Microsoft Corporation (MSFT), Sony Corporation (ADR) (SNE): GameStop Corp. (GME) Is Still a Disaster in the Long Run

Sony wants to create a Netflix of games

Sony Corporation (ADR) (NYSE:SNE)’s plans for gaming are even worse for GameStop. Rather than build a server farm for partial cloud support, Sony is diving head-first into streaming games.

Last year, the company bought streaming game start-up Gaikai for $380 million. Gaikai’s technology allows for games to be streamed directly from Sony Corporation (ADR) (NYSE:SNE)’s servers to a player’s console, and it will make an appearance in the PlayStation 4.

It won’t work at launch, but Sony says that, eventually, players will be able to stream PlayStation 3 games to their PlayStation 4.

In an interview with The Guardian, Sony’s president of worldwide studios said the company dreams of offering a subscription-based, streaming games service — a Netflix of games. If PlayStation players are getting their games streamed to them, they aren’t going to need to buy physical copies.

But that’s a ways off. Sony has plans that could hurt GameStop much more in the immediate future.

Sony is planning a trade-in program of its own. Gamers who purchase multi-platform games for their old console (Madden 14, for example, will be released on both the PlayStation 3 and 4) will be able to trade that game to Sony for a PlayStation 4 version — specifically, a digital version.

Borders, Tower Records, and Blockbuster

And this is just the existing players, not to mention reports that Apple, Google and Amazon are planning (digital) consoles of their own.

What GameStop is going through is nothing new. It’s a trend that’s played out countless times in the past. Companies like Borders (books), Tower Records (CDs), and BlockBuster (DVDs) ran into the same problems when their businesses went digital.

Although GameStop shares may continue to appreciate in the next few quarters, longer-term this company is existentially challenged.

The article GameStop Is Still a Disaster in the Long Run originally appeared on and is written by Sam Mattera.

Sam Mattera owns puts on GameStop dated January 2015. The Motley Fool owns shares of GameStop and Microsoft.

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