GameStop (NYSE:GME) is known by gamers both casual and serious as the place to go to trade in their old games, systems, and other pieces of hardware. Recently though, Wal-Mart (NYSE:WMT) has taken a stab at a similar model of trading in gaming paraphernalia and Sony (NYSE:SNE) has announced an even bigger plan to cut out this middle-man retailer.
How the trading system works
The basic idea behind trading in your goods at GameStop is pretty simple: bring the item in and GameStop will give you in-store credit or cash for your trade. Naturally the in-store credit will net you a higher amount for your trade than taking the cash would, and the newer the game the more you'll get for it as well.
Wal-Mart's model is mostly similar with a few key differences. For starters, the company won't take your hardware in-store. As with Gamestop you can bring in your old games to the store but in this case they only offer you a gift card for use in Wal-Mart. To be fair to Wal-Mart there isn't much you can't buy in one of their stores, and the cash offered from GameStop is significantly less than what one would get from the in-store credit. Still, not actually being able to get cash for the games and hardware you own could be a turn off for some of those looking to turn in their old games.
Sony's game-changer for gamers
At the Consumer Electronic Show this past January, Sony unveiled it's foray into the online streaming world with the introduction of it's PlayStation Now. As reported by CNET, this new service will initially be offered on the PlayStation 4, the PlayStation 3, the hand-held PlayStation Vita, and will even be available on the 2014 Sony Bravia TV models.
Not only will this streaming service be offered as a subscription but it can also be used to rent games. This opens the service up for those who aren't as serious about gaming and allows Sony to reach a much broader audience. This broader audience not only has the ability to seamlessly switch between which platform they play on using their saved game data from the cloud, but will also provide the opportunity to play online multiplayer with those using a hard copy.
Is this really game-over for GameStop?
At this point it's hard to tell just how bad this is actually going to be for GameStop. Just last year the pre-owned and "value video game" (overstock and closeout products purchased at a discount) portion of their business made up more than $2 billion, or 25.8%, of net sales, with margins on these sales predicted to be anywhere from 42%-48%. This makes up a serious portion of GameStop's income. While Wal-Mart's entrance into the space is certainly something to note, neither Amazon's nor Best Buy's similar programs have had a huge impact on GameStop's bottom line. It's also impossible to tell how successful Sony will be with it's new PlayStation Now service, and if Microsoft or Nintendo will follow Sony's lead.
One can also bet that GameStop isn't just going to sit idly by while Sony eats away at one of it's most profitable sections of it's business. As reported in it's annual 10-K, GameStop "Expect(s) that future growth in the electronic game industry will also be driven by the sale of video games delivered in digital form and the expansion of other forms of gaming ... We plan to continue to invest in these types of processes and channels to grow our digital sales". With that in mind, I'm not counting this retailer out just yet-but I'll certainly be watching just how well Sony pulls off it's streaming service
J. Colton Vincent has no position in any stocks mentioned. The Motley Fool owns shares of GameStop. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.