Friday, March 25, 2011

Can Gamestop (GME) Overcome Digital Delivery Challenge?

Gamestop (NYSE:GME) has been out of favor for some time on concerns over whether its business model can survive in light of the gravitation towards digital downloading of games.

The obvious question is whether or not the physical stores where Gamestop offers the majority of its products are going the way of the dinosaur.

But Gamestop has started to offer their own digital downloads for games, and if their customers are loyal to them, that could help.

The challenge for digital downloads of any content is the inevitable commoditization of the sector, as there's little, if anything, to compete on other than price. Netflix (NASDAQ:NFLX) faces a similar challenge with TV shows and movies as that is going digital as well.

A couple of pluses in this atmosphere is the need for consumers to acquire game consoles via stores and the used game business offered by Gamestop.

If Gamestop can successfully grow out its digital gaming business while selling consoles and maintaining the used gaming business, they have a chance to continue to grow, although it's doubtful it will be at the potential if the sector had continued with physical offerings.

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