"The most popular argument among Gamestop bears is that digital distribution is the way of the future. Although I think a full-out move to a digital distribution model is still a couple console cycles away, it will inevitably take hold.
But the transition will not take place when Microsoft and Sony wish for it to take place; instead, consumers will dictate when the digital transition takes place. Although console-makers are ready for the transition, many end-users lack the necessary Internet connectivity and speed to download games in a timely fashion; it would be faster to go to Gamestop to buy the game instead of waiting for it to download.
Still, Sony and Microsoft's incentives are aligned with game publishers Electronic Arts and Activision Blizzard to destroy the used game market -- or at least Gamestop's share of it. In fact, Microsoft's digital download plan included the ability for publishers to re-sell used games directly to consumers -- taking Gamestop out of the equation.
Ultimately, Microsoft wants to create a new and used game market that it controls. Xbox One enables users to trade in games for credits that can then be used towards purchasing other games. Game publishers will get a cut of each sale, but there is no need for Gamestop. Instead, Gamestop's $9 billion in sales would be split up between game publishers and console makers.
There are other factors keeping customers from embracing the switch to digital -- including large stashes of used games, the pastime of browsing games at an actual store, and similar factors -- but most users will likely embrace change once the technology takes another leap forward. When console Internet connectivity is ubiquitous and download times are measured in minutes rather than hours, customers will no longer have a reason to shop at Gamestop. "
There is a good point in all of that - If Microsoft and Sony decide they want all digital, they will do it and make people accept it. There isn't enough to support it just yet, but they are laying the groundwork now and in a few years, I suspect all new games will be bought/downloaded/played online. Gamestop will have no say in it when the big boys decide to cut out the middle man.
You know you are right and even GameStop management believes this too. Why do you the think this company got the extra cash flow of the business and invested it in online properties? If this company didn't do that the sales and earnings numbers would be much worse in its current state. What is to say that with their now I flared stock price they can purchase even more digital properties to further hedge themselves for this? The management team was smart to buy back stock as it provided a floor yet EPS, which can be manipulated easily was at 3,3 this year when the stock was at 19 just a few months ago. You have to look deeper into this business if they have 30 million people registered in their powerful rewards don't you think they know about the shifts occurring better than say Walmart or amazon? Yes. They do. I think GameStop over the next 5 years will still be alive but it won't be 80% used games but maybe 40% and not because the business fell off a cliff but because they are trying to diversity their business with acquisitions. Consider that GameStop wants to be the place where you buy games, not just in a store but online as well. The brand is strong and can carry forward if the management continues to make the right moves.
Just think apple 8 years ago was a Macintosh and iPod company now it is an ipad and iPhone company....transitions can be made but it takes cash and a smart management team. Seems like GameStop has both. I think the company should stop buying stock at these prices and consider the next acquisition in the online space.