Are the days of bricks-and-mortar video game stores numbered?
The near-term answer is a resounding "No!" GameStop (NYSE:GME) lured in enough otherwise hibernating mallrats to post a 10.2% gain in comps during the telltale holiday shopping period.
However, this morning's quiet launch of Amazon.com's (NASDAQ:AMZN) Game Downloads -- a story broken by gaming blog Kotaku, because even Amazon is keeping it on the down low -- blurs the long-term prospects of peddling games on disc.
Amazon's first emphasis is on casual games -- not something that defines the GameStop crowd. The online retailer is gunning more for the crowd that opts to play ad-supported casual games on sites such as Electronic Arts' (NASDAQ:ERTS) Pogo.com, or on their smartphones. This is how the decline could begin, though, for the likes of GameStop.
Amazon is stocked with hundreds of titles priced at $9.99 or less. It's even giving away three games this week, either as a kind gesture to freeloaders in a soft economy, or a masterful gateway drug to premium titles.
Computer games naturally lend themselves to digital delivery. For several years now, Valve Software, creators of the Half-Life series, has sold digital copies of its games and others' via its online Steam service. All three video-game consoles now support the trend as well. Take-Two Interactive (NASDAQ:TTWO) even inked a $50 million deal for a pair of Grand Theft Auto IV add-ons that would be available exclusively as downloads on Microsoft's (NASDAQ:MSFT) Xbox 360.
GameStop isn't going away, of course. You can't download hardware. Gamers still need consoles, accessories, and a marketplace to resell their used games and gear. However, as digital delivery dries up the supply of future disc-based releases, can GameStop survive on the weaker margins in hardware?
The retailer has done a great job of defying gravity, so there's no point in writing off GameStop too soon. Its stock is also priced low enough to discount a fair chunk of the digital migration.
The retailer had better not rest easy, though. Digital downloads threaten its livelihood, even through something as rudimentary as having Amazon pitch small PC games.
Software developers may also be put on notice. They might initially relish the inventory-free merits of digital delivery, but by leveling the playing field for smaller developers, this trend could quickly increase competition among game makers. That's just what Amazon is doing in retail.
Other games to play:
