GameStop (NYSE:GME) shares plunged more than 13% on Friday, after the company posted quarterly numbers that were, by almost measures, disappointing. Management blamed the delay of Assassin's Creed: Unity, but also gave poor guidance.

At the beginning of the year, I argued that GameStop was on the precipice of disaster. So far, in 2014, shares have shed more than 22% of their value, but darker days could lie ahead. Although GameStop shares might appear a bargain at current levels, the company's problems are only beginning.

Headline risks: The digital transition is real
With more than one-third of GameStop's shares having been sold short, the bearish thesis is fairly well known: its core product, (primarily used) consoles game discs, are going digital. In an era of digital distribution, the days of a brick-and-mortar video game retailer seem numbered.

While the vast majority of new games are still sold on disc, the digital transition is clearly happening -- it is simply a matter of when, not if. The two biggest publishers -- Electronic Arts (NASDAQ:EA) and Activision-Blizzard -- have reported that about one-fifth of their console games are now sold digitally, up from basically nothing a year or two ago. Sony (NYSE:SNE) recently reported that its PlayStation Network -- the digital marketplace on which PlayStation 3 and 4 games are available -- saw revenue jump 90% in September.

If the digital transition plods on in a steady, controlled manner, GameStop could remain relevant for years to come. Yet I do not believe that it will play out that way, as platform holders and game creators instead develop innovative new distribution systems that make digital titles more enticing.

In July, GameStop shareholders were caught off guard when Electronic Arts unveiled EA Access, a new, subscription-based service that offers older titles from the company for a flat monthly (or annual) fee. Shares of GameStop sold off more than 5% that day, and rightfully so -- the retailer might struggle to sell older Electronic Arts' games when customers can get them through EA Access instead.

It seems likely that Electronic Arts' rivals will follow with similar programs of their own. Ubisoft, in particular, would be a good fit, as many of its most popular series (Far Cry, Assassin's Creed) receive annual installments. Ubisoft hasn't announced anything definitive, but management acknowledged that it was watching EA Access closely.

Sony is also likely to announce more digital initiatives. PlayStation Now, its cloud-based gaming service, allows owners of PlayStation consoles to stream digital copies of older games directly over the Internet. PlayStation Now has been widely criticized for charging often exorbitant prices, but the company has said it is working on a bundled, Netflix-like subscription program. Offering a rotating slate of older digital titles could prove enticing, and could pressure GameStop's lucrative used business.

Competition is intensifying
GameStop's business is under assault on other fronts. The threat posed by Wal-Mart's entry into the used games business has been well documented -- the megaretailer began selling used games last month -- but the efforts of another big-box retailer have mostly gone unnoticed.

Late last year, Best Buy unveiled Gamers Club Unlocked -- a sort of Amazon Prime for gamers. For $99, gamers shopping at Best Buy can purchase new video games at a generous discount of 20% -- for a GCU member, a new brand video game costs $48 rather than the standard $60 GameStop charges.

It also offers discounts on used games, bonuses for trading in games, and points that can be redeemed for other electronics. For Best Buy, GCU acts as sort of ecosystem lock-in, enticing gamers to stick to the retailer.

Of course, $99 is a large up-front cost that could prove too steep for many gamers. But the most hard-core gaming enthusiasts -- GameStop's best customers -- might find it too enticing to pass up. Best Buy does not disclose its number of GCU members, but it's a factor worth considering.

Other initiatives can't currently offset its core business
GameStop management insists that its core video game business has a long, and promising, life ahead. Nevertheless, the company is investing in other brands and retail concepts in an attempt to diversify its business. It has also begun buying and selling used tablets, smartphones, and other consumer electronics.

These initiatives have shown some promise, but are still not large enough to offset a core business that appears to be in decline. Last quarter, its mobile and consumer electronics and other categories combined to generate just 10.1% of GameStop's revenue and 12.5% of its gross profit.

Unless growth picks up considerably, GameStop's transformation into a diversified retailer might not happen fast enough to offset a core business that seems likely to decline.

A classic value trap
Although the company appears cheap on paper, looks can be deceiving. Its industry at large is rapidly moving against it, and even a 3.5% dividend yield does not seem worth the risk for Foolish investors.