Following the launch of Google's Nexus 7 Android tablet, GamesIndustry International spoke with GameStop CEO Paul Raines about how this new Android tablet stacks up to the competition, whether tablets will take market share from consoles, and the prospects for game sales this holiday.
Q: What's your reaction to Google's Nexus 7 tablet?
Paul Raines: We've been engaged with Google for about a year on the launch of this device. They had a desire to create an industry standard device similar to what they did with the handsets; the Samsung Nexus phone has been a real groundbreaker for them. We've got a lot of expectations around this tablet; we think it's a gamechanger because it will have tremendous gaming capabilities. You'll be able to wire this tablet to your monitor, you'll be able to use all kind of Bluetooth controllers on it. We're talking to a lot of game developers right now, and everybody's developing right now for the Tegra 3 tablets that are running on Jellybean [Android 4.1]. I think the quality of what you're going to see is going to be pretty hot and this tablet's going to go a long way. Our team's excited about it.
Q: You've been rolling out tablets to more stores - have you expanded that?
Paul Raines: We have. We started with 200 in December; that went very well. We slowly built our capacity and we're over 1600 stores now in the United States and a few hundred in Europe and Australia. There's a lot of education in selling a tablet. Our customers are used to having real knowledgeable associates, and it took us a while to educate our people around tablets, but tablets are now starting to get into our wheelhouse on associate knowledge and education.
"We've got a lot of expectations around this tablet; we think it's a gamechanger"
Q: Getting trade-in value for old hardware has been an important way for GameStop to get sales of console hardware. Now you're accepting smartphones and tablets for trade-in; has that been working well for you?
Paul Raines: Yes, you know GameStop's the best place to get value for your trades. We of course are heavily into the buy/sell trade model with tablets. We announced this week as part of this release that we're accepting 42 SKUs of Android tablets in our stores. We take back - well, I won't say almost anything, because you never know what people have - most Android tablet SKUs; Samsung, Sony, Asus, Toshiba, we're taking all of those back in trade and we're bringing them back to our refurbishment facility. In a lot of ways, it's kind of the same upgrade cycle we've lived through in consoles for a long time. We've learned a lot with the Apple products and the iPhone products that we've been refurbishing. The Android tablets are following along the same cycle. We have the ability to make the purchase much less expensive for the consumer as they want to upgrade. That's been very positively received today with our customers.
Q: With both tablets and smartphones the upgrade cycle is so much faster, with new technology every year, instead of every five to seven years with consoles, so there's a much greater desire to trade up more frequently.
Paul Raines: You're right, we're seeing that. We have a lot of technology and gadgets in our homes, and a lot of people are just accumulating gadgets. People are looking for a place to responsibly dispose of them and put it back into the ecosystem. Our model fits well with that upgrade cycle.
Q:You're only offering the 16GB version of the Nexus 7, is there a reason for that?
Paul Raines: Google did not make the other version available to us. We're offering what's available, and we'll sell it well. At the point that the other SKU's available, we'll offer that as well.
Q:Will you be pre-installing some games on the Nexus 7?
Paul Raines: On this SKU we are not. On the rest of the Android SKUs we have been pre-installing games. On this SKU we're going to market with a different approach; we'll have $25 of credit in the Google Play store as well as a free movie. That Play store is new and Google is trying to promote it. You'll see us do some interesting things for you if you're a PowerUp Rewards member. We'll reach out over the course of the next few months and offer you different ways to buy and purchase new games and some exclusive GameStop content.
We've actually had lots of conversations around how we can be the expert for games for the Google Play store and help promote those in-store. That's what we've been doing for 15 years in the console world, and for us it's a very natural transition to tablets.
Q: Do you see tablets eating into console sales? Do you think this is part of what's been slowing sales of console games over the past few years?
"The data doesn't support that tablet gaming is stealing a lot of dollars from console gaming"
Paul Raines: That's a good question. The data doesn't support that tablet gaming is stealing a lot of dollars from console gaming. What the data does support is that time spent with phones gaming is probably impacting handheld consoles. On the full size console side, I think what's happening is more a function of the end of this console cycle. As we reach the end, we've seen innovation slow down and consumers are waiting for the next cycle. I think tablets have the potential to take some of that time but I'm not sure we've seen that yet. What we're trying to do is match consumer demand whichever way it goes. What we know about customers is, customers like to play their console, they like to play on their phone, they like to play on their tablet. Consumers for us are really hybrid people; they're not all physical or all digital, they're a little bit of both. We're trying to match that as they migrate.
We have 18 million members of PowerUp Rewards in the US, and they represent some 35% of consumption in the US, and around the world we have similar statistics in the countries we're in. The idea we have is that if you're a game player, we don't just want to be your best source for console games. We want to be your game advisor, so if you migrate into other platforms we think we're the best to advise you on that.
Q:What do you think the prospects are for the back half of 2012? It's been a tough year so far, do think that's because of the releases or some other factors?
