So lets assume that we are 99% certain that this company will no longer be profitable in 3 years. Let’s also assume that it is fairly well managed, as it appears to be and they decide to shut down, but don’t explode. What’s the best way to profit on their slow demise? Puts?
I want the gamestop shorts to answer the following question: 1) Why would any gamer choose to pay $59.99 for a digital title LICENSE when they can pay $59.99 for a physical copy that can be traded for $35 store credit within a month and/or loaned to a friend? 2) A blu-ray disk can hold up to 25 gbs. Any newer technology will likely be higher in data. Who is going to pay for the infrastructure upgrade for the massive download? 3) If a game is going to 25gbs, on average each gamer buys 4~6 games a year, and each generation of console lasts 6 years, who will foot the bill for a 600 gb storage device? A couple more points to the shorts who LOVE to compare games to books and movies…You’re wrong. Flat, W R O N G. First of all, when a game is released it is the FIRST TIME that end users will experience it, whereas a DVD comes out 6 months after theatrical release. Having a gamer wait for a 6 hr download for the next Call of Duty is like telling a teenage girl to wait 3 days to watch the Justin Bieber/Twilight movie…CAN’T BE DONE. Netflix won the battle by recommending old titles to users, whereas gamers tend to only focus on the newest hottest thing. Netflix model for games simply do not work…people have Rocky marathons…but I doubt anyone wants to play Call of Duty 1. Movie DVDs have inventory value, games on the other hand are 3x more expensive and go stale incredibly fast. Next, barnes and nobles. B&N got killed by Amazon, be it the kindle or the prices, not the internet. Amazon is probably killing Gamestop for new games, but new games are less than 20% of GME’s operating profit. The new games are basically service provided for the people who trade in pre-used games, which GME is an absolute stronghold over. The used game business is also something that can’t be built using loads of cash. If someone do want this piece of used business, he will find that LBOing GME shares might be cheaper than building it straight up. Now, on wards to downloading issues. Call of Duty, all time best selling game, sold 7 million copies in the first 3 days or something. Now imagine all that traffic to be downloaded over the span of 72 hrs…not feasible. Business models seem to be in an equilibrium right now. Publishers are “ok” with the B&M business because it is the leading distributor. Publishers are using digital distribution to sell $10 add-ons, not complete games. Without GME to help promote, publishers simple cannot create the same buzz.
If I was a bear, I’d sell calls on GME shares and roll it over monthly. Puts don’t work so well for companies that suffer many paper cuts and not a single large decisive blow.
Kevin, Thanks, plenty of great points there. I still think Game Stop will have rough go of it in the future. How exactly will their competition drive them out of business I’m not sure of precisely, but I do think their business model will get left behind within 5 years.
Two of your three points are based on data transfer and data storage. Really? I mean seriously, your other points are great but come on. kevin01 18 Wrote: ------------------------------------------------------- > I want the gamestop shorts to answer the following > question: > > 1) Why would any gamer choose to pay $59.99 for a > digital title LICENSE when they can pay $59.99 for > a physical copy that can be traded for $35 store > credit within a month and/or loaned to a friend? > > 2) A blu-ray disk can hold up to 25 gbs. Any > newer technology will likely be higher in data. > Who is going to pay for the infrastructure upgrade > for the massive download? > > 3) If a game is going to 25gbs, on average each > gamer buys 4~6 games a year, and each generation > of console lasts 6 years, who will foot the bill > for a 600 gb storage device? > > A couple more points to the shorts who LOVE to > compare games to books and movies…You’re > wrong. Flat, W R O N G. > > First of all, when a game is released it is the > FIRST TIME that end users will experience it, > whereas a DVD comes out 6 months after theatrical > release. Having a gamer wait for a 6 hr download > for the next Call of Duty is like telling a > teenage girl to wait 3 days to watch the Justin > Bieber/Twilight movie…CAN’T BE DONE. > > Netflix won the battle by recommending old titles > to users, whereas gamers tend to only focus on the > newest hottest thing. Netflix model for games > simply do not work…people have Rocky > marathons…but I doubt anyone wants to play Call > of Duty 1. Movie DVDs have inventory value, games > on the other hand are 3x more expensive and go > stale incredibly fast. > > Next, barnes and nobles. B&N got killed by > Amazon, be it the kindle or the prices, not the > internet. Amazon is probably killing Gamestop for > new games, but new games are less than 20% of > GME’s operating profit. The new games are > basically service provided for the people who > trade in pre-used games, which GME is an absolute > stronghold over. The used game business is also > something that can’t be built using loads of cash. > If someone do want this piece of used business, > he will find that LBOing GME shares might be > cheaper than building it straight up. > > Now, on wards to downloading issues. Call of > Duty, all time best selling game, sold 7 million > copies in the first 3 days or something. Now > imagine all that traffic to be downloaded over the > span of 72 hrs…not feasible. > > Business models seem to be in an equilibrium right > now. Publishers are “ok” with the B&M business > because it is the leading distributor. Publishers > are using digital distribution to sell $10 > add-ons, not complete games. Without GME to help > promote, publishers simple cannot create the same > buzz.
If you had talked to management of GME, Netflix and analysts who cover the hardware makers you will see that is precisely the bottle neck. It’s not so much the absolute cost, but who will front the cost. Hardware OEMs operate at a loss as is on hardware already, and they’re not going to add onto their cost while the software guys gain in margin (cutting out middle man in B&M). So you have Sony, MSFT, Nintendo all bitching and complaining about increased hardware costs and software companies not willing to increase the royalties paid to the OEMs…there you go, stale mate. Digital distribution, as proposed by the publishers, hurts OEMs. So if this bottle neck isn’t resolved soon, the next generation hardware will not have harddrives and GME is saved for another 5~7 yrs.
