It’s been a year of ups and down for video game retailer GameStop (NYSE: GME). Revenue and net earnings have been flat overall. GameStop has yet to recover from the massive dip in share price that hit the company at the close of its first quarter. So how can GME dig out of this hole? In the minds of some execs, the answer is to go digital and chase downloadable game sales.
GameStop’s latest move to broaden the company’s reach and identity as more than just a retailer is a new partnership with News Corp. (NYSE: NWS) subsidiary IGN Entertainment that looks to bolster the company’s presence in the browser game and web advertising space. GameStop.com will now host IGN.com’s content like game reviews and previews, an aspect of the partnership that will continue GameStop’s efforts to be a broad media source for video game consumers in addition to its retail offerings. (The GameStop-owned print magazine Game Informer has one of the highest circulation rates in the United States with 4 million monthly readers but its online presence doesn’t match that of IGN.com.)
GameStop shares shunted down to $17.12 and it’s only been in the past 30 days that they’ve climbed back above $20 and stayed there, thanks in no small part to the strong sales of new hardware like Microsoft‘s (NASDAQ: MSFT) hands-free motion control device Kinect and software like Activision Blizzard’s (NASDAQ: ATVI) Call of Duty: Black Ops. Still, the sale of new products has never been GameStop’s bread and butter. With competitors Target (NYSE: TGT), Best Buy (NYSE: BBY), Walmart (NYSE: WMT) and Amazon.com (NASDAQ: AMZN) cutting in on GameStop’s high-profit, used-software sales business and the video game industry relying more and more on digital sales for revenue flow, GameStop has been forced to realign its business.
More important to the company’s online business, however, is the advertising component of the partnership. GameStop will now purchase ad space on IGN.com, but IGN will also be creating co-branded advertising for both companies that will be hosted at GameStop.com. GameStop’s own ad space will be available for consumer advertisers to buy, and IGN will then create those ads as well. The two sites will also be combining their traffic reporting, melding together IGN’s 28 million monthly visitors with GameStop.com’s 7.2 million, making the ads offered by both homepages very attractive to potential advertisers.
The question now, however, is whether or not GameStop is spreading its digital efforts too thin. This is the company’s third initiative to strengthen its online presence this year, and while the partnership with IGN should open up advertising revenue to GameStop beyond its Game Informer numbers, it may dilute its other outlets. The company acquired independent game website and community Kongregate earlier this year for an undisclosed amount and any attempt to meld that business’ community with IGN’s IGN Social community features could result in serious consumer dissatisfaction. GameStop also recently relaunched its consumer rewards program and the PowerUpRewards.com website and service is still in beta. Given that the announcement of the partnership with IGN Entertainment includes no details of its integration with the new Power Up rewards program, itself heavily focused on social networking tools, means that GameStop may just be spinning its wheels as it tries desperately to secure a future beyond brick and mortar retail.
Some market analysts are pointing to GameStop as a decent buy right now, as declining sales in the game industry have chased away many investors. But the deal with IGN shows GameStop’s uncertain future. The company might enjoy increased ad revenues but it appears that GameStop hasn’t developed a long-term strategy for addressing the all-but-inevitable consumer shift to digital download.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
