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A GameStop Tablet: Crazy, or Crazy Smart?

Gaming-first, multipurpose-second approach might be niche enough to survive and buoy GameStop's digital distribution businesses


Trying to enter the consumer technology market right now is risky business no matter what you’re looking to sell. Want to sell self-published electronic books at low prices to try and cut in on Amazon‘s (NASDAQ:AMZN) action? If you do, you’re taking a big risk. The same goes for Microsoft (NASDAQ:MSFT) and Nokia (NYSE:NOK). Trying to take on Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) in the mobile market is no small task. But there’s a difference of scale between these examples.

Plenty of opportunity still exists to find an audience in the digital service market — streaming video, downloadable books, music and games — whereas the portable device market for downloading that media — tablets and smartphones — is closed off at this point. iTunes doesn’t own digital media distribution, but the iPad does own the tablet market. GameStop‘s (NYSE:GME) latest venture then is both risky in a promising way and risky in a completely mad way.

The video game retailer announced Monday that it plans to sell its own branded tablet PC which runs on Google’s Android operating system. The new tablet will be marketed as a gaming device first and a multipurpose tablet in the iPad mold second. To date, would-be contenders for the tablet crown have tried to mimic Apple’s device in their breadth of features rather than trying to cater to a specified niche.

At first blush, GameStop’s plans to enter the device market seem insane, but the company plans to mitigate some of the risk by licensing the use of a tablet that’s already on the market. Speaking with website Games, GameStop president Tony Bartlett explained his company’s pragmatic approach: “I don’t see any need to create a new (tablet) with the three hundred or so already on the market. We have a refurbishment center and we can bring in product and preload certain games onto it. It’s an Android device.” Bartlett’s statements at least rule out the possibility that GameStop had bought up Hewlett-Packard‘s (NYSE:HPQ) stock of the undying TouchPad tablet, but they do beg the question: Whose tablet is GameStop buying up?

Bartlett said the company is testing a variety of tablets and even intimated that multiple manufacturers will be behind this “GameStop-certified gaming platform.” What is clear is that the company hopes having this device on the market will help solidify its multiple digital distribution businesses that it has invested heavily in developing during the past 18 months. It’s in that market that GameStop is taking the least risk as its products are in demand and stand a good chance of finding their audience. Outlet’s like the web portal Kongregate, which GameStop purchased in early 2010, and digital PC games downloaded from GameStop’s store website online earned the company $98 million in the second quarter of this year, almost 42% of its profits. Having a device to help push these services will only help grow those earnings.

Most promising for GameStop and its shareholders, though, is the company’s proposed cloud-based streaming games service. The still-unnamed, still-in-testing service will allow users to play Microsoft Xbox 360 and Sony (NYSE:SNE) PlayStation 3 games on a PC by running them on GameStop’s servers and streaming them to the audience — a sort of Netflix (NASDAQ:NFLX) streaming option for video games.

Bartlett said GameStop is testing a game controller add-on for its new tablet so consumers can specifically play games like Activision Blizzard‘s (NASDAQ:ATVI) Call of Duty: Modern Warfare 3. If GameStop can find a way to sell its tablets at a low cost and manage to give audiences access to both high-profile retail releases and light, cheap App Store-style content at equally low costs, this tablet might just be a serious win for the company.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.

Article printed from InvestorPlace Media,

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