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Game Over, GameStop

GameStop NYSE:GMEBy Kyle Woodley, Deputy Managing Editor,

There’s no joy in writing this.

I love video games, and I love GameStop (NYSE:GME). Make all the social stereotypes you want about the gaming community, but GME’s store clerks come armed with both product knowledge and personal engagement — and that’s exactly the type of service that bricks-and-mortar retailers are going to need to ward off the e-commerce march.

But service won’t help GameStop if it runs out of things to sell.

Games are inevitably shifting to digital. That’s life. Facebook (NASDAQ:FB), Zynga (NASDAQ:ZNGA) and other gaming app makers, Steam and Xbox Live have been grooming us to not only play games online, but buy them online, too. Microsoft’s (NASDAQ:MSFT) to-be-revealed Xbox 720 reportedly still will have a disc drive (Blu-ray), though there are at least rumors about a “slim” disc-less model (read: you’d download everything).

It’s great for gamemakers, which get to cut out a more expensive middleman — physical retailers. Microsoft and Sony (NYSE:SNE) get a cut from their online platforms. Both parties enjoy the benefits from the continued rise of downloadable content such as special characters and extra levels. (GameStop itself is dabbling in digital sales, but that division has brought in $160 million so far in fiscal 2012 — a drop in the bucket compared to about $5.3 billion in overall revenues in that time.)

Nintendo’s (PINK:NTDOY) Wii U — the first major console release since 2006 — was supposed to help GameStop stop the bleeding this holiday season. It didn’t. The Wii U flopped — and that, combined with a handful of big new releases for the Xbox 360 and PS3, led to crappy holiday sales. GameStop’s next hope, the Xbox 720, evidently won’t be out until at least June, and Sony’s next console … who knows?

The company is hoping these new systems will boost physical sales for a few years. But that’ll be it. By the time ninth-gen consoles are set to launch, global broadband should be fast and widespread enough to support disc-less platforms … at that point, GameStop likely will be in (or starting) terminal decline.

At the time of publication, Woodley had no positions in the securities mentioned.

(Editor’s note: For more on the imminent demise of GME, read on…)

Article printed from InvestorPlace Media,

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