Video game retailer GameStop saw its stock take a mighty tumble after Microsoft's Xbox One was announced earlier this week. Much of the stock's fall can be attributed to what some see as a sea change in the used game market, something that GameStop has dominated for years.
Investor concern appears to be due to a report published on MCV stating that Microsoft has negotiated a deal with retailers which sell used games. The deal would ensure that “publishers -- and Microsoft itself -- will get a cut of the lucrative used game market,” according to an earlier report from Yahoo! Games.
Under this plan, retailers would be forced to “integrate Microsoft's cloud-based, pre-owned system into their catalog. Once a game is traded in, the previous owner will see it erased from his or her Xbox One account, since games will be installed on the system's hard drive.”
This isn’t as dire as some predicted. Many speculated that the Xbox One would cut out used games period, an act that would have really hurt GameStop’s bottom line (and alienated many a gamer). Sony has said the PlayStation 4 will allow used games, though it is being coy with the details. The Nintendo Wii U allows for used games.
But then there are the fees. From a gamer perspective, there is concern that owners of used games will have to pay a fee in order to play them on the Xbox One. If true (again, nothing is confirmed), this would essentially ruin the thing most folks love about used games: cheaper prices.
Used games are key part of GameStop’s business plan. In the most recent fiscal year, GameStop earned roughly 48% of its gross profits from used games, according to MarketWatch.
GameStop stock dropped roughly 10% on Friday on concerns about earnings. It's down 21% this week.
It isn't just the Xbox One’s new alleged profit sharing rules that have GameStop investors scared. Digital games continue to grow in popularity, a trend that cuts out retailers like GameStop.
And then there is the even larger trend of casual gaming. Many people play games on their mobile devices, often for cheap or even free. If people can get their gaming fix from their phone, the argument goes, why do they need an expensive console for their living room?
But this isn't the first time people have been saying that it's all over for the mighty retailer. And, even taking into account this week's news, the stock is still up a whopping 87% over the past year. For a company supposedly on its deathbed, it's doing pretty well.
Forbes recently spoke to GameStop President Tony Bartel. He's confident that the lack of backward compatibility on the Xbox One will also help with sales.
"As people upgraded to PS3 they traded in their old systems and libraries, which is why Sony made the move to not support backwards compatibility with later iterations of PS3," said Bartel. "That's why the 'buy, sell, trade' model works well. It enables people to purchase new games by trading in their old ones. We expect to see the same thing with this transition for PS4 and Xbox One. Trade-ins allow for a seamless transition." LINK
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