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Retail

Does GameStop's future lie in publishing?

By James Brightman

Does GameStop's future lie in publishing?

Wed 03 Feb 2016 3:38pm GMT / 10:38am EST / 7:38am PST
RetailPublishing

Analysts discuss the implications of the retailer's first publishing deal with Insomniac

Star Wars Battlefront's holiday sales notwithstanding, the video game industry is rapidly heading towards an all-digital future. Much like the music industry, retailers of physical products are going to feel the pinch if they can't evolve. To GameStop's credit, the company has already done much to diversify its business, selling games digitally, offering exclusive DLC, operating the online platform Kongregate, and selling gadgets and gear via ThinkGeek. One of the newest steps the retailer has taken to branch out is to enter the publishing business, entering into a partnership with Insomniac for Song of the Deep.

But will GameStop become a major publishing force or will this simply be another small component of its evolving business strategy? Interestingly, if GameStop continues to pursue the publishing side of the industry, it would inevitably be competing with the partners it's been selling games for all these years (aside from already competing by selling used titles).

DFC Intelligence boss David Cole does not believe GameStop is headed down that road, however. "I would characterize this as a small experiment. GameStop is doing a lot of experimentation and I don't see this as competition," he commented. "GameStop's ownership of Kongregate is a much bigger entry and possibly more competitive because it focuses on digital games.

"GameStop clearly needs to find a successful diversification strategy... The company's stock has been on a decline since reporting lower than expected 2015 holiday software sales"

Patrick Walker

"I really see this as right now a one-off experiment and not part of a larger trend. EA and ATVI still need GameStop and vice versa. This title is too small to impact that relationship and if it is a bigger title I imagine Insomniac would have used a more established publisher to get full international distribution."

EEDAR's VP of Insights and Analytics, Patrick Walker, does not believe GameStop is seriously considering publishing as a major business either.

"GameStop clearly needs to find a successful diversification strategy as the games industry follows the more universal economic trend of increased digital distribution. The company's stock has been on a decline since reporting lower than expected 2015 holiday software sales," he said. "However, I think game publishing will remain a secondary strategy versus increasing digital distribution and increasing scope of their stores.

"GameStop has already made significant investment in increased digital distribution and diversified product lines by purchasing the Impulse digital platform, Kongregate, and ThinkGeek, and bringing mobile products into its stores. As you point out, growing a publishing business to a significant level for the bottom line would create complications with the current cash-cow software business. I think that because of this GameStop will push into publishing relatively slowly compared to its other diversification efforts."

That being said, one reason GameStop may have pursued the deal with Insomniac is that it's facing increasing pressure from others in the retail space. Amazon, in particular, is making a bigger push with exclusives and discounts on new titles via its Amazon Prime program, noted IDC Research Director Lewis Ward.

"The old adage that content is king is now playing out on the brick-and-mortar retail front. There's been exclusive game hardware bundles in the past of course from retailers; there's even been some exclusive add-on content and so on, so on the one hand GameStop's new direction is an extension of an existing pattern. Of course Amazon, on the e-tail side of the distribution business, has also branched out into exclusive game availability, so this trend probably also played some role in bringing about this GameStop-Insomniac arrangement," he said. "On the other hand, it's a unique deal in that I don't recall a retailer ever tying up just the physical rights to a game - and letting the developer publish wherever they want digitally."

"At the end of the day, I don't think it's a big risk for either party and if the physical game sells well at GameStop I'm sure we'll see more experiments along these lines. Since this is a new IP, I doubt it'll sell in big volumes, but it does let GameStop throw around the 'exclusive' term and perhaps Insomniac's new title will prove a surprise hit," he continued. "On the potential downside, GameStop has a history of making side bets that go nowhere (see their Spawn Labs investment from 2011), so I'm definitely in a wait-and-see mode regarding their latest experiment."

If GameStop does pursue more publishing deals for smaller scale digital titles, it would also be directly competing with numerous firms who now offer publishing and marketing guidance for digital platforms. Tilting Point is one such company. Jesse Divnich, former EEDAR analyst and current VP of Product Strategy at Tilting Point, does not see GameStop's latest move as a threat though.

"This is just as much GameStop protecting themselves as publishers have been through digital distribution... The worst thing GameStop can do is nothing"

Jesse Divnich

"GameStop has been competing against publishers since they decided to sell used games. In 2010, they acquired Kongregate, which competed against publishers who were starting their own online platforms.  In the same respect, publishers have been competing against physical retailers by digitally selling direct to consumers, either through their own platforms or through the platform operators," he argued.

"The distribution and entertainment content business relationship can sometimes be adversarial, whether games, movies, music, or television. I do not think this experiment by GameStop will have any major ripple effect or impact on the industry. This is just as much GameStop protecting themselves as publishers have been through digital distribution," Divnich continued.

"This shift to a digital commerce environment has been a risk to GameStop for years. The worst thing GameStop can do is nothing. You always need to be moving and we'll see in time if this is a step in the right direction or a step back for them. I believe them choosing Insomniac is an excellent selection and this deal is likely in Insomniac's best interest."

