GameStop Monopoly on Games

gamestopGameStop, the video game store, made the news this week with an impressive increase in sales. The company also controls EB Games and Game Informer, their publication. For gamers that prefer hard copies of games as opposed to downloads, GameStop holds a monopoly in many geographic locations nationwide. The focus on recent reports of top sales and increased numbers overlooks the absence of other options for physical game purchases in the average American locale. Further, analysts still predict that the focus on physical discs that give the retailer power in the market will shift away in coming years, with downloads and streaming coming to the forefront.

Twenty years ago, GameStop did not exist. Babbage’s and Software Etc. were the main names in the game when it came to stores that focused on software sales. Way back in 1994 Babbage’s, the gaming focused retailer, joined forces with Software Etc. Stores Incorporated, which was focused on PC software, to form NeoStar Retail Group.  NeoStar filed for bankruptcy in 1996, at which time outside investors stepped in and purchased Babbage’s and Software Etc., forming Babbage’s Etc LLC. In 1999, Barnes & Noble bought Babbage’s Etc., and in 2000 B&N purchased Funco Inc., the company that owned and operated FuncoLand, the gaming store chain that began with mail-order rentals in 1988. This move made Babbage’s a subsidiary of Funco. During 2002 and 2003, company rebranding switched store locations previously called Babbage’s Etc to the new GameStop moniker. In 2005, it merged with Electronics Boutique (known as EB Games) and solidified its hold on the industry by gathering one of its last competitors into the fold.

EB Games still exists, though they are not as numerous as they once were. The newly-formed company slowly redistributed its investments, shutting down locations that were in direct competition with one another. For those readers familiar with New York City, at one point nine years ago Kings Plaza mall, one of the only indoor malls in Brooklyn, hosted both stores. EB Games closed its doors, leaving GameStop as the only store devoted to electronic gaming in the mall (the only option if consumers want to trade in used games). Moves like this build their share of the market, but nullifying the competition leaves consumers with fewer choices when looking for a place to sell or purchase hard-copy games that they can actually touch before buying.

GameStop has become such a giant that it is now compared to big-box stores like Wal-Mart and Target that also sell consumer electronics. Their main competition is Wal-Mart (again), Best Buy and Amazon, which could indicate a switch in gamers consumption patterns from the physical means of going to an actual store and evaluating items to online purchasing. Despite the monopolistic control GameStop exerts over used games, prior to this week’s story investors believed the company would begin to lose market share in the face of increasing online sales and rental options.

Bolstering that theory, Valve is only one of a number of companies producing a gaming machine that will run downloadable games. Valve owns Steam; called the iTunes of video games it is a service that offers downloads of PC and Mac games at a fraction of the cost of hard-copies. Steam also supports community interaction via message boards, friend lists, and chat. Valve, the developer behind Half-Life and Portal among other cult classics, is at work on something between a gaming console and a Roku player that would allow direct play of downloads from their online store. The offering will run a unique operating system based on Linux, but will have the controller capabilities and ease of use usually reserved for consoles. Alienware is among the dozen other PC companies building a box to utilize the Steam OS. Valve says a Steam Box or Steam Machine (final titles remains unannounced) is due out in time for the holidays in 2014.

Among other possible blows to GameStop’s sales is Sony’s Playstation Now. PS Now offers streaming of classic and new titles to PS3 and PS4 as well as new Bravia TVs and the handheld Vita. It is now in beta use across the US. The company announced the streaming version of their Playstation Store should be open to the public this summer.

Recent numbers have tied GameStop’s yearly earnings increase to the kick-off of the new console cycle, meaning the introduction of PS4 and the pared down Xbox One kit, a theory espoused by analyst Liam Callahan. Hardware sales grew 47 percent during the first quarter of 2014. Comparatively, sales of new physical games decreased 27 percent according to NPD, a figure that may have been hit hard by options like Steam and GameFly, the rental and used-game service comparable to Netflix. The group also reports overall spending on video games and related accoutrements is down 1 percent compared to last year. As the new systems age, and other options like Sony’s Playstation Now and various Steam Boxes become available to consumers, it is unclear if GameStop’s near-monopoly on used hard copy game sales will matter. The company is planning ahead, however. In April the industry giant announced its plan to close more than 120 stores, though that is only a fraction of its 6,500 locations. In the coming years, consumers will decide if bear investors are proven right and GameStop is doomed to mirror the decline chains like Blockbuster.

By Aliya Tyus-Barnwell

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Motley Fool
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Tech Radar

One Response to "GameStop Monopoly on Games"

  1. ck   May 26, 2014 at 8:08 am

    I’d hardly call it a monopoly when you clearly state it is fighting to survive amongst the new download able game alternative sources of purchase.


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