Microsoft's (MSFT) Thursday afternoon disclosure on Xbox Wire and it's games policy triggered another bull-and-bear debate over the future (or lack thereof) for GameStop Corp (GME).
According to the Xbox One bulletin - publishers will have control over used game sales. And so the short thesis belief says that publishers will demand a cut of GameStop's used game trade-ins or sales or ban used game sales outright. Publishers have little motivation to do this. Firstly, GameStop's roughly $5bil in new game sales would likely favor the bias towards promoting games from publishers who impose no restrictions. Secondly, first-in-line consumers know they can get resale value out of a new title's $60 purchase from GameStop, which helps drive new software sales in the first place. Without a "built-in out" for that new game purchase, there's a greater chance that alpha consumers would wait well past the first day of release, hoping for a sale - resulting in far less profit for the publisher. Thirdly, keep in mind (and publishers do) that GameStop pays out over $1bil in in-store currency from the trade-in of used games, with at least 70% of that going towards the in-store purchase of new games. Consider this, Take-Two Interactive (TTWO) had about $1.2bil in annual game sales, equivalent to GameStop's annual in-store currency doled out for used game trade-ins alone.
Hello fastmoneypete (can I call you Fast Money, or do you prefer Pete?),
I completely agree with the points that you make. A point that I make in a reply I just posted to a different thread is exactly that the $60 game price point has used game credit baked into it. The argument I make is that a person spending $300/year to play 8 new release games utilizing used game credit to finance the difference isn't going to magically find an additional $180 dollars to send over to the publishers. The same goes for all gamers collectively, eliminating all used games isn't going to send us scurrying to work an additional 4 hours/week, or to negotiate our rents/mortgages down to send more money to them. What is going to happen is that they will end up having to compete for our dollars, theoretically bringing prices down to where they sell the same 8 games to that person for the $300/year he has to spend. The risks to the publisher in such a senario is that just like any big disruptions, you don't know where things are going to settle. And they can settle at a new equilibrium point where they collectively make less money than they currently do. Better to leave this as is, and be able to budget your expenses based on projected incomes that you can predict with some reliability, as opposed to create a huge disruption, that might end up with prices settling far below what they even currently make. Add to this the fact that they would have to collectively collude with each other (which is illegal in US law and I believe most advanced countries law) the chance of this happening is practically zero. On the other hand, on the positive side for GME is all that you mention.
According to the Xbox One bulletin - consumers will be able to buy disc-based games at traditional retailers or online through Xbox Live, on the day of release. And so the short thesis belief says that gamers will cease to shop for new title releases in a brick-and-mortar environment, and will opt for the convenience of an instant download. Firstly, a huge chunk of gamers don't have PayPal or credit cards. Secondly, Microsoft didn't elaborate on an exit strategy for gamers trading in their downloaded used games, while GameStop guarantees a "built-in out" for any new title purchased on the release. Thirdly, 30 million obsessively loyal GamesStop Power-Up Reward members will choose GameStop to buy new releases at the store level vs. the Xbox download, so I speculate that an exclusive GameStop/Microsoft partnership is "in play" and the reason behind Microsoft's lack of consumer disclosure on the used game legacy of new games downloaded directly on the console. Furthermore, by allowing itself to become a trade-in vehicle for used games (should a GameStop partnership fail to materialize), Microsoft becomes entangled in a conflict of interest between the publisher and the console-maker. Would Microsoft want to get involved in negotiating separate deals with publishers for trade-in and re-sale rights?? Quite the contrary, Microsoft carefully thought out it's decision to allow publishers control over used game trade-ins and re-sales to/from authorized retailers, with no intention of every becoming one itself.
According to the Xbox One bulletin - used games can be sold through authorized retailers only. This is a material positive for GameStop, as one of the very few authorized retailers of used games. Gone are the ebay (EBAY), craigslist, and the many other purveyors of used games. Furthermore, Microsoft will allow friends to "gift" used games to other friends only once in a disc or download ownership life-cycle - but with no trade-in limits to GameStop and other authorized retailers.