The latest quarterly earnings report from GameStop does not show signs of a change for the long-troubled game retailer. Sales were down 26.7 percent during the April to June quarter. Even accounting for permanent store closures and reduced operating hours related to COVID, so-called comparable “same-store” sales still fell 12.7 percent year-over-year. GameStop’s already depressed stock is down about 8 percent on the news, according to this news.
Gametop still publicly sees the “opportunity to capitalize” on the upcoming releases of the new Sony and Microsoft consoles, which could help to turn their business around in the short term. But there is some reason to believe that the next generation of consoles may actually make Gametop’s long-term prospects worse, thanks to console options that completely get rid of disk drives.
Put on brave face
In an earnings call, GameStop CEO George Sherman acknowledged that “there has been an increase in digitally downloaded games” and said that GameStop is “not debating the development of digital gaming.” But he tried to put a positive spin on the fate of physical game sales of Gametop, moving into the next generation of consoles.
“First, the new console has a disk drive,” Sherman said. “So for the next seven years, the console will play both physical and digital software that we sell.”
This is only partially true, however. Both the Xbox Series S and PlayStation 5 digital editions are actually Will not done There is a disk drive. And while GameStop sells some digital software, the bulk of its business comes from sales of new physical games and high-margin pre-owned games.
We do not know what percentage of consumers will opt for these disk-free consoles. A 2013 GameStop poll suggested that 60 percent of consumers would not even consider a console that does not play used games. Attitudes have changed over the past seven years, but it is difficult to know for now how much.
Nevertheless, the low hardware cost can certainly make the untrue console an attractive option for this generation to many potential customers. Xbox series s The more powerful, disk-drive-equipped series is $ 200 cheaper than the X, an amount that could go toward buying a lot of digital game.
Regardless, every console gamer who delivers the next generation of disk drives is a consumer who has little need for a retailer like GameStop going forward. And while some of those players are already ignoring the game on disc, they still have at least the option To buy some Title on disc (especially if a particularly attractive collector’s edition is available).
Starting in November, a significant portion of the console market will not even be able to consider the sale of bread-and-butter discs of gameplay.
Is the Internet Really Great?
Sherman confirmed in an earnings call that GameStop would sell these disc-drive-free consoles in its stores, a move to the world where Tower Records decided to sell iPods as sales for its physical album. But Sherman tried to maintain a healthy suspicion that the next generation of console buyers wanted to abandon their disk drives.
“Consumers like the physical aspects of the game,” he said. “They collect them and they add value as a trade-in. So as software continues to develop with dramatically improved graphics, it does not take up valuable storage space and disks are available without broadband Internet . ”
There is certainly a segment of the market that values physical games, and Sherman is right that “the life of physical sports is here to live for the foreseeable future.” At the same time, however, that market size is already shrinking, even disk drives are ubiquitous on home consoles.
In the quarter ending in June, Sony said 74 percent of its entire game sales came in the form of digital purchases. Even though that number was temporarily inflated by house orders to remain coronovirus-related, Sony reported last year that there was no 53 percent digital full game sales ratio.
It is not difficult to find other evidence that spending on purely digital games is increasing when spending on physical disks. While the rise of mobile gaming has nothing to do with the console market away from discs is not immune to the same trend.
Sherman tried to put a brave front against this overwhelming trend, arguing that game downloads are not all that broken up to be. “In the US and most regions of the world, the tax on broadband has increased,” he said. “With a significant increase in house-to-house activities, many are forced to trade-off on broadband usage, a natural benefit for physical gaming.
“With our current capabilities and same-day delivery, we believe that most consumers can get a physical game copy faster to download,” he said.
To our ears, these voices are like print magazine publishers of arguments made in the face of rising Internet news consumption, or that blockbuster videos made as streaming videos have risen to prominence. As game file size continues to grow with average download speeds in the US, and digital game subscription services provide better and better value, purchasing games on disc is likely to look less and attractive for larger and larger segments of the market.
Perhaps GameStop will be able to pivot from a centralized physical gathering space to cell phone kiosk models, selling and servicing game hardware and accessories (along with game-related collectibles). The company has already outlined an ambitious plan to transform it into “a social and cultural hub of gaming within the gameplay store”. But any future gametop that relies primarily on its current model of selling games on discs does not appear to be a good long-term bet.