PORTLAND, Ore. (TheStreet) -- Sony (SNE) just made every video game from its PlayStation's pre-PS4 history available for streaming, and may have just destroyed GameStop (GME) and the used game market as a result.
The buying and selling of used games have been a part of home video gaming longer than Sony's various PlayStation incarnations have existed. In the mid-'90s, enterprising young gamers walked through the doors of their nearest mall's Funcoland and sold their old games and consoles for a chance of walking out with newer, glossier games and gadgets. The value of gamers' turned-in treasures was dictated by sprawling, demand-driven Funcoland pricing sheets that is still questioned by graying, irate gamers today. Funcoland was where regrets were born and where classics like Double Dribble, R.C. Pro-Am and even the Nintendo Entertainment System itself were impulsively traded for substandard upgrades like the TurboGrafx 16 or Sega's Altered Beast.
Though a series of mergers and acquisitions that engulfed game shops including Funcoland, Software Etc., Electronics Boutique, Texas-based Babbage's eventually grew into the nearly 7,000-location behemoth now known as GameStop. That particular entity has been targeted by both console producers and developers for making a living off of their used titles, but has survived despite the emergence of downloadable content and one-time features like access codes for online play.
On Tuesday, Sony did its best to put an end to all of that by introducing Playstation Now, a streaming network that will allow gamers to play games from the PS1, 2 and 3 without relying on a console or discs. Gamers would be able to use the service on Playstation Vita handheld consoles, Sony Bravia televisions and tablets and smartphones -- think Sony's Xperia smartphone, for example. Sony has also hinted that it may try to give those games a little bit of extra life by introducing them to a new generation of online players with retrofitted tasks and trophies for each game. GameStop's share price fell by more than 8.5% after Sony's announcement before recovering slightly.
At its core, Sony's Playstation Now isn't a new concept. Sony's Playstation Network, Microsoft's Xbox Live and event Nintendo's Virtual Arcade have all resurrected old titles for players to download. Meanwhile, classics like Pac-Man, Spy Hunter and Tapper have been available in app form since the earliest days of the smartphone. The key difference here is that it's no longer device-specific. Sony has made its older games available to an entire ecosystem that doesn't own one of its consoles and may never have bought one otherwise. Also, instead of heading down to a GameStop or onto eBay to pick up and old console and some games, gamers can now just sample games as they wish for a monthly fee.
It may not fetch as much per game as selling a used game would, but that's really not the point. Sony and its third-party developers saw absolutely none of the revenue from GameStop and anyone else who sold used games. Playstation Now opens up that revenue stream in a way that makes it appealing to casual gamers unwilling to invest the cash or space necessary to build a library of older titles.
It's also a means of catching up to online competitors like Valve, whose Steam online gaming and cloud storage service has irreversibly changed the PC gaming market. With 3,000 games in its online library, cloud storage for all of them and a whole lot of multiplayer functions that not only put them on par with Playstation Network and Xbox Live, Valve's Steam accounts for more than 75% of all PC game downloads. On Monday, Valve announced that 14 third-party hardware partners would be producing Steam Machines, or consoles allowing gamers to play Steam titles like Call of Duty: Ghosts and the Grand Theft Auto series in their living rooms.
The gaming world has been listing in this direction for quite some time. While GameStop has tried to compensate by shifting its focus to new games and consoles -- and has been understandably excited about new Xbox One, PS4 and Nintendo Wii U and 3DS releases this year -- that's forced it to compete directly with big sellers like Amazon (AMZN) and Wal-Mart (WMT) and eaten into what was once a solid stream of unshared profits.
Despite Sony's move to streaming and Valve's success, GameStop may still be able to eek out a win in 2014. Sony has already sold 4.2 million PS4 consoles since that system's release in November. Microsoft (MSFT), meanwhile, has unloaded more than 3 million Xbox One consoles, while Nintendo's year-old Wii U is 5.2 million consoles deep in its market and is just seeing new Mario and Zelda titles arrive. The 42.3 million Nintendo 3DS handhelds sold during its lifespan suggest it still has a fighting chance against smartphones and apps.
However, GameStop's real problems lie in the software market. The mid-tier games that could keep GameStop afloat just don't make it to shelves anymore. If it isn't a top-tier, "AAA" title that a developer spent millions on to make millions, chances are it's going to be restricted to online channels only. That's great for a developer who manages to get an indie title on Valve's Steam or someone who manages to revive Konami's X-Men and Simpsons arcade games for the Playstation Network and Xbox Live, but it adds up to nothing but lost opportunity for a mid-tier, brick-and-mortar retail shop.
There will always be a small undercurrent of retro gamers who take joy in maintaining the old consoles and playing games in their original cartridge or disc form, but GameStop hasn't paid much attention to those folks in a long time. Their like seems more at home in Goodwill shops, on eBay (EBAY) and in niche retail outlets like Colorado-based JJGames. Sony, meanwhile, is more than happy to maintain older titles, and even to introduce them to folks who not only missed out on their first incarnation, but don't want to care for scratchy discs.
By disconnecting that experience from the console, Sony is granting old-school gamers' greatest wish while starting to meet modern gamers' expectations. That's great news for players, but bad news for GameStop and a business model destined for the bargain bin.
-- Written by Jason Notte in Portland, Ore.
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