Ultimately, the entire discussion may be much ado about nothing. At least, that's what Wedbush analyst Michael Pachter thinks. In fact, the only reason GameStop is a publisher on Insomniac's new title, he believes, is that Insomniac couldn't land a deal with the traditional publishers.

"I don't see what they gain from this. The game will be offered digitally, and they could carry the physical version without being the publisher. I am not sure how they are better off as publisher instead of acting solely as a retailer. I don't see them safeguarding anything, and don't think it will be a major part of their business ever," he remarked.

"Had one of the major publishers offered Insomniac a deal, I'm sure that it would not be published by GameStop. I think you're reading more into the 'competition' angle than is there; more likely all of the majors passed on the game."

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5 Comments

Metodi Chukovski Managing Director, AD4Real

5 2 0.4
I usually don’t comment articles, but this one, I will.
First I read this:
“DFC Intelligence boss David Cole does not believe GameStop is headed down that road” – Seriously? Do you really think so?
“I would characterize this as a small experiment”- yes it is a small experiment, but it’s the right experiment. They need to start from somewhere. The nuclear experiments also started as a “small experiment”.
"I really see this as right now a one-off experiment and not part of a larger trend.” – No, I don’t see it as a one-off experiment. And yes, I see it as the part of a larger trend, which eventually hand in hand with the distribution will become one of the major revenue streams of the company.
Then I read this:
“EEDAR's VP of Insights and Analytics, Patrick Walker, does not believe GameStop is seriously considering publishing as a major business” – What? On the contrary, I think they consider publishing as a major business.
“The company's stock has been on a decline since reporting lower than expected 2015 holiday software sales," - Yes, they have been. They were like this also 5-6 years ago when they said that the company is a dying dinosaur and that cloud gaming is the bomb, but guess who is still singing “alive and kicking”. But eventually the company's stock will decline if they don’t go to publishing and eventually developing (or owning developers) someday, but for this they need to polish the publishing business first.
And finally I read this:
"I don't see what they gain from this. The game will be offered digitally, and they could carry the physical version without being the publisher. I am not sure how they are better off as publisher instead of acting solely as a retailer. I don't see them safeguarding anything, and don't think it will be a major part of their business ever,” – said the “financial analyst”??? Hello is there anybody in there? Come on now. How can a financial analyst say that?
Dear analysts, don’t you know that if there isn’t a third party in the equation, this automatically means more profit for the two parties in it? Meaning that the net profit for Gamestop, publishing and then distributing the game will be much higher than just “offer digitally” the game. Maybe you don’t know that any company with descent amount of capital (which we all know Gamestop has with more than 10B revenue) can publish a game nowadays on major platforms (especially owning sites like Kongregate, Thinkgeek, etc.) and not only publish it, but publish it successfully (of course the game has to be at least “good” for this to happened). Obviously this title will be mainly distributed on web gaming portals/app stores and mobile app stores and for this owning a website like Kongregate which can drive the first million users, so the organic growth can flow like butter will be a huge factor. Moreover, the company will gain also all the benefits of publishing the IP, and they are a lot, if they managed to struck a good deal.
This specific game will be the initial test, but the story will not end with it. More serious titles will come along afterwards. Gamestop knows the clock is ticking and they need the differentiate their business and on contrary of what you say, I believe this is the right way to go. Publishing (and owning developers on a later stage) and digital distribution will go hand in hand in the future. Different question is, if this is right.
Regarding the game itself, on the first look the art and the design look nice, the idea, not so much. I don’t know if it will be something big, maybe not, but it sure will bring few millions lifetime only from in-game advertisements on platforms like Kongegate and Google play.
And to answer your question - will GameStop become a major publishing force? - I don’t know, but they sure can. They have the right tools and if the tools are not enough, they have the resources to buy more. Of course many companies failed along this way and they can fail too. They will succeed if they make the right moves at the right time and for me their step into publishing is the right move with a slight delay.

Posted:5 months ago

#1

Shane Sweeney Academic

500 597 1.2
I'm still gob smacked BlockBuster isn't Netflix and GameStop isn't Steam. Distribution is there entire market. In the 90s we were talking about the limited lifespan of brick stores.

Publishing is a nice silver medal, but they missed the golden goose big time.

Posted:5 months ago

#2

Klaus Preisinger Freelance Writing

1,459 1,822 1.2
Gamestop bought Impulse from Stardock. Hands up who still remembers his account credentials and thinks Impulse will ever amount to anything. If Gamestop knows one thing, it is how to stabilize its stock price with cheap purchases inspiring positive speculation about a brighter, more diversified future. Do not just stop falling for Gamestop's tricks when it comes to trading in your games, stop falling for all their tricks. Cents on your Dollars is all the value you will ever get dealing with Gamestop on any level.

Posted:5 months ago

#3

Jeff Kleist Writer, Marketing, Licensing

724 483 0.7
Look at it this way: the best way to get Gamestop to cut you in on used sales is let them publish you

Posted:5 months ago

#4

Greg Wilcox Creator, Destroy All Fanboys!

2,576 1,613 0.6
@Jeff: ...unless you're only publishing through GS as a digital SKU, then there are no "used" sales (what's the sound of an empty cash register again?). :D

Posted:5 months ago

#5

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