GameStop Says Digital Downloads Not Relevant Until 2014

Digital distribution may be picking up steam (pun intended) but don't tell GameStop. The video games retail behemoth with over 6,000 stores in some 17 countries worldwide seems determined to play down the relevance of downloadable games at all costs. Citing Sterne Agee analyst Arvind Bhatia, IndustryGamers reports that GameStop doesn't expect digital distribution to be a threat to stucco-and-rebar-retail until 2014.

Bhatia says GameStop management "has been monitoring and studying the capabilities of digital downloading and its potential adoption over the last several years" and that the company recently "conducted the most thorough study to-date on its capability."

The study's results? According to GameStop, an "addressable market" for digital downloads won't exist for another five years. Even then, the company says only 25% of the population will have access to the technology necessary to download full games. What's more, service costs ($100/month), storage limitations, and consumer price intolerance will offset digital's chances of supplanting retail anytime soon. The study apparently reveals that consumers would only be willing to pay up to roughly $39 per downloadable game, an expectation GameStop thinks will act as a disincentive for publishers facing escalating production costs.

Okay, but hold up a second. $100 a month for service costs? Where from? Download portals don't charge a usage or monthly/annual membership fee, and as the broadband market grows, competitive pressure should keep even the fastest consumer services from moving up much past $50 a month, while legal obstacles should prevent companies from enforcing usage caps or engaging in traffic shaping or bandwidth throttling. Unless GameStop means something else, that $100/month seems a tad inflated.

What about "storage capacity" issues? The average PC and/or console game still fits on a single DVD (while Sony might like us to believe otherwise, it's only a handful of PS3 games that legitimately require Blu-ray). But let's say at least Double Layer DVD and guesstimate 2:1 extraction, which comes out to a roughly 17 GB local footprint per game on average. For the record, I can pick up a Seagate Barracude 1TB (yes, terabyte) internal hard drive for $90 as I type this. How many times does 17 fold into 1024? Yep, that'd be 60 games on a sub-$100 platter. That said, when's the last time you had even as many as a dozen installed at once?

Switching to consumer price tolerance, remember back in 2004? When it everyone was up in arms about $50 games jumping to $60? Citing rising production costs, publishers jacked the price tags ten bucks, and proceeded to sell more copies of Brand X or Y than ever.

Here's the thing. In a thriving digital distribution market, GameStop loses, any way you slice it. Their revenue model depends on dominating brick-and-mortar--they're the big fish in the big (albeit writing-on-the-wall-doomed to shrink) pond. Put them in a different pond and they're just another fish. While they already support downloads of certain PC games through RealNetworks' TryMedia service, they're late to the game, and not doing much to distinguish themselves from their more evolved and intrepid competition.

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