. Last quarter, about half of GameStop's revenue and more than 70% of its profit came from the sale of video game discs -- the more full game downloads Electronic Arts' sells, the fewer game discs GameStop should move.

Electronic Arts could be planning something even bigger
Electronic Arts' ambitions could be bigger than full game downloads. According to Reuters, the company has been working with Comcast in secret on a radical new platform that could revolutionize the video game space.

If all goes according to plan, Electronic Arts' games could soon be available to cable subscribers in a manner roughly similar to on-demand movies. Much remains unknown, one thing is for certain -- games sold this way would be fully digital, removing GameStop from the equation.

In the long-run
Of course, to be completely fair, 55% of Electronic Arts' revenue didn't come from digital -- game discs are still a popular form of distribution. But as Electronic Arts' Jorgensen declared, the company's explicit, long-term goal is the complete elimination of game discs.

From Electronic Arts' perspective, it's the smart thing to do: With GameStop (and other retailers) out of the picture, there would be more room for Electronic Arts to profit -- its digital business is higher margin. Moreover, when GameStop sells a used game, it keeps all of the profit. In the absence of a used-games market, Electronic Arts could see more game sales and higher revenue.

If Electronic Arts' succeeds, and I believe it will eventually, GameStop's core business would no longer be viable.

Electronic Arts' games aren't the only form of living room entertainment
You know cable's 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. 

 


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  • Report this Comment On May 11, 2014, at 5:58 PM, phzoink wrote:

    Will you stop crying wolf with Gamestop already? You are the worst when it comes to fact checking because Gamestop isn't scared nor is it going anywhere. They have built a great relationship with its customer base and not every gamer wants to pay full price for a game and that is EA's goal. Let's also not forget about EA's terrible past with the mess up of Sim City and the horrible games they put out there. Right now EA is heavily depending on their mobile offerings because they found the great formula in freemium games, which are also terrible because you have to spend money on them if you want to make any progress at all.

    Sam, you really need to drop your personal vendetta against Gamestop, if they wronged you at some point that's too bad, grow up and move on. No one takes you seriously anymore.

  • Report this Comment On May 11, 2014, at 6:01 PM, liebevision wrote:

    With the death of net neutrality, all these digital plans are dead as well. Period.

  • Report this Comment On May 11, 2014, at 6:03 PM, Amberyerno wrote:

    GOD I hope game sales never go 100% digital. I want to have that box on my shelf. I want to have the ability to install and play a game whenever I want to, not because there's some server across the internet that says I can.

  • Report this Comment On May 11, 2014, at 6:32 PM, atomicdog137 wrote:

    Whether digital downloads become me the norm will depend on the customer base. The test will come when a game company offers a major release solely as a digital download. The game would have to be in the same class as Call of Duty or Skyrim. Will the customers buy it in that format or reject out of hand?

  • Report this Comment On May 11, 2014, at 6:37 PM, SnakeDoctor01 wrote:

    Another foolish article about digital distribution. The author doesn't realize or care that there are still many gamers who either don't have high speed Internet or speed fast enough to make digital downloads practical.

    No one is going to forgo buying a game in store that's 20 miles away if a download is going to take six hours because of having a 3 to 6 MBP connection.

  • Report this Comment On May 11, 2014, at 6:56 PM, spinod wrote:

    Digital to this day is still a rip off. Honestly, publishers in the game industry are almost as bad as Hollywood. Nobody wants to pay 60 dollars for a half arsed game, years after it already hit bargain bins at retail....

    The numbers are inflated by companies like EA so people feel more obliged to go digital. "oh yeah, 50 percent of buyers are digital...." Really? Because I don't know a single person (20+ people) that have purchased Battlefield or any EA game digitally unless it went on deep discounts.

    If they really cared about digital, they'd offer better promotions for it. Offer a digital copy with physical etc... but they don't. Digital sucks, and the only people that want it are publishers so they can cut the middle man (GameStop) out and make more money.

  • Report this Comment On May 11, 2014, at 7:14 PM, Jonesy974 wrote:

    I don't know how I feel about this. On one hand you have GameStop, the biggest rip off video game retail store ever. They devalue games quicker than used cars and charge about the same. Then on the other hand, you have EA, the company who always puts profits above the consumers, and continues to roll out shitty buggy generic game quarter after quarter. This is only further proven by the fact that they've made the top 3-5 in Forbe's worst companies list like 4 years in a row now.

  • Report this Comment On May 11, 2014, at 7:42 PM, impactplayer616 wrote:

    Sam did Gamestop refuse to bring you on as holiday help a couple years back or worse off fire you at some point?

