GameStop CEO Q&A: From Retail to Digital

NEW YORK ( TheStreet) -- The video game market has been on a losing streak, leaving GameStop ( GME) at a critical crossroad.

In June, total video game sales dropped 6% to $1.1 billion, with software sales plunging 15% to $531.5 million, and software growing 5% to $401.7 million. These figures followed several months of declines.

The perpetuating fear is that -- as with the book, music and movie industries -- the increasing dominance of digital content is rendering the traditional means of selling video games obsolete. Investors have already seen this happen to Blockbuster ( BBI), which is knocking on death's door as Netflix ( NFLX) steals market share with its multi-platform movie experience. Borders ( BGP) and Barnes & Noble ( BKS) have also suffered as they try to find their place in an e-reader world.

Will GameStop now suffer a similar fate?

Paul Raines, who took the reigns as CEO at GameStop just a few weeks ago, is tasked with figuring out what GameStop's place will be in this evolving video game market.
Paul Raines
GameStop CEO Paul Raines

Raines joined GameStop as chief operating officer back in September 2008. Prior to this, he held several roles at Home Depot ( HD), including executive vice president of U.S. operations, and also spent time at L.L. Bean.

Raines told TheStreet how he plans to score another life for GameStop and the future of the video game market.

TheStreet: What are your long-term goals for GameStop?

Raines: The strategy is to be a multi-channel aggregator for gaming. We want to be the destination for gamers, whether they are getting content via online, mobile, console or any other platform. To become this destination, GameStop has several initiatives underway. We formed a partnership with Microsoft ( MSFT) that will allow us to sell digital content at retail stores. We are also migrating our Web site from a purely e-commerce site to a gaming platform that users can visit to play, learn and purchase games. We are testing a loyalty program, Power Up Rewards, which should go national by fall. The program will provide members with discounts and credits, as well as some other perks like trips to game publishers, passes to Comic Con, and first-access to becoming a beta tester for new games.

>>Video Games Lose Another Life in June

TheStreet: How long will it take to build up GameStop's digital presence?

Raines: We are looking at other successful multi-channel stories like Netflix ( NFLX). The technology is clear -- what's not clear is the chronology. We are getting a good picture of how to balance digital and physical content. We have studied Netflix a lot, and most of their users still absorb physical content rather than streaming. Now we are looking to see how gaming compares. We are focusing on consumer acceptance. The world won't be all digital tomorrow, even though that's what people are claiming. In this business, users still want physical content.

TheStreet: How has the mindset of the video game user changed?

Raines: The audience, for one, is evolving. Currently, 40% of new gamers are women and the average age of video game players is mid-30s. Video gamers are also spending more time playing games on multi-platforms like Facebook or mobile phones, not just on consoles.

What products are you most excited about coming out of this year's Electronic Entertainment Expo?

Raines: There were some great titles coming out of the Expo. Motion-based gaming is also exciting. Nintendo announced MotionPlus for Wii. Microsoft's Kinect is great technology. We played the games and think it will be a big hit with families. It uses your image to make an avatar that is very life-like. Sony's ( SNE) Move for PlayStation lends itself better to action and sports games.

TheStreet: Competition is heating up in the used video game business. Where does GameStop stand?

Raines: Used games is a great business for us. You don't understand GameStop unless you understand the buy, sell, trade method. In tough economic times the consumer doesn't want to spend $59 for a new game. That's why our value proposition of buy, sell, trade gives consumers the most access. They may not have $59, but they may have $40 and an old game under their bed that they can trade in for a new title.

There is competition out there that likes to dabble in this segment, but I'd like to remind people that we have seen this many times before. Both Wal-Mart ( WMT) and Best Buy ( BBY) have launched and canceled programs. Editor's Note: Best Buy announced in June that it will begin selling used video games in stores this summer. There is a lot that goes into perfecting a used game business. Pricing buybacks and sales is complex. We have a refurbishment facility and last year recycled 100 million units. This system is difficult to replicate.

TheStreet: What is the future of traditional brick-and-mortar stores in the gaming world?

Raines: We continue to add stores but are selective. Our square footage growth is, of course, nowhere near what it was. The real secret opportunity is to sell digital copy in stores and turn the physical stores into an entertainment center. The stores can then become a hub where consumers can come in and find out what's the best games for them, information about new releases and get help on how to play games.

TheStreet: GameStop takeover chatter keeps resurfacing. Is there any merit to these rumors?

Raines: We don't comment on these rumors. Right now we are just focusing on our digital strategy.

-- Reported by Jeanine Poggi in New York.
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