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GameStop details a bright (profitable) future with DLC


During today's presentations at the 18th Annual BMO Capital Markets Digital Entertainment Conference, GameStop head chairman Dan DeMatteo (alongside CEO Paul Raines, CFO Robert Lloyd, and investor relations director Matt Hodges) spoke to the future of the top video game retailer in North America. After detailing cannibalistic markets (terrifying!) and market share (isn't business about taking, not sharing?) for 25 minutes, the crew finally got to the Q & A session, where one audience member stood up and asked DeMatteo to clarify GameStop's DLC distribution agreements with Microsoft and Sony.

"I won't get into the details of the agreements, but obviously we get paid for selling the digital content. We get paid less than what we would get paid for a typical new game [retail game], because we don't have inventory carrying costs, shipping costs, etc. But needless to say, we believe it will bring operating margins similar to new games," he responded, indicating a perhaps unsurprising low return on in-store DLC sales. Still, DeMatteo sees good reason for continued sales of digital content.

"We see it as additive. It's additive for us. It's additive for Sony, for Microsoft, and it's additive to the publisher. The amount of add-on content now being developed for the big games is just phenomenal. You got a new level coming out for Halo: Reach in December, we have new Call of Duty map packs coming after launch, etc. We look at our ability to sell that to the original consumer -- given that we know who bought the original copy -- to be extremely strong," he explained, referring to his company's ability to track individual customer's purchases via the Power Up Rewards card. And in the coming years, GameStop intends on becoming a much larger player in the digital realm. We expect to have market share of DLC much like we have market share of boxed product," he assured attendees.

As GameStop reps tend to be, DeMatteo remains unfazed when speaking to digital sales encroaching on brick-and-mortar business. "I can't tell you what it's going to do to the used business. So far it hasn't impacted people from trading in the games. Obviously, we may have some one-time bump, where people keep games longer while they continue to play them, but so be it," he said, optimistically adding, "If that's a good for the consumer, then long-range it'll be a good thing for us."

He also pointed out that, when consumers purchase used games, there's still an opportunity to upsell DLC, to GameStop's benefit. "This is just a little nuance of the DLC add-on, we can add that onto used games also. So if you come up to the counter and you're buying a used copy of Call of Duty: Black Ops, and there are some add-on levels to that, we'll promote that, we will prompt the store associate right at the register and say 'suggest the add-on map pack.'" In our experience at the store, we can confidently confirm his final statement to be 100 percent accurate.

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