    I dislike gamestop just as much as the next guy, but as far as digital content goes, LOL if you think that will be the undoing of gamestop. Have you even walked into a gamestop within the last couple years? They have shifted a huge part of their focus towards idevices. That company is like a cockroach mate, DLC isnt gonna be the thing to topple that juggernaut.

  • Report this Comment On May 11, 2014, at 7:58 PM, azgalore wrote:

    I love when fanboys cry. Look into something called Steam. Every July I LOVE to buy games for $10-$15 that are still $60 for platforms. Troll me if you like but when I can buy $500 in games if I had a platform for $255 for my pc where I can mode and fix bugs, pc wins.

  • Report this Comment On May 11, 2014, at 8:07 PM, miker529 wrote:

    Looks like sam stopped sucking off sony just long enough to write another garbage article.

  • Report this Comment On May 11, 2014, at 8:33 PM, speculawyer wrote:

    Of course all the publishers are big into network distribution . . . no disc, no box, no manual, no shipping, no distribution, no retailer cut, and no used game sales. What is not to like? And the network distribution will grow if they offer some of the savings to the customers. There will be hold outs . . . but Steam has shown that network distribution is the future.

  • Report this Comment On May 11, 2014, at 8:37 PM, speculawyer wrote:

    atomicdog137 . . . uh . . there are plenty of major digital-only releases. DOTA 2, League of Legends, etc.

    No, the consoles have not made the jump yet . . . but they will

  • Report this Comment On May 11, 2014, at 9:15 PM, AudieMurphy wrote:

    Look, the growth of gaming is actually squeezing all of them, creators, publishers, hardware manufacturers and retailers. The PS4 and other hardware may be doing great but with all of the competition for your dollar, to be competitive they are all having to do more with less and looking for every way to gain an edge. Many of you are right, most people still want physical discs but you're wrong about Gamestop, even with their crazy used game markup they have very thin profit margins and even a moderate cut in sales could close them.

  • Report this Comment On May 11, 2014, at 9:17 PM, Jarky wrote:

    Another "Game Stop's Doomed" article. Man is this guy a one-trick pony.

  • Report this Comment On May 11, 2014, at 9:48 PM, normgarry wrote:

    I used to tell myself I'd never give in to "digital downloads" and that I'd keep buying physical disks. Thing is, XBOX One makes physical disk swapping 100% necessary to play, even though the vast majority of the games are stored on the Hard Drive - as sort of an anti-piracy act.

    I hate having to switch physical disks.

    Therefore, from now on, I will continue to download digital games. This way I can swap from game to game simply by a voice command.

    Actually makes me feel bad I bought Battlefield4 on day one because now I have to use the disk whenever I want to play.

  • Report this Comment On May 11, 2014, at 10:06 PM, Jasalth wrote:

    I don't quite understand why a company in this day and age would want to phase out disc's for their games at all...

    Not that people won't buy digital downloads (75% of games I buy are), but what about all the suckers in the world who are happy getting fleeced for Collectors Editions?

    I mean honestly, 2 1/2 times the cost for a book, a cd, and a little plastic junk action figure is how they really make a killing. Do you really think that books, cd, and action figure cost the company more than another $10 they charge $60 for?

    Yes, they do have collector edition digital downloads, but they are normally cheaper since you don't get the physical items for it.

    And why just EA? I mean, I can buy digital copies of things on Steam, Best Buy, Amazon, the PSN and XBox stores themselves, and yes... even GAMESTOP! There are tons of other companies who constantly have sales (20% off all purchases and such) who you can buy threw and it actually benefit something. A few guilds I have been in have set up accounts/stores with a few of these sites to help cut the costs of running guilds in MMO's. Why pay full price even on a digital download when I can pay less somewhere other than EA on a "normal" day?

  • Report this Comment On May 11, 2014, at 10:13 PM, Sillysoft wrote:

    EA wants 100% digital because they make more money. Its all about control, they can control you more electronically and they save money not having to produce the disks and ship them out and have to share the profits with retailers. That still wont stop them from raising the price for their games, plus they can nickel and dime you using electronic purchases. You can buy the base game then they can charge you for downloadable content, add ons or whatever you want to call it.

  • Report this Comment On May 11, 2014, at 11:02 PM, Mattenth wrote:

    Music is now mostly digital, but there are still CDs. Movies and TV shows are now mostly digital with services like Amazon Prime, Netflix, and Hulu, BUT there are still physical discs. Hell, even books are moving more towards digital, but physical books still exist too.

