New Playstation, New Xbox One Are Coming, and Gamestop Wins

GameStop (GME), having survived a brutal nine quarters without much in the way of new video-game products on aging platforms, is about to power up on two new video-game consoles and two major releases from popular franchises.

The Texas-based retailer expects a major boost from the fourth iteration of Sony’s (SNE) Playstation, due in mid-November, and Microsoft’s (MSFT) new Xbox One, expected to hit shelves around the same time. Before the next-generation devices arrive, there’s likely to be a final retail hurrah for new games on the old machines as the hit franchises Grand Theft Auto 5 and Battlefield 4 hit the shelves over the next two months.

“There are no other retailers on the planet that are prepared for this kind of opportunity,” GameStop Chief Executive Officer Paul Raines bragged to investors about the coming of the new consoles. The company expects profit in the coming quarter to be up to 45 percent than its haul in the year-earlier period. If history is any guide, GameStop is in for a wild ride.

The last Xbox iteration, released in November 2005, came as rocket-fuel for GameStop. The company’s market value had already grown by almost 50 percent by the time Playstation 3 was released a year later; in the following 12 months its share price doubled. The company appears to be in an even better position to take advantage of the gaming cycle this time around. Its share of the video-game retail market has grown from about 15 percent to roughly a quarter, according to Piper Jaffray analyst Michael Olson. The number of stores worldwide has grown by nearly half since the debut of the last Xbox, with more than 2,100 new locations opening, primarily in North America, from 2005 to 2012 for a total that tops now 6,500.

GameStop made those gains by carefully cultivating a community of hardcore gamers. In 2010, GameStop launched its “PowerUp” loyalty rewards program, which now has about 25 million members. That vocal GameStop constituency proved a powerful force in blocking manufacturers from switching to download-only sales or any other changes that might limit the massive second-hand market for games, which remains GameStop’s great strength. Customers are more willing to buy a new game at full price if they know they can sell it back and recoup at least some of their investment.

What’s more, GameStop has deepened its ties with game publishers, allowing it to lock up inventory in advance, collect cooperative advertising dollars, and orchestrate release parties at its brick-and-mortar stores. The company has also said it will get bigger console allocations from both Microsoft and Sony this time around, which can prove a major driver of foot traffic in the early days, when inventories are scarce.

STORY: How GameStop Is Trying to Survive the Xbox One

The big console launches also promise a flurry of trade-in activity as consumers swap old games and hardware and exchange new purchases they aren’t keen on. GameStop collects almost 40 percent of its revenue by selling used games and gear, a business with a powerful 47 percent gross profit margin. That’s roughly double what the company  squeezes out of selling new gaming hardware and software. In 2007, just after the Playstation 3 hit shelves, GameStop’s pre-owned business surged by 20 percent.

“We compete on the value dimension,” Raines recently told investors. “We compete based off trades. We don’t compete based off discounting.”

In other words, GameStop is going to get video-game fanatics without having to mark down merchandise. Amazon (AMZN), Target (TGT) and other big electronics retailers may not have that kind of power.

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GameStop used games legal complaint upheld

GameStop‘s motion to dismiss a class action lawsuit filed against it over its used games policy has been denied by a federal judge.

The complaint alleges that the retailer’s policy of withholding single-use downloadable content codes from second-hand purchases constitutes fraud, Polygon reports.

District judge Robert Kugler sided with the three plaintiffs, stating that they believed “their pre-owned video games would include all of the content of a new video game”.

The customers took action against GameStop after discovering that purchasing a new game along with separate single-use DLC would cost them more than buying a new release at full price.

“DLC was not included with the purchase of pre-owned games, but did not reveal this fact to plaintiffs,” reads the complaint.

The plaintiffs are also accusing GameStop of misleading them with its claims that its used games program offers “value for customers”.

Ready at Dawn boss Ru Weerasuriya recently criticized used game outlets such as GameStop, claiming that they are taking advantage of customers and damaging the industry.

Microsoft’s controversial attempt to introduce DRM controls to its Xbox One games was partly intended to help developers profit from used game sales. It dropped the policy in the face of opposition from gamers and the industry.

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PS4 ‘interest will exceed supply’, says SCEA CEO

Sony Computer Entertainment America CEO Jack Tretton has become the second PlayStation executive to suggest that the company will struggle to make enough PS4 units to satisfy consumer interest.

After SCE CEO Andrew House warned last week that PS4 demand “may well outstrip supply”, Tretton told Forbes:

“I certainly think, given the technology that we’re offering, given the software lineup, given the price point we have, that we’ll have consumers interested in excess of what we’re able to manufacture.”

Tretton said last week that GameStop executives had informed him the retailer would purchase “every single [PS4] unit” Sony can manufacture, adding: “We’re excited about the momentum.”

Sony showed off the PS4 hardware for the first time during its E3 conference, when it confirmed a Christmas PS4 release date in Europe and the US and a PS4 price of £349 / €399 / $399, undercutting the Xbox One price by $100.

The PlayStation maker also used E3 to address the controversial issue of pre-owned games and always-on internet restrictions, confirming that PS4 games don’t require regular online check-ins and that disc-based titles can be traded or sold on. PS4 owners will however need to subscribe to PS Plus to play online multiplayer.

 

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Sony: PS4 will play used games

Sony Worldwide Studios president Shuhei Yoshida has confirmed that the PlayStation 4 will play pre-owned games, despite earlier reports.

“That’s the general expectation by consumers,” he explained, before confirming the capability to Eurogamer.

“They purchase physical form, they want to use it everywhere, right? So that’s my expectation.”

Eurogamer later heard from a separate Sony source that the patent that started rumours of second-hand games being blocked didn’t in fact relate to PS4.

Yoshida was less transparent on the European release date however. While the date is set for Christmas for the US and Japan, Europe has traditionally seen a later release for consoles.

“Europe is an enormously important market,” he said.

“That’s no question. So I hope European consumers can play PS4 as soon as it’s available somewhere, but I’m not making promises.”

PlayStation 3 launched in Europe a full four months after the US and Japan, and fans will be keen to hear reassurance the same delays won’t happen again.

“For one thing the system has to be complete and we have to understand the manufacturing pace of it. Then we have to kind of look at the demand predictions and we have to decide whether we can go global or like [the rumour]. So it takes more time for us to know that.”

 

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