GameStop Could Have a New Weapon Against Digital Video Game Downloads

GameStop's long-term future remains uncertain. The video game retailer's biggest partners -- Microsoft and Sony -- have turned into outright competitors, encouraging Xbox and PlayStation owners to purchase games from their respective digital storefronts rather than from GameStop's brick-and-mortar shops.

But GameStop could have a new weapon against digital downloads: a somewhat radical proposal that would see GameStop participate directly in the video game development process.

Sony compares video games to music and movies
I've compared GameStop to Blockbuster and Tower Records in the past, and I think the comparison remains accurate. When movies and music shifted from physical discs to digital distribution, those companies were pressured, ultimately going under.


Whether or not the video game industry follows a similar path remains uncertain, but executives at Sony believe that could be the case. During a recent Q&A session at the Develop Conference, Andrew House, the president of Sony Computer Entertainment, compared video games to music and movies, arguing that streaming would emerge as an important distribution channel.

If you look at the stats on music streaming last year right now, last year was the first year that music downloads actually decreased year-on-year. It's only by six percent, but it's on the downturn. Streaming, meanwhile, is something like 30 percent up ... it says to me that convenience of streaming has been embraced first in music, now in video and television, and it's going to play some role in our business as well. Our goal, rather than have the future dictated to us is to try and be a pioneer, shaping the way it goes.

House was referring to PlayStation Now, the upcoming cloud-based gaming service that Sony is currently testing. PlayStation Now delivers full games over the Internet, removing the need for an expensive console or physical disc.

If streaming does catch on, it could be a problem for GameStop, as the majority of the company's revenue and profit is derived from the sale of video game hardware and software.

Microsoft gets aggressive with digital discounts
While Sony is slowly pushing streaming, Microsoft is making it more attractive to download the latest titles. Microsoft's digital push still leaves room for GameStop to sell consoles and hardware, but its new Deals with Gold promotion could pressure GameStop's disc-based game business.

For the last few weeks, Microsoft has been offering Xbox Live Gold subscribers aggressive discounts on some of the newest and most popular games. This week, Titanfall is available for just $40 -- a full $15 (used) or $20 (new) less than what GameStop is currently charging.

If Xbox One owners take Microsoft up on the offer, they won't be buying the game from GameStop. They also won't be able to resell it to GameStop, either, as digital copies are linked to individual Xbox accounts and cannot be resold. That poses a risk to GameStop's lucrative used-games business, as the more gamers who choose digital, the fewer used discs that will be in circulation.

GameStop's answer: exclusive content
To its credit, GameStop isn't sitting by idly -- in fact, it could be about to roll out a new initiative that would keep its customers loyal. R.W. Baird's Colin Sebastian recently revealed that GameStop's management is considering getting more involved in the video game creation process -- perhaps partnering with developers on exclusive content.

GameStop has long offered exclusive pre-order bonuses, but for the most part, these have entailed cheap physical items or small digital add-ons. A gamer that pre-orders (and then purchases) a new game from GameStop might get an exclusive poster, plush doll, or in-game outfit, for example. Those perks are nice, but relatively minor in the grand scheme of things.

But GameStop's bonuses could get much better. GameStop's CEO Paul Raines told Time that the company would consider funding games for the rights to exclusive content. GameStop wouldn't be involved in the creative process directly, but would put capital at risk. In return, GameStop could offer customers features that other retailers couldn't match.

A desperate attempt to stay relevant
Successfully implemented, that initiative would give GameStop an enormous competitive advantage -- customers who wanted the best version of a game would have to do their shopping at GameStop.

But I'm not swayed by GameStop's initiative. Indeed, it seems to reek of desperation.

In many ways, it seems eerily reminiscent of Blockbuster's push for the rights to distribute films on an exclusive basis. In 2006, facing pressure from Internet-based competitors, Blockbuster began signing deals that gave it exclusive rental rights to many hit movies. Film companies, including the Weinstein Company and IFC Films, signed distribution deals with Blockbuster, giving it the sole right to rent out their films. Obviously, those exclusivity deals couldn't save Blockbuster, and in 2010, it filed for bankruptcy.

GameStop may not suffer the same fate, but rather than boost its business, a push for exclusive content suggests that GameStop is finally feeling the pressure from digital distribution.

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The article GameStop Could Have a New Weapon Against Digital Video Game Downloads originally appeared on Fool.com.

Sam Mattera is short shares of GameStop. The Motley Fool owns shares of GameStop and Microsoft. 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.

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