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E3 is over and investors are hammering GAME, GameStop

After an E3 filled with great games, you might think retailers could get a little boost, but that's not the case

After a week of press conference showings, demos, and 15,000 ticketed consumers roaming the halls of the Los Angeles Convention Center to go hands-on with all the great upcoming games, you might assume that major video game retailers could benefit. But in 2017, when the digital share of game sales is continually increasing, it wasn't to be.

In fact, as was pointed out by The Motley Fool, UK games retailer GAME Digital has seen its shares plummet 90% since 2014. At 32p, GAME shares are at their lowest in five years. "Just why anyone would consider investing in the high street video game retailer in 2017 is beyond me," wrote The Motley Fool's Paul Summers.

"With the popularity of online gaming making traditional consoles look increasingly outdated, I believe GAME - which struggles to compete on price with online behemoths such as Amazon anyway - is a company in terminal decline," he continued. "Aside from my concerns about where exactly it hopes to find and retain new customers, a quick look into Game's financials is more than enough to put me off the company. Operating margins and returns on capital have fallen dramatically in recent years. Free cashflow? Don't even go there."

It's worth noting that traditional consoles are actually selling quite well this generation, despite what Mr. Summers says. But hardware sales alone are not enough to sustain major games retailers. Across the pond in the US, we can see similar struggles from GameStop, which today closed at $20.59, its lowest since August 2012. GameStop has branched out into other categories to diversify its business, like selling phones and publishing titles through its GameTrust label, but selling games at retail is still a hard business to be in now. Digital game sales represent almost three-quarters of the entire games market in the US, according to the ESA's Essential Facts report. Putting a disc in a box on a shelf is just not easy to do in that kind of environment.

Moreover, the message that investors seemed to have gotten this week during E3 is that people want to buy fewer games. It's all about extending the tail on games and leveraging games-as-a-service -- and that's bad for retail.

Wedbush Securities financial analyst Michael Pachter, explained to "I think most investors heard a consistent theme from the publishers about increasing digital mix. The difference this time is that instead of full game downloads, the focus was on engagement and microtransactions.

"Every publisher made a huge deal out of services like Ultimate Team and GTA Online, where people buy a game and play it endlessly with growing digital sales from in-game purchases. The message was that greater engagement equals fewer unit sales, physical or digital, and that's what is weighing on these stocks."

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James Brightman avatar
James Brightman: James Brightman has been covering the games industry since 2003 and has been an avid gamer since the days of Atari and Intellivision. He was previously EIC and co-founder of IndustryGamers and spent several years leading GameDaily Biz at AOL prior to that.
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