Microsoft’s smarter than that. Activision is a smarter cheerleader than that. Xbox One games will come with unique registration codes so only one person can own that actual copy. This would seem to validate GameStop Corp. (NYSE:GME)’s resale model, and shares of the retailer opened nicely higher this morning on Microsoft specifically describing the ability to trade in games or pass them along. However, what’s missing here is that Xbox One still makes it more convenient to buy digital games directly through the Xbox Live marketplace, cutting out GameStop as the clunky middleman that has been siphoning off sales for itself over the years with its once-lucrative resale business.
Activision has always had a beef with GameStop Corp. (NYSE:GME)’s resale business. Developers don’t profit from the resale of games. Microsoft needs developers more than it needs retailers, especially now that every game made for the Xbox One will be available on Xbox Live’s cloud. This is why gamers will continue to migrate from physical discs, just as media consumption has moved away from actual books, DVDs, and CDs.
Where does GameStop fit in that digital scenario?
If you thought this past quarter was bad for GameStop Corp. (NYSE:GME) with global sales falling 8% and net income plunging 25%, just wait until the holiday quarter. Sales may hold up as folks buy the initial hardware, but that was always GameStop’s lowest margin business.
Once it sells a gamer the Xbox One system, the retailer may never see him or her again. There won’t be a need to pre-order a hot release, because digital inventory is infinite, and the growing popularity of digital downloads will mean less games to trade in.
Bulls will argue that physical games will become even more popular in this scenario. Discs won’t get scratched up, and the value of used games will increase since there won’t be a distinction between new and used after the initial insertion. That may all be true, but what if this is paving the way for a digital marketplace of resales where Microsoft and developers actually profit from the secondhand exchanges? It makes evolutionary sense.
Why did GameStop Corp. (NYSE:GME) stock hit a four-year high last month? Did investors not see that the name on the store is about to change to Games Be Here at a time when the gamers won’t be?
It’s not looking good for GameStop Corp. (NYSE:GME) stock.
The article GameStop Stock: Game Over? originally appeared on Fool.com.
Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard. The Motley Fool owns shares of Activision Blizzard, GameStop, and Microsoft.
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