In an interview with Fortune magazine, Paul Raines, GameStop CEO, said disc-based games aren’t going anywhere, despite the growing digital games market.
Raines is cognizant of the rise of digital games, “The market has seen physical music sales down 50% from its peak and physical movie sales down 60% from its peak, but even in a doomsday scenario, disc-based games will be around for a long time. I see a complimentary business where we sell discs plus download like the current console mode. Virtual reality games will also likely follow this model.” His optimism rose to its peak when he told Fortune, “disc-based games will be around forever.”
Of the $9.3 billion dollars the pre-eminent American game retailer made in revenue in 2014, only $948 million came from digital sales. This business model relies heavily on physical goods. The company gets 25% of its profit from pre-owned game sales; in addition to the billion dollars in trade credit distributed to the retailer’s customers, 70% of that money was used to purchase new products. GameStop needs physical goods to keep the cyclical new-to-used-to-new business model in place.
The company has already begun adapting to the market in smaller, compensatory ways, “We have a pretty healthy digital business, which includes downloadable content for PC and console games, full-game downloads, Steam points cards and currencies, and casual games site Kongregate’s online and mobile games sales. We see that as a billion dollar business this year,” said Raines.
This statement doesn’t seem like Paul Raines obliviously ignoring where the market is going, it’s him just reassuring the doomsayers that disc-based games will be around forever, but will make up a smaller portion of GameStop’s business moving forward.
The company has also made a bet by purchasing ThinkGeek, a company centered around selling ‘geek-based’ merchandise. ThinkGeek’s first retail store opened September 25th, of this year. Paul Raines says depending on how the Florida-based store performs, more locations could open.
ThinkGeek gives GameStop the ability to sell more than just games if the stores are homogenized. “We saw a 38% increase in the collectibles category in Q2, and we’re actively pursuing video game licenses so we can deliver fans of Uncharted games the physical game, the digital content, the T-shirts, the scaled replicas, and other merchandise,” says the CEO.
I’d be naive to think that I knew what was best for a gaming giant. I do think digital games will eventually edge out disc-based games, but with the lack of reliable internet throughout America and data-caps, I doubt that will happen faster than GameStop can adapt.