GameStop Seeks a Buyer, in Deal That Could Reshape Console Gaming

GameStop has admitted it’s in talks with third party private equity buyers, after an absolutely bruising year has pummeled the company’s stock. Its stock price has fallen 32 percent in the past 12 months, thanks to difficult competition, the loss of several CEOs in quick succession, and the ongoing transformation of the console business towards digital downloads. But with that said, while physical game sales are declining, they’re nowhere near dead — at least, they weren’t before the primary company that sells physical titles announced it would seek private equity options for a buyout.

This last shouldn’t exactly fill anyone with optimism (if anyone is optimistic about GameStop’s continued existence, that is). Private equity buyouts are typically a means for a small firm to saddle a corporation with a huge amount of debt while stripping the company of assets, hitting it for mandatory yearly consulting fees, and then walking away when the company finally implodes. That process killed Toys ‘R’ Us earlier this year — firms with hundreds of million in mandatory debt service can’t exactly make the kind of capital-intensive upgrades that drive business, and retailers are already under tremendous pressure thanks to online sellers like Amazon.

In the announcement, GameStop notes that it “confirmed it is in exploratory discussions with third parties regarding a potential transaction. There can be no assurance any agreement will result from these discussions. GameStop does not intend to make any additional comments regarding these discussions unless and until it is appropriate to do so.”

But one major change we’d bet on — if GameStop dies, physical game sales as a major force in console gaming will die with it. Statistics show that digital game sales are rising rapidly, and have already tipped over for some titles. Activision has said that more than 50 percent of console Destiny 2 activations were on digital. Other game studios have quoted figures in the 40 percent range. GameStop, of course, is not the only place to buy physical copies of games — but it is virtually the only game in town (pun intended) for used console games. As the chart below shows, pre-owned sales (hardware and software) account for roughly a third of GameStop’s revenue relative to its new hardware and software sales.

To be clear: This ownership of the used games market has never been a particularly great thing. One company owning the physical market means GameStop often effectively set prices, even sometimes in online physical game sales. Now, if GameStop slapped a $5 price on a cherished title you wanted to play, well, lucky you. But if GameStop was carrying a used game as a substantial fraction of the new title’s price, you could bet that you wouldn’t be saving any significant amount of money on the game anytime soon.

I never personally took much advantage of GameStop because I’m a PC gamer, and it’s been many moons since you found PC titles regularly on the shelf of a GS — but once upon a time I scoured garage sales and secondhand stores for Atari 2600 games or, later, computer games. Provided that the cartridges and disks worked and any relevant copy protection book was included, there’s no difference between being the first person to install some bits or the thirtieth — which, of course, is why console software publishers would like nothing more than to see the used games market die an ignominious death.

And therein lies the rub. So long as games are sold in physical form, they’re protected by things like the first sale doctrine, which allows you to sell them yourself. Digital software doesn’t enjoy this level of protection despite some fledgling attempts to create an equivalent market for the products. Game publishers would no doubt love the extra cash that comes along with killing used games altogether, since at least some of those used sales will translate into more new sales — but would this be better for the market? Maybe the more relevant question is: Is having a used market for physical games worth putting up with GameStop?

Good question. Tough answer.

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