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GameStop Widens Generation Gap

An earnings report from GameStop (GME - Get Report) on Tuesday provided further evidence that -- industry hopes to the contrary -- the transition to a new generation of machines will likely be a disruptive time for the video-game sector.

As part of its report , the video-game vendor warned that sales of new games are weaker than expected. While demand is strong for Microsoft's (MSFT - Get Report) new Xbox 360 game console, supply of the devices has been hard to come by. Noting these developments, GameStop dramatically slashed its outlook for same-store sales in the fourth quarter.

Separately, at an investor conference, Electronic Arts (ERTS) said that it saw soft sales in early November and plans to cut the price of its flagship Madden NFL football title by $10, according to Briefing.com.

Weakening demand for new games, short supply of new consoles, price cuts and disappointing sales are not unusual for a console transition. But industry analysts, investors and executives had hoped this generational jump would be different.

GameStop's announcement, however, adds to the recent evidence that this transition will simply be more of the same, a reality that could weigh on the stock prices not only of GameStop but of game publishers such as Electronic Arts and Activision (ATVI - Get Report).

"We should all know that there's an awkward transition they're all going through right now," says Steve Monticelli, president of Mosaic Investments. "We should expect weak results from these guys."

Still, the market seemed somewhat surprised. In recent trading, shares of GamesStop were off 4 cents, or less than 1%, to $35.14. But the software guys were taking significantly bigger hits, with EA shares off $1.67, or 2.9%, to $56.43; Activision's stock off 40 cents, or 2.8%, to $13.80; and shares of Take-Two Interactive (TTWO - Get Report) off 47 cents, or 2.5%.
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