Thinking about it, I can’t actually remember the last time that I bought a game from GameStop Corp. (NYSE:GME). I still go in to GameStop stores from time to time to browse the used games they have to offer, but even those visits are becoming rarer. In most cases I can find the same games for cheaper on Amazon or eBay, and if the games aren’t console-exclusives then I can usually get a good deal by waiting for the next time there’s a sale on Valve’s Steam service.
Of course, it’s possible that Microsoft Corporation (NASDAQ:MSFT) could make those trips to GameStop even rarer in the future.
The death of used games?
When Microsoft Corporation (NASDAQ:MSFT) introduced the Xbox One to the world, the outrage was almost immediate. A feature that was long rumored to be part of the console reared its ugly head: all games would install themselves to the console’s hard drive, and once installed they would be associated with a specific user account. If you sold the game disc or even let a friend borrow it, an additional charge would be required to install the game onto a different account. Though almost every company involved in console gaming has been rumored to have a plan to eliminate the used games market, Microsoft is the first to really strike a blow against it.
Now that’s not entirely true, of course. Electronic Arts Inc. (NASDAQ:EA) also instituted a feature known as “Online Pass” in some of its games that required players to enter a single-use code to access some game components such as multiplayer combat, requiring new codes to be purchased by any secondhand buyers of the game. A few other game producers have tried similar things as well. Microsoft is the first console producer to implement such a scheme, however, and its implications are a bit more far-reaching than what Electronic Arts Inc. (NASDAQ:EA) implemented (and recently discontinued, not only removing “Online Pass” from new titles but unveiling plans to remove it from existing games as well.
What if it’s not a hit?
Right now there are a lot of people talking down the Xbox One, but there’s still a lot of time between now and release for gamers to change their minds. For some the lack of backwards compatibility and tying installed games to your account are deal-breakers, but even so the console is likely to see decent sales. Even if it doesn’t beat out Sony Corporation (ADR) (NYSE:SNE)‘s Playstation 4 in sales, it could still be a thorn in GameStop Corp. (NYSE:GME)’s side. Win or lose, the Xbox One is a big neon sign of things to come.
What the Xbox One represents is the console market moving one step closer to digital distribution, something that PC gaming has been moving toward for years and that was even present in the last generation of consoles. You can get an idea of how things might work with the new Xbox by looking at how apps work in Windows 8; you can buy a game (including several Xbox-branded games) through Microsoft’s app store, install it on your PC and have the purchase associated with your Microsoft account. You can then install the same game on a Windows 8 tablet, your laptop, or even a friend’s computer if you’ve signed in to your Microsoft account there. You can play for as long as you want so long as you’re signed in, but if you sign out and go home then your friend would have to buy his own copy instead of playing the copy that you paid for. Though the final details may be a bit different for the Xbox One, that does sound relatively similar to how things have been described thus far.
Microsoft Corporation (NASDAQ:MSFT)’s not the only company that’s doing this, either. Sony is introducing its own streaming service that will allow you to stream games to your console or other devices without buying any physical media. Nintendo’s Wii U and 3DS are both making greater use of digital downloads, including some games that are seeing dual releases in both physical and digital versions (and in the case of certain games such as “New Super Luigi U,” the digital version is actually cheaper). As Internet connections become faster and more common, game publishers will likely lean even heavier on digital distribution because of lower costs and what they see as a higher barrier against day-one piracy.
A continuing slump
A move toward digital distribution and a barrier against used game sales represent a one-two punch for GameStop Corp. (NYSE:GME), and unfortunately for the company it’s already having a rough time without the added problems. Global sales declined 6.8% in comparison to a year ago, with comparable-store sales slipping 6.7% against last year’s sales. This isn’t a slump that’s necessarily specific to GameStop, of course, and it has actually fared better than the market at large which declined 14.2%. The trend is still worrying, however, and will only get worse if the company can’t find a way to adapt to the oncoming digital storm.
GameStop has tried to make progress in this regard, partnering with Valve to sell Steam gift cards that users can’t buy through the Steam service itself. This is still just a drop in the bucket of what’s needed, however, since those gift cards ultimately result in customers spending their money on the Steam platform instead of at GameStop. If it hopes to remain competitive, GameStop might want to follow the lead of Amazon.com, Inc. (NASDAQ:AMZN) and expand its digital games to compensate for a potential loss in used-game sales.
In addition to selling physical copies of games, Amazon offers a wide range of digital downloads and game codes for purchase. Shoppers can buy their games on Amazon and then either download them through the Amazon download service or use the provided codes to redeem the games on Steam, EA’s Origin service or even some consoles. This provides gamers with a number of options regarding how they receive their content, and it allows Amazon to receive sales regardless of whether its customers want physical games or digital copies.
The future of GameStop
While it might not be realistic to expect GameStop Corp. (NYSE:GME) to adopt a system similar to Amazon’s, the company does need to take steps to futureproof itself if it hopes to survive the next few years. Nearly half of all Xbox 360 and Playstation 3 game sales in the US occur through GameStop, but if digital distribution becomes more common then gamers may start preordering games directly through their consoles instead of at retail outlets like GameStop Corp. (NYSE:GME). The company still has significant potential right now, but if it isn’t careful then it might end up dragged under the treads in the next engagement of the console wars.
John Casteele owns shares of Microsoft. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com, GameStop, and Microsoft.
The article Will New Game Consoles Be the Beginning of the End? originally appeared on Fool.com.
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