Paul Raines: For the first half the NPD data has certainly not been tremendously positive. I think part of that is that title count is much lower than previous years, and the late console innovation levels are slowed. I think the back half is pretty encouraging; we're in the midst of looking at our forecast and we feel like it will be a decent back half. I think the Wii U is a big piece of that. In spite of not a great presentation from Nintendo - it was not as well received as we would have hoped - we like the gameplay. Nintendo has been downstairs here today showing off some new content, and there's nothing I can really discuss but our team is pretty excited about the gameplay coming on the Wii U. That has me pretty optimistic about the holiday.
Q: Nintendo may not have the greatest presentations in the world, but they have a way of getting around that with good games.
Paul Raines: No doubt about it. You can imagine at our place, our team has seen every major console launch in history going back to Atari, so our team is a pretty tough judge. People here never count out Nintendo; we've learned that through the years. So I wouldn't count them out on this one either.
Did you see the Pikmin demo up on stage? The gameplay didn't look great on stage, but I went upstairs with Nintendo later and was playing Pikmin and that's fabulous. First of all, the graphics are fabulous, almost 3D-like, and then the gameplay is very cool. I had a map on my Wii U tablet, and I could run around and find the Pikmins where they were, and I was actually attacking the big worm with my nunchuk and my controller. The asymmetric gameplay - I call it the 'tethered tablet' gameplay' - that's going to be a whole new dimension and I'm not sure people get that yet. But give them time, they will.
Q: It's kind of like 3D; it's not something that shows well in a presentation, and you kind of have to experience it for yourself.
Paul Raines: We think that's going to be a very positive event for the industry, and we're preparing ourselves for what we think will be a pretty rockin' holiday.
Q: Are you factoring in possible price cuts for the PS3 or the 360?
Paul Raines: We've not factored them in, although they are rumored. That's a tough one, because you know console makers want to make sure they sell through the old inventory before they launch the new. So a lot of that stuff gets revealed really last-minute, so we really don't like counting on that, because it depends on people's fiscal years, etc. Clearly, if you look at previous behavior, you would say it's about time to drive demand with some price reductions.
"Consumers for us are really hybrid people; they're not all physical or all digital, they're a little bit of both"
Q: My guess is that Microsoft and Sony will keep their powder dry until Nintendo announces their price point. Do you have any idea when that will happen?
Paul Raines: Right, right. You know, they're very close. I'm not sure why Nintendo didn't announce it at E3, but we have not received any other data. One of the things that's going to be different on this console cycle that's never existed before is if you think about the 18 million PowerUp Rewards members that GameStop has in our system, if you look at them they collectively about 24 million consoles. There's billions of dollars of trade credits that can subsidize the launch of the Wii U. We're busy working with them and Microsoft and Sony on the upgrade cycle. There's never been this amount of currency in the market to buy new consoles.
These consoles will launch with digital bundles that have never been seen before. We're in the midst of trying to create some now. Our ability to merchandise and sell DLC in stores coupled with the trade credit gives us a unique position that our traditional competitors are really going to have a hard time matching. At the same time the consumer is under more pressure than they've ever been. It's really important to bring to bear every weapon we can in this console cycle.
Q: It seems like it's going to be a more complicated holiday than ever before, with more platforms than ever and DLC taking a larger role than ever before.
Paul Raines: What I'm happiest about this holiday is the level of innovation is going to be the best it's been in a few years, because you're going to have a Wii U, you're going to have more digital content than ever, you're going to have tablet offerings that are going to be groundbreaking. On the one hand it's complicated, on the other hand it means more innovation which is good for us, because people come to us to figure out all the complication.
Q: Do you think Black Ops II is going to be the biggest game of all time?
Paul Raines: I think the marketing engine that is Activision and the marketing machine that is GameStop will be tuned to all-time levels for Black Ops II. So that's gonna work. We'll have trade credits, we'll have midnight launches, we'll have digital content. I learned long ago not to bet against Call of Duty. I've been at GameStop 4 years, and my first Call of Duty was World at War, and people told me that was the end of the series. And how many millions of copies was that ago? I wouldn't bet against it, it'll be a huge title.
Q: Do you think it's going to cut into Halo 4?
Paul Raines: That's a good question. If you're a guy or a gal who only has 80 bucks to spend in the month of October, you're going to have some tough choices. Look out for Assassin's Creed, that's going to take some business this year.
Q: Part of the problem last year was that all the titles seemed to hit around the same time.
Paul Raines: I beg people all the time, please spread the titles out. But our publishers really like that fall window. Except Take-Two, they do a pretty good job of spreading them out. We got Red Dead Redemption in May, and who knows when we'll get GTA but it will probably be spring. The rest of the publishers like to pack them in on us.
Q: I'm not sure Take-Two's spreading out of their release schedule is deliberate, though.
Paul Raines: Right, right.