Best Buy: We're Coming For You, GameStop

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Don't look now, but consumer electronics giant Best Buy plans to extend its Canada-based used video games pilot program to the U.S. First stop, Dallas and Austin (Texas) where, already this week, you'll be able to tinker with kiosks that scan your preowned games and feed back a voucher that puts dollars on a Best Buy gift card.

Blogs Best Buy CMO Barry Judge: "It’s a pretty slick system and one of the few trade-in programs to provide instant gratification; you get the gift card on the spot and can redeem it on anything in the store – not just another game."

But wait--that's trade-ins. What about sales?

Those too, says Judge.

"...some of the kiosks will even rent games and movies," he blogged, following with a few lines about "deeply passionate...customers" and "value propositions" and "more choice and value" which I've excised to spare you the needle-skipping predictability.

Prognosis? The Wall Street Journal reports GameStop shares fell as much as 7% after the news broke. Investors are nervous, in other words, because they should be.

That's because GameStop's virtual lock on roughly nine-tenths of the U.S. used games market is essentially availability-based. Mom and pop stores notwithstanding, GameStop is where you go to buy and sell used games because you can't go anywhere else.

Until recently, anyway.

"The risk is not one or two kiosks in Dallas, because by the numbers, that's not going to affect (GameStop's) business," a Wedbush Morgan analyst told the WSJ. "The risk is that the couple of kiosks go into (Best Buy's) 900 plus stores."

So with majors like WalMart and Amazon and Toys R Us and now Best Buy ostensibly moving into the extremely lucrative re-sale biz, is GameStop in trouble?

Yep, though "how much" depends on...

- Pricing, of course, i.e. trade-in prices and any special bulk or seasonal extra-value deals (sell three or four, get an extra 10 or 20% store credit, etc.).

- Process transparency, i.e. how accessible are the kiosks as well as the soup-to-nuts trade-in process.

- Store traffic and location--GameStop has over 6,000 stores worldwide, many (if not most) of them mall-based, while Best Buy has just over 1,000.

Best Buy also sees more foot traffic per store--it's the leading specialty consumer electronics retailer in the U.S. by market share, after all. Which brings up another crucial advantage: You can walk into any of their stores and buy a whole lot more than just video games.

Side note: What about digitally distributed games? Are we on the verge of reifying the End-User License Agreements (EULAs) that invisibly accompany each software sale? Licenses you could trade-in to an e-tailer--licenses they could re-sell digitally--for online store credit?

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