As Brian Solomon is reporting today, Gamestop shares are taking a beating after experiencing a “greater than expected decline” in new software sales. The price collapsed nearly 20%, and this just a week after another crash following Sony's announcement of its streaming service, “Playstation Now.”
Gamestop blames the 22.5% decline in new software sales on the transition to Xbox One and PS4, but investors were right to be wary. The truth is that the console is sort of to blame, but not in any temporary sense. Digital game sales continue to make up for a larger and larger portion of the video game software market, and a new console complete with day-one digital releases is the perfect moment for gamers all around the world to change their buying habits. This isn’t going to change, and it’s bad news for Gamestop.
That’s not even the worst of it. Pre-owned games and systems are a bulwark of Gamestop’s business, and indeed, the company did pretty well in this category over the holidays due to selling refurbished Xbox 360s and PS3s. Used software, however, could be in for tough times in the years to come. Firstly, digital game purchases cant be sold used, so a huge number of potential used games stock is beginning to cease to exist. Secondly, both PSN and Xbox Live are starting to come around to the Steam system of ultra-discounts. Just take a look at PSN’s 14 for ’14 sale, where you can get AAA titles for as little as $5.00. Bargain shopping is the traditional purview of physical retailers, but these digital storefronts can easily undercut the Gamestops of the world and offer a measure of convenience, to boot.
We’ve suspected that something like this was going to happen, but Microsoft and Sony are handling the switch to digital even better than I thought they might have. The assault on pre-owned hits at the heart of Gamestop’s business. There are ways that the company can survive, but it’s hard to see the opportunity for any serious growth as we move into the new console generation. The store is under attack from multiple angles, and just maintains its current position is going to be a serious challenge.