Thanks for the great answers regarding GME's future 2 years out. What I love is that there are a few posters on this board that are as familiar with the company as professional analysts. It helps, I think, that the financials are straightforward, so gamer-investors aren't at a disadvantage in analysis. If you can get the fundamental trends of the business right, you'll get the stock right.
I have another question. I am not a gamer, so I am ignorant on this matter. My question is: what role does piracy play in this business? Is the encryption so well done that it is impossible for gamers to just copy disks and share with friends? Are they too large to post on the internet for free download? Is copying more difficult because they are made for consoles? What I am trying to understand, in other words, is why this is different from the music business (which, reflecting my age, I almost called the record business, lol).
Finally, a few analysts argue not so much that the big games will go DLC, but that gamers will move to online games to such a degree that it will take business away from the more costly games. I think you guys have agreed that this will happen to some degree, but that GME's low valuation makes up for that risk. A PE with a double digit handle would make it more of an issue for the stock, is what I take is the general attitude. Is that right?
Again, thanks for the strong opinions on past questions and sorry for the ignorance regarding the piracy question.
"In August, the company brought in Playboy digital vet Chris Petrovic to head up its new digital ventures business; Petrovic and another new hire, Ticketmaster vet Shawn Freeman, quickly got to work, as Gamestop announced that it had taken a stake in U.K.-based online gaming news, info and distribution platform JOLT. “JOLT will allow us to test digital distribution,” Bartel said. “We like the business model of being able to take IP from publishers, and then help them sell it when they port it to the browser space.”"
Where there are people with too much time on their hands there will always be piracy issues. If piracy exists with physical media it will exist 100 fold with DLC. This is just one of many reasons why I don’t think DLC will prove to be a fundamentally sound way to distribute the base product long term. It may cost the bankruptcy of a major publishing house to figure this out but be that as it may.
Does piracy impact GME today? Probably minimally. Will it impact GME in 10 years? Who knows because it depends on the industry and not just GME.
Will online gaming take over? I think it depends on how the industry addresses the market. The bottom line is that the market buys into the most cost effective and innovative products. Today consoles are relatively cheap, allow for spectacular performance, and have very innovative features. All that you have to add is some enticing software titles. Another advantage is that the software titles are virtually guaranteed to work on every console. Take a look back in time and see if you’d rather play popular games over a browser on a PC, or just on a PC –vs- your game console. I don’t know about you but I much prefer the consoles. So as long as the innovation continues with consoles I think they will continue to be the dominant gaming platform. Also do you think Nintendo would really want to give up it’s console (and accessory) sales and allow us to run games over a generic PC – no way!
I keep repeating myself but Gamestop is an owner of Jolt Online, a publisher of browser games as of Q3 I think last year. I would like to find out more about that business outlook for GME from the mouths of the insiders.
What needs to happen is the gaming industry needs to figure out a model that works well for everyone.
The most inefficient business model would be for the publishers to go entirely DLC and attempt to wipe out GME. Why? Well, each publisher would have to establish their own marketing department and develop their own proprietary method of securing their product, along with maintaining a fleet of servers for product distribution. And I believe that would be a moving target because hackers will constantly be working to break the security of any DLC products. So now you have all these software publishers (or console manufacturers) performing tasks that aren’t directly related to their core business – and worse yet is none of these ancillary tasks really contribute to their ROI. If this business model is bad with 1 publisher multiply it by 30 – what a mess! The result will be prices will have to increase which wouldn’t be good for anybody and my guess is you’d see some publishers going belly up. Look at health insurance in our country today which is implemented very similar to this – in short it sucks.
To me the most efficient business model is to have the hardware manufacturers, software publishers, and wholesalers/retailers each doing their own thing. In business this is called a vertical market. By specializing each link of the chain can concentrate on doing the things that make each the best in its area. The result is that each company’s efforts are focused on the things that return the best ROI. This tends to be very efficient. The benefit for us is that this tends to keep cost low. Even in a DLC model there would be room for GME, but as I said before I don’t believe DLC will be the future of gaming. Maybe this is where GME can plan for the future – to figure out what will be the future method of distribution and working with others in the industry to develop a standard that GME could carry out.
I also believe the software publishers charging for added DLC are simply being greedy and this will ultimately fail. What would I do? If I were a software publisher I’d look into establishing a game model where participants pay a nominal fee per month ($2-$5) to be part of the online gaming experience. The additional content should be the (free) carrot that keeps everyone playing the game. In this model used software sales still represent a substantial value to the software publishers because it keeps people paying to play online. This is very similar to what WOW does on the PC – by the way which it has done for years and continues to be a very successful product.
One thing for sure is those companies that don’t cooperate in the gaming vertical market will likely implode whether they be Nintendo, EA, or GME (as examples).
Piracy varies on the platform. None of the trends are fresh news or any surprise to anyone, nor are the trends likely to change, so I'd say it's all priced in. Btw I disagree about GME's low valuation making up for long term risk. It's a potential value trap, and may well be "cheap" forever.
PC - crippling, nearly 90%. Will see continued move to subscription and microtransaction payment models, and online authentication like Steam. Bad for retail.
DS - crippling. Bad for retail.
PSP - crippling. Bad for retail. I don't know if the Go is hacked or not, but that's such a small market anyway.
iPhone - very bad. Not that this matters for a retailer like GME anyway, however any time people can download free games for any platform anywhere, is bound to impact demand to buy $60 retail games.
None of the above is new news, but OTOH it isn't likely to improve for retail.
Wii - minor. I know it's possible, and I think it's easier and safer than 360. I don't know how widespread it is, or if it has any impact on sales.
360 - minor. It's a pain due to large file sizes and the chance that MS can detect you doing it and cut off your Live access forever.
PS3 - very minor. If it's possible, and I'm not sure if it is, it's negligible.
In order to play copied games on PS2 it required a mod-chip and soldering connections inside the console. I'm quite sure things are more difficult with the PS3 and 360.
I look forward to the new online games like Diablo and Starcraft, not just for the online abilities but for the stand alone campaigns that you can play offline. I own Warcraft 3 but did not buy Worlds of Warcraft because it requires a monthly subscription and you can ONLY play online. Games that incorporate both (and many do)should continue to sell well. Large file size is sold on a CD that is required to play online. I don't see this being bad for retail. Retailers get a piece of the pie for sale and game mfg get revenue stream from online subscriptions (Battle.net, Steam, etc)
I had to update the software for the recent Bioshock 1 that I bought and it took 15 minutes to dl and install - thats with the disc. I have highspeed DSL. It also would not allow this to performed in the background. My belief is game size will always push the limits of the bandwith and storage capacity making a cheap portable disc or the like necessary for quite some time.
The Wii system allows for game back up to the console harddrive. If you could get this digital copy to a disc somehow, there you go. The hard drive is not big enough to hold much more than a couple of games probably. XBox, PS and Wii games are protected by licensing and copyrights so it would be a punishable offense to pirate them. I believe the technology is there to by-pass the licensing protections, if Microsoft operating system software is pirate, any software could be I think. I have no first hand knowledge but I'm sure some gamers are ripping copies of games before trading them in. Not a lot of them, though.
You don't need investor lanuage to understand that GME stock is fundamentally broken. I have been saying this for months now as it has made new lows over and over again while the rest of the market made new highs. NOTHING has changed since to make any big difference with GME stock price. GME stock owners will be lucky if this stock only trades sideways. It takes ALOT more than a few games sold and midnight stupid parties to pay the rent.