Microsoft Corporation (MSFT), Sony Corporation (ADR) (SNE): What The New Game Consoles Mean For Gamers And Retailers

To be blunt, Best Buy Co., Inc. (NYSE:BBY) can’t afford for Microsoft and Sony Corporation (ADR) (NYSE:SNE) to not push gamers to upgrade their hardware and software. GameStop needs gamers to get excited about new hardware and software to drive sales. If gamers are put off by the idea of spending $399, having to deal with unlock fees, and the lack of backward compatibility, the upgrade cycle may take longer.

In addition, GameStop and Best Buy live and breathe physical sales. Both companies are working hard to push into digital and online sales, but the majority of their business is still in-person. If gamers know they have to pay an unlock fee to sell a game, it seems likely they may choose to just download it directly to their console. If this occurs, again GameStop and Best Buy likely suffer.

Imagine that Activision Blizzard, Inc. (NASDAQ:ATVI) releases its newest Call of Duty: Ghosts, and it costs $59.99 at GameStop, Best Buy, or online for download. Why exactly would a gamer choose to go buy the physical copy at a retail store? In addition, if Sony’s Gaikai service offers streaming of many games for a fee, are customers as likely to buy physical discs to own? Since GameStop lives and breathes games and consoles, and Best Buy dedicates a large portion of their stores to video games, I think you can see the potential consequences.

Conclusion

The new consoles offers some great features that gamers like myself might enjoy. However, the lack of backward compatibility, and any fees for selling used games, are major roadblocks to a fast upgrade cycle. It’s possible some of this could change by the time the consoles hit store shelves, but if not, investors in GameStop and Best Buy should be very concerned.

Best Buy might weather the storm because of their sales of computers and mobile phones make up more than 47% of sales. However, GameStop’s reliance on profits from used games, and the potential for more online sales of new games, puts the company on thin ice. If the Xbox One and PS4 ship as they are described, this might be the final nail in the coffin for this beleaguered retailer.

The article What The New Game Consoles Mean For Gamers And Retailers originally appeared on Fool.com and is written by Chad Henage.

Chad is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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