Amazon.com (NASDAQ: AMZN) wants it all. They want you to pop open your Web browser rather than go to the strip mall. They want you to buy the new James Patterson novel on your Kindle, and download your MP3s from their homepage instead of Apple Inc. (NASDAQ: AAPL) iTunes. They want to stock your kitchen with the latest appliances from their site too, while you’re at it.
Throughout the last decade, Amazon’s aggressive DVD pricing has helped them rule your living room, but as sales of physical media for film and television entertainment have dwindled the company has started to look at video games as their next point of attack. The company’s latest move, offering 99-cent shipping on video games and guaranteeing their delivery on the day of release will help the prosperous company’s efforts immensely.
Beware, GameStop (NYSE: GME) shareholders; Amazon is gunning for you.
Of course, Amazon has been gunning for more than just GameStop’s video game business. For the past four years, Amazon has been building a video games business to compete with big box stores like Best Buy (NYSE: BBY), Target (NYSE: TGT), and Wal-Mart (NYSE: WMT). While it’s only in the past six months that Best Buy and the other big box stores have started to take their used game sales and trade-in programs from the experimental phase to the national stage, Amazon launched their full-scale, mail-only used games program in March of 2009. The program has been successful for Amazon despite having slightly higher prices on individual used games compared to its competitors. Amazon’s value proposition on their used games, though, is the same fueling the new 99 cent shipping option for brand new titles: Since Amazon sales aren’t subject to sales tax, video games and game hardware end up slightly cheaper than they would be at retail in most cases. Amazon will leverage the new shipping rates in addition to other promotions to push sales of this fall’s anticipated big sellers, including Activision Blizzard’s (NASDAQ: ATVI) Call of Duty: Black Ops, Microsoft’s (NASDAQ: MSFT) Halo: Reach, and Sony’s (NYSE: SNE) LittleBigPlanet 2.
Amazon has introduced a number of different programs to directly compete with all retail outlets in the video game market. Big releases like Take-Two Interactive’s (NASDAQ: TTWO) Red Dead Redemption are typically accompanied by credits towards future game purchases, putting as much as $20 towards an Amazon customer’s next video game purchase through the website. Amazon has also, unsurprisingly given the online nature of their business, established themselves in the digital game space before their competitors like GameStop. While GME only just recently acquired independent games site Kongregate in an effort to strengthen their digital initiatives, Amazon launched their casual-game download service in February 2009, shortly after acquiring Reflexive Entertainment. Rumors have been swirling since this past spring that Amazon is preparing to launch an expanded digital games service similar to Valve’s Steam. The company’s recent hiring of Andre Vrignaud, former director of game platform strategy at Microsoft, seems to indicate that big plans are indeed in the works.
GameStop shareholders shouldn’t be the only ones concerned about Amazon’s growing presence in video game sales. If Amazon’s plans work out, they may just do for video game retail what they did for book sales ten years ago.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
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