Sorry, retailers -- someone just jacked your ride. Take-Two Interactive (NASDAQ:TTWO) finally has a release date for the first of two Grand Theft Auto IV episodes. The Lost and the Damned will go on sale Feb. 17, but don't look for it at a video game store near you.
The new installment will be available only through the Xbox Live Marketplace, Microsoft's (NASDAQ:MSFT) subscriber-only network for its Xbox 360 gaming console.
Most of this is old news. Microsoft agreed to pay $50 million to Take-Two for a pair or episodic installments two summers ago. Take-Two's press release this morning offers up a firm release date and a few details of the new game. The episode will revolve around an entirely new Liberty City character, but with a storyline that intersects with the GTA4 plot.
This is a major score for Microsoft. It struck the deal with Take-Two before GTA4 became the fastest-selling game of all time this year, generating $500 million in sales during its first week on the market.
Digitally delivered episodes will naturally cost a fraction of what the original game did, but any revenue the add-ons bring in are only part of the deal. It's highly likely that Xbox 360's exclusive arrangement influenced buyers to pick up the Xbox version of the game back in April, rather than its version for the rival PlayStation 3.
Microsoft scores another hot exclusive for its Xbox platform, while Take-Two gets to cash in on an ever-expanding franchise. Even the original GTA4 game will likely see a pickup in activity next February, since gamers will need a copy of it to play the new chapters.
So who loses? Sony (NYSE:SNE), of course. This is not what its specs-rich PS3 needs right now. But it's not the only loser -- nor the biggest.
Full stop at GameStop
I made GameStop (NYSE:GME) the focus of my weekly "Throw This Stock Away" column two months ago. Part of my thesis involved the migration from in-store purchases to game downloads.
"Digital delivery lies at the heart of connectivity in all of the next generation of video-game consoles and handhelds," I wrote. "As software developers reach out directly to the consumer, isn't GameStop the odd chain out?"
More than a few readers disagreed with my bleak outlook.
The video-game stores are holding up better than their retailing cousins. GameStop shares may be getting slammed this morning, after the company posted softer-than-expected sales in its latest quarter, but go ask mainline retailers whether they wouldn't kill for a 1.8% uptick in same store sales.
GameStop investors are used to seeing those loftier gains. In this case, it probably doesn't help that Blockbuster (NYSE:BBI) upstaged GameStop by posting a 30.7% spike in store-level video game merchandise sales earlier this month.
Model interrupted
My real concern lies more with GameStop's future than its past. The company has been able to grow, despite the recent popularity of digital delivery, but the migration away from physical disks will only intensify in the future. Why do you think Sony and Microsoft keep putting out machines with more capacious hard drives? Both are trying to sell or rent games and movies.
Software developers will naturally flock to the inventory-free merits of digital delivery. Bypassing local distributors will hurt specialty chains like GameStop in the near term, and crush them in the long run.
See, GameStop does big business selling used games and gear. It has greater pricing power in buying back secondhand titles and consoles, so that's where GameStop scores the highest margins. What will GameStop's future look like when folks are buying digitally delivered games that can't be traded in?
What will GameStop do in a few years, when folks are getting their annual Madden football games delivered digitally from Electronic Arts (NASDAQ:ERTS)? GameStop is there for the hardware -- like the bulky instrument controllers that come with Activision Blizzard's (NASDAQ:ATVI) Guitar Hero World Tour -- but Activision rules the software, pushing piecemeal song downloads through the Xbox Live marketplace.
So mark your calendar. Drive by your local GameStop on Feb. 17, 2009. If you see a few more empty parking spaces than usual, you know where the gamers really are. Get used to it.
Further law-abiding Foolishness:
- EA walked away from Take-Two in September.
- Its tender offers didn't come as tender or offers to Take-Two shareholders.
- What are you waiting for? Here is your shot to score big.
