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GameStop and Redbox Can't Turn Back Time

By Rick Munarriz - Sep 23, 2015 at 11:00AM

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Outerwall and the leading video game retailer maker move to tether themselves closer to physical media.

Some companies can't seem to get the digital media revolution right so they're just refusing to play the game. GameStop (GME) and Redbox parent Outerwall (OUTR) have made progress-defying moves over the past year, tethering themselves closer to physical discs as a trade when consumer tastes are shifting the other way. 

Outerwall was the first to put all of its eggs in the disc basket when it shuttered Redbox Instant last October. Outerwall was late to embrace digital delivery, and by the time it rolled out Redbox Instant it was with a half-hearted digital catalog that was doomed to fail. It flopped, but instead of doubling down and investing in more digital content it pulled the plug on Redbox Instant altogether.

If Outerwall thought that nixing its digital offering would drive consumers to Redbox kiosks it totally missed the mark. Redbox machines rented out 13% fewer DVDs, Blu-rays, and video games in its latest quarter than it did a year earlier when Redbox Instant was still around. 

Now we find GameStop retreating from former digital initiatives. The leading video game retailer has been stripping console bundles of their digital goodies, working with its hardware and software partners to include physical discs as bonuses instead of digital download codes. 

GameStop isn't shying away from the reason for sticking customers with bonus discs as if we're reliving the golden age of America Online promotional material.

"GameStop's preference is that we sell things at full price and provide great value through our trade program and that we have physical discs," GameStop executives noted during last month's earnings call. "Consumers prefer those physical bundles, because they know that that disc has value in the trade-in program at GameStop."   

In short, GameStop is shipping discs instead of digital codes -- even though console makers and video game publishers would prefer downloads that are cheaper to fulfill and easier to update -- just so folks can come back to GameStop and trade the disc in for in-store credit when they're done.

Can you imagine the uproar if Kindles and iPods begin bundling their offerings with books and CDs? It doesn't make sense, especially given the storage capacity of the latest generation of consoles that was made for digital delivery.

The comforting news for GameStop is that at least it's investing in digital content delivery outside of its namesake stores. Unlike Outerwall's call to shut down Redbox Instant, GameStop has some skin in digital delivery. However, as long as it believes that folks will still be trading in used video games on discs in a few years it will continue to miss the point. Physical media is the ship you burn. 

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