    No one is saying that "physical is going away," not even this author.

    What we ARE saying is that a "physical-only retail store" is severely threatened by any rise in digital. Even a 1% change in market share hits GameStop's revenue and profitability by 1%.

    If we see a 50/50 split between digital and physical games, GameStop is dead. Walmart, Best Buy, Target, etc. will start being the hubs for physical copies.

    This is EXACTLY the same as Movies and TV shows - physical copies of these STILL EXIST at stores like Best Buy and Walmart, but Blockbuster doesn't.

    This is EXACTLY the same as Music - physical CDs still exist at stores like Barnes and Noble and Target, but Tower Records doesn't.

    And this WILL happen to Games too - physical games will still exist at Walmart, Target, etc., but GameStop won't.

  • Report this Comment On May 11, 2014, at 11:12 PM, Kingslayer wrote:

    These game companies are crazy if they think I am going to pay $50+ for downloaded games with no resale value. I will give up console games entirely before I do that.

  • Report this Comment On May 11, 2014, at 11:19 PM, ShadowOfTheVoid wrote:

    I knew who the author of this article was before I even clicked on it. This guy really, really wants GameStop to fail. It doesn't matter that neither the demand nor the necessary infrastructure exist to support a digital-only console. Just because it worked for PC gaming doesn't mean it will work for consoles. Any console maker that makes a digital-only system will fail. Remember the PSP Go? Likewise, any publisher of console games that eliminates discs will fail. EA could see sales plummet if they ditched discs.

  • Report this Comment On May 12, 2014, at 12:39 AM, Madmyke100 wrote:

    You know what! I was really on board with going totally digital . But as I start looking at the cost of going totally digital I'm starting to back track my statement. Especially if my internet service goes down so does my games. If I stop paying for cloud storage so goes my games. If I stop paying for game subscriptions like play station plus bye bye games. Now if I just by the hard copy I can at least play the games and storing them on my shelf doesn't seem that terrible or costly. And if I don't want the game anymore I can at least sell the game. With digital all you ever do is delete the game. I believe we at one point all will go digital just not this console generation .

  • Report this Comment On May 12, 2014, at 12:43 AM, bcohen2010 wrote:

    While I am sure that there are people who would pay close to retail for downloadable content, I suspect that the majority of people still feel the way I do.

    If I am going to download something, it has to be free. If I am going to PAY for the content, it has to come in a box with a physical disk and manual. I have no problem paying $50+ to buy a video game in a store, but the day I pay $50 to download the product is the day hell freezes over.

    Another thing I would like to add is the fact that if companies such as EA are greedy enough to eliminate physical disks, then the only legal method of buying their products (heavily DRM'd downloads) would be vastly inferior to downloading a cracked version from a torrent site. Thus, many people will go with the better, free alternative. I know I certainly will.

  • Report this Comment On May 12, 2014, at 1:08 AM, BooJoo wrote:

    Most peoples download speed is still pretty slow in this country, so digital downloads becoming dominant are 100% reliant on higher internet speeds becoming dominant.

    It also makes absolutely zero sense to charge full price for a digital game. They need to drop their price by at least $10 compared to the physical.

    At the end of the day I don't care about Gamestop. They rip you off for your trade ins, they overprice used games unless they're old or total crap. To top it off, everyone who I know or have heard about working there, has nothing nice to say about them. They're a crap company who shts on their employees. I hope they do go out of business.

  • Report this Comment On May 12, 2014, at 1:27 AM, Ced528491 wrote:

    Umm... Hate to burst electronic Arts idea..... But Steam already took this idea, and is in-fact taking this idea head on.. And even announced they were.... Steam cloud...? Come on, be more original... Steam really need more credit. They are the only company that doesn't seem stingy with the way they release and sell games.... Most games are F2P, like Team Fortress 2.

  • Report this Comment On May 12, 2014, at 2:03 AM, gzac95 wrote:

    Hmm 2 of my most despised companies fighting.. I despise EA slightly more.. Gamestop is a rip off. I rarely sell games, but when I am offered 2 dollars for a game that is a week old I am done. The game was Bf4 btw.

  • Report this Comment On May 12, 2014, at 5:34 AM, klj1227 wrote:

    I would rather go down the street to my local Gamestop and purchase my new game that will take 5-10mins rather than have it all downloaded which will take HOURS.

  • Report this Comment On May 12, 2014, at 7:14 AM, Aegius wrote:

    I laugh at your Gamestop bashing. Here is why Gamestop is here to stay no matter what.