Sounds plausible enough. Thanks Kevin. I still dont see why they are needed in malls though, even if digital doesn’t come immediately. Their best times have to be behind them.
Kevin couldn’t be more correct. But, if you think GME has 2-3 years to live, I’d look into LEAPS. You could clean up.
ChickenTikka Wrote: ------------------------------------------------------- > Sounds plausible enough. Thanks Kevin. > > I still dont see why they are needed in malls > though, even if digital doesn’t come immediately. > Their best times have to be behind them. ChickenTikka, I’ve been making the same points Kevin’s been making since the onset. And as I stated before, it’s simply because the naysayers are not gamers and do not understand gamers, the industry or the logistics and why games <> other media from an download perspective. To your point, nothing is “needed” in malls, brick and mortar is done, and golly, we’re right back in the 90’s again. Quick, everybody rush out and buy internet IPOs! The reason they exist in malls is because believe it or not, people that enjoy gaming, enjoy going there. Just as women who love fashion, don’t just go to clothing or make-up stores because they feel they have to try stuff on, they also go because believe it or not, they like going there. As long as a culture wants a place to browse, it will be around. Also, for the 11th time, to you’re point “I still don’t see why they are needed in malls” USED TRADE INS!!! is 47% of their business! You keep ignoring this inconvenient fact. Also, many gamers don’t mind sampling a game before they buy. Guess where you can do that. Also, moving to a remote distribution wouldn’t necessarily be bad for them either. They are already a dominant force online and will continue to be as long as games don’t go to direct download, which as Kevin and I have pointed out is logistically improbable in the medium term.
ChickenTikka Wrote: ------------------------------------------------------- > Sounds plausible enough. Thanks Kevin. > > I still dont see why they are needed in malls > though, even if digital doesn’t come immediately. > Their best times have to be behind them. Where else would they be? It’s not like malls are turning away tenants these days.
don’t they essentially make a lot of their profits via the buying and selling (bid/ask spread?) of used games? I think as long as that market exists, they can survive.
I’ve been talking to some of my “hard core gamer” friends and hearing different things about the next generation of consoles. Everyone seems to think we’ll see the next xbox and ps4 around 2016. However, some say it’ll be fully digital others don’t I can’t imagine Sony, with their investment in Blue Ray, would not include a blue ray in their next console. If they didn’t that would be obvious disaster for GME. I can’t imagine Xbox using a blueray considering their competitor created it. Personally I’d think that the console makers would love to be able to cut out the resale market. It’s not like apple lets us resell our apps once we don’t want them anymore. So I see that as inevitable. So maybe GME’s time isn’t coming just yet, but it’s gotta come before too long, that much is pretty clear. I don’t see them being able to reinvent themselves.
ChickenTikka Wrote: ------------------------------------------------------- > Personally I’d think that the console makers would > love to be able to cut out the resale market. > It’s not like apple lets us resell our apps once > we don’t want them anymore. So I see that as > inevitable. There’s a difference between console makers and game developers. The secondary market for games helps the console makers. And, publishers don’t really mind either since most of their revenue comes from sequels these days. As people buy older games in the secondary market they drive demand for the consoles, and build up more demand for that particular game franchise. (And, yes, I know M$, Sony, and Nintendo all have publishing units. I simplified.)
Trust me, you gotta be able to differentiate between the game developers / distributers and console developers. Kevin’s whole point illustrated the disincentive for console designers to include hard drive capacity for 20gig games. Trust us, those of us who know the industry are nearly unanimously and emphatically saying your case is incorrect. The fact that your “hardcore” gaming friends didn’t correct you kinda illustrates that either they’re not as hardcore as they think, or they simply don’t understand the industry beyond actually playing the games.
Reread Kevin’s post about hard drive capacity and blu ray
ChickenTikka Wrote: ------------------------------------------------------- > > Personally I’d think that the console makers would > love to be able to cut out the resale market. > It’s not like apple lets us resell our apps once > we don’t want them anymore. So I see that as > inevitable. > Console makers are indifferent with regards to the format of media, because they get paid via licensing fee per unit games sold. So if you’re an OEM what would you decide: 1) Average gamer buys 25 games via physical disk over the useful life of your console, you get paid for 25 games worth of licensing. 2) Average gamer buys 25 games via downloads, you get paid for 25 games worth of licensing, but you have to increase your manufacturing costs by whatever the hard drive costs. Why would you choose option 2? What software publishers and OEMs are pissed off about is GME hogging up all the resale value when the game becomes second hand or third hand, but they’re fixing that. If you look at the recently released games, they all have downloadable content/expansion packs for purchase per user, so that publishers and OEMs can participate in the aftermarket. I wouldn’t be surprised if they support used games in the near future, because if on average a game goes through 5 users so by selling 1 $60 game new begets 5 purchases of $20 addon content, why wouldn’t I push for more used game sales? Of course, in the ideal world you want all 5 users to buy new but I think the outcry for banning used game sales becomes less once publishers and OEMs get a slice of the pie.
Plus, I’m not even sure why you’re point makes any sense about Sony leaving Blu ray off their next console. That’s one of their strongest selling points for differentiation against the xbox.
I said, I can’t imagine that sony would leave blue ray off, meaning that they will include it.