Better hang on to those GME shares...
Here is why downloadable games are NO THREAT:
1. Do you guys know HOW HUGE games are these days? One PS3 game is around 50 GIGABYTES. Thus, you would need MASSIVE AMOUNTS OF STORAGE to be able to hold a full game library on your system. Just to store 10 games, you would need a 500 GIGABYTE HARD DRIVE.
2. Secondly, the fact that you can't take the game over to your friends house to play is another negative point. How often do we that new game we bought over to a friends house to play???
3. People LIKE to trade in games...if you digitally download it, you can never trade it in once youre tired of it, and get some money back.
4. People LIKE box art and the goodies you often get when you buy a game with a box and an instruction manual. Someone made a good point about PC game downloads, given the choice, people want to have something tangible in their hands.
The rumors of GME's death are greatly exaggerated. The CFO recently purchased 50,000 shares at these levels and I don't think he's gonna regret it.
"Do you guys know HOW HUGE games are these days? One PS3 game is around 50 GIGABYTES. Thus, you would need MASSIVE AMOUNTS OF STORAGE to be able to hold a full game library on your system. Just to store 10 games, you would need a 500 GIGABYTE HARD DRIVE."
Which game is 50GB? Some may be over 20GB on PS3. Most aren't. The largest 360 games including GTA4, Fallout 3, Oblivion, are less than 10GB. PSP games are much smaller. DS games even smaller. Wouldn't the "average" be a more appropriate number to use than "the largest possible number"? Btw, PS3 games are in part larger on disk because assets are stored multiple times to reduce the horrible seek times on the Blu-Ray drive, so in reality the content size is smaller than the disk image.
I don't think you can put it down to timing. GTAIV itself was released during what is typically a very weak month for gaming and it still sold by the bucketload. My point is that I think MS (and to a lesser extent Rockstar) overestimated how strong the take-up would be via DLC. Hence the release at retail for the second expansion (bundled with the first).
"Do you think GTA IV used games sales will be huge at Gamestop because people want to play the new Expansion Pack? Or do you think they will "repurchase" GTA IV in order to play it?"
I doubt it will have much impact because the retail version of both expansions doesn't require the original game.
I'm sure the next release will do much better because of it's "timing". I think the timing of the GTA DLC expansion is what killed it.
Do you think GTA IV used games sales will be huge at Gamestop because people want to play the new Expansion Pack? Or do you think they will "repurchase" GTA IV in order to play it?
The year when digital sales go over 50% isn't relevant. What's relevant is the percentage of digital sales which leads to GME's earnings growth stopping (and then going in the other direction). Is that at 10%? 20%? 30%? That will happen a lot sooner than ten years from now. IIRC, Pachter has GME's earnings peaking around 2012 or 2013. As we approach the peak earnings GME should probably be trading relative to their cash position, which according to Yahoo is currently $1.40.
Right now GME should be valued on P/E, which makes it relatively cheap. If and when it looks like the E growth is over for good, that valuation model will change and $22 will look very expensive.
Why would people want to make space in their hard drive, not get a disc and a box, and pay the same price for a game?
Also, why hasn't the PC digital download market - in the nearly 10 years it has been around - caught on in a significant way despite most PC gamers knowing about it?
Earnings growth might peak in 2-3 years, but should certainly not reverse as the current growth catalysts far outweigh the negative ones.
Positives: Industry growth (5-10% per year), 400+ new stores openings per year (another 6%), continued strong growth in high margin used games (another 5% + a year).
Negatives: DLC's (-5% per year starting in 2011), Competition in used games (currently widely expected to be insignificant)
We're talking double digit growth no matter what for the foreseeable future ...