GameStop is easily the king of specialty gaming retail in the US. With thousands of stores, a huge workforce, and the ability to push specific games via in-store promotions, it may not be well loved, but it is well traveled. The problem is that fewer and fewer PC games are being sold in stores, with the success of digital distribution platforms like Steam and the EA download service. Meanwhile, consoles are starting to catch up with Sony by offering full, big-name titles like Burnout: Paradise for sale online. Is GameStop scared of its business model, brick-and-mortar game stores, dying out? Not one bit. Whether that's hubris or the inability to change is an unanswered question.
"The first digital distribution was Napster and it was illegal. Let's just start there. The software publishers are afraid to death of piracy. Once a full game is lying on a hard drive, there's the potential for piracy. Aside from the games, the bandwidth, etc., our studies have concluded that the network won't be in place to do digital distribution of full games until 2020 to 2025," GameStop CEO Dan DeMatteo told GameDaily. "And that's using today's size, but as consoles get more powerful, games get bigger. Right now, a 30GB game with your best T1 line is about 72 hours to do it."
It's important to remember that GameStop doesn't share developers' piracy concerns to the same degree, and it is certainly sweating the timeline before technology catches up with the ease of digital distribution. GameStop makes some money off of new games, but slim margins mean that the company tries to order as few copies of each title as possible—hence the hard sell on preorders whenever you go into a GameStop location. Furthermore, the chain's main source of income would be completely destroyed by digital distribution; buying and selling used games is the way the company stays in business. By offering low amounts on trade-in games and selling those same games for $5 under the cost of a brand-new boxed title, it turns the slim profit it makes on new games into around $20 per used game. Not only that, but the company can buy and sell the same game multiple times, a system that's impossible with digital copies. This circular system accounted for 49 percent of GameStop's profit in the first quarter of 2008.
DeMatteo also brings up a laughable point to downplay digital distribution: publishers would make less money. "Microsoft and Sony are the gatekeepers for their consoles. And if you're a third party, that should scare the hell out of you because that's the only way to get to your customer. They'll take 10 to 15 percent. Video game publishers sell me games today for $48 wholesale. If they go direct to the customer they'll probably get about $30 for them. They'll get less for the game if they bypass retail." Guess what? When GameStop instructs its sales team to push, push, push the slightly-less-expensive used copy over the new one in the store, the publisher sees zero profit from that transaction. More than a few people in the industry aren't happy with the current system where GameStop actively locks the publishers out of the profits of their resold games.
Digital distribution is a divisive topic in gaming. Some people like having physical media, and the ability to resell games you've beaten or tired of is a big one. Games paid for and downloaded online are all but impossible to resell in most systems. While gamers may grumble about these drawbacks, GameStop is squirming; its entire business model is based on buying your games and selling them back to the customer base. No matter when digital distribution takes off on consoles—and it's coming sooner than GameStop would like—the company is going to have to take a hard look at where its profits come from.Posted on