    1. Resale Value!!!! I purchased a new game on disc 2 months ago and I was still able to get $43 in credit at Gamestop. Digital has 0....nada, no resale value.

    2. Digital still charges the SAME price as physical despite cutting out the retailer and manufacturing process completely. WHY????? Digital should be $20 cheaper.

  • Report this Comment On May 12, 2014, at 9:25 AM, JJ82 wrote:

    These Gamestop bashing articles are getting disgusting.

    I refuse to buy EA digital only games, the company is the WORST on the planet when it comes to digital games. If they go all digital, they lose me as a customer and I have no problems with a future WITHOUT bad EA games.

    Besides, you seem to be missing the point, going all digital does not mean EA and only EA will sell EA games...you can buy digital copies of games from Amazon and other online game outlets and there is NOTHING stopping Gamestop from offering the same.

  • Report this Comment On May 12, 2014, at 9:50 AM, luke4ma wrote:

    I hate the direction console games are going. I foolishly bought a PS4 early with 4 controllers, because I always enjoyed playing games like Call of Duty, Motorstorm, even Diablo with 4 players. Guess what happened? Call of Duty can only support 2 players and even then has very limited game options for 2 players, while Modern Warfare 2 & 3 had great 2 player options. I didn't buy Need for Speed or Battlefield because it was a 1 player only game. The new EA Sports FIFA no longer has the option to create your own league to play with friends at your place. Games now want alienated players who have no real friends and only play online. I'm really dismayed with my PS4 so far. I really hope that when the new Diablo gets a PS4 version it still allows you to play with 4 players.

  • Report this Comment On May 12, 2014, at 10:50 AM, SuperSaint70 wrote:

    This is why EA ranks as one of the worst companies year after year. I'll always take a disc based game rather that digital. It's also an indirect way of phasing out used games.

  • Report this Comment On May 12, 2014, at 11:47 AM, throwintre wrote:

    I learned my lesson to not buy digital after Sim City. They refused to give me a refund on a game that wasn't working properly simply because I hadn't bought a physical version. So I vowed to NEVER buy another game from EA. No madden, no tiger woods, no battlefield, no whatever the f they are selling. I know they as a company could care less though so bye Felicia!

  • Report this Comment On May 12, 2014, at 12:51 PM, Alilwet wrote:

    Sim City has shown that a digital purchase from EA is a very bad investment... Over a year later (someone please correct me if I am wrong) and you still can't play the game offline. I paid $60 for the game and the first month I had it I got to play it about 3 hours. In between having my maps reset because yet again EA couldn't figure out how to correctly set up a server...

    I just hope more people do what me and most of you have done. Stop buying from them.

  • Report this Comment On May 12, 2014, at 2:06 PM, rbridges wrote:

    I guess you can get larger hard drives, but our 120 GB PS3 ran out of space, and we had to delete game data to play new games. Even with larger drives, you may run into issues if everything is downloaded to your console.

  • Report this Comment On May 12, 2014, at 5:34 PM, JoeLemon wrote:

    EA has had origin for years. Computer games could never be resold that is why PC gamers buy digitial.

    Why would I want to download a 50 gig game when I can buy it for the same price and sell it for half what I paid.

  • Report this Comment On May 12, 2014, at 7:01 PM, bcohen2010 wrote:

    @ JoeLemon,

    What are you talking about? Disk-based computer games have always been able to be resold, and other than a very small minority which require activation, most new games still can be. I have purchased used PC games before, and never had a problem getting them to run.

    The truth is that software publishers such as EA are trying to push people to digital downloads precisely for this reason: digital downloads cannot legally be resold, and contain DRM which would make it extremely difficult to transfer the product to another user, and in some cases even to a new computer.

  • Report this Comment On May 13, 2014, at 12:52 AM, clqtte wrote:

    Let EA go ahead with 100% digital and their business would be doomed before they know it.......

  • Report this Comment On May 13, 2014, at 12:53 PM, dcisthecity wrote:

    Here we go again! We understand the progression of technology, but the thrill of buying a physical disc will not go away. I hope ea will reconsider this decision. My internet speed would take hours to download and thats the way for many others.

  • Report this Comment On June 13, 2014, at 9:25 AM, hellfire45 wrote:

    it cracks me up how these people come on here and cling to their physical disks when the truth of the markets direction has been clear for months.

    8track, VHS, DVD, BLURAY, CDs ALL of these mediums have been pushed out by the internet. Let go people, its unsightly.

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