GameStop Breaks Out of the Box by Increasing Digital Revenues 53 Percent in the First Quarter

It’s not only the game publishers and console makers that are seeing a transition to digital. It’s also the retailers.

GameStop, which has more than 6,000 physical locations, said today its digital revenues jumped 53 percent in the first quarter, compared to the year-ago period. Additionally, it’s on track to hit $450 million in digital revenues this year and $1.5 billion by 2014.

In an interview, GameStop’s President Tony Bartel and CEO Paul Raines explained that they see three sources of digital revenues: mobile; downloadable content to the console; and PC, which includes downloads and point cards for social games, as well as advertising.

To aid in its expansion to digital, GameStop has made a handful of recent acquisitions, of which two have yet to be completed. The acquisition of Spawn Labs will allow it to provide a cloud-based streaming game service–similar to OnLive–and Impulse will allow it to compete with Steam, a streaming service on the PC side.

Bartel said all three areas of digital are growing, but perhaps the fastest is downloadable content for the console, which they are projecting will become a $6.3 billion business in 2014.

He said all of the major game publishers are developing downloadable content that can be sold as add-ons to their packaged goods business, which creates a steady, recurring revenue stream.

Overall, what the two execs said they are seeing is an expansion in the number of people playing games–in other words, digital is not cannibalizing console. In addition to the 100 million homes that have an Xbox, a Wii or a PlayStation, increasingly consumers are playing games on their computer, smartphone or tablet.

The company’s stock reacted positively to the report, nearly hitting a 52-week high after increasing 64 cents, or 2.4 percent, to close at $27.32 a share.

Both its traditional physical-store business and its digital initiatives continue to grow.

“The important thing to know is that we are actually making the market bigger for gaming. We think gaming is a net positive growth activity,” Raines said.

Overall, the company reported a first quarter profit today of $80.4 million, or 56 cents a share, on revenues of $2.28 billion. Profits were up 6.9 percent and revenues were up 9.5 percent compared to the same period a year earlier.

In addition to digital, GameStop also contributed its strong performance, in part, to the launch of Nintendo’s 3DS.

Nintendo said it sold 400,000 3-D handheld game units during its first week in the U.S., but since then sales have lagged. In the first full month the device was for sale, it sold less than 200,000, according to NPD Group.

GameStop said it has roughly a 45 percent market share on 3DS sales, but that it has lower expectations for how the Nintendo product will perform in the current quarter.


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