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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