GameStop's next-gen digital strategy doesn't exist, because it doesn't need to... yet

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GameStop's next-gen digital strategy doesn't exist, because it doesn't need to... yet

"You're asking me to... predict the future. I'm supposed to plan for the future." That's the non-answer GameStop president Tony Bartel spit out when I prodded him about the company's digital strategy here at its annual consumer-facing EXPO in Las Vegas. And it's clearly a touchy subject. It's not that Bartel refuses to acknowledge and embrace a download-only world -- indeed, he believes "things are going to go [fully] digital" -- but in his own estimation, that shift isn't tied to the next-gen of consoles. For a retailer built upon the buy/sell/trade business model for videogames and hardware, GameStop doesn't appear to have a well-laid digital strategy in the works, nor does it necessarily need to at the moment. With both Sony and Microsoft committing to a friendly used disc-based games policy for their respective black boxes, GameStop's been given a temporary buffer from the inevitable, allowing it additional time to feel out the digital way forward with a serendipitous mobile crutch.

Like its brand name implies, the lion's share of GameStop's revenue has traditionally come from videogame sales, but as the company's last fiscal quarter highlighted, that dominance is waning. In its place are huge gains from the company's mobile and digital businesses, though it's not quite robust enough to supplant the decline in overall revenue. Holiday sales of the PlayStation 4 and Xbox One will, no doubt, provide a significant boost to GameStop's bottom line, yet that uptick should prove temporary at best. As is the case with every new console launch cycle, consumer interest will eventually hit a lull and the financial onus will fall to software sales and GameStop Mobile. "We see those fast growth businesses like mobile and digital accelerating along with the console launch, " Bartel said. "The number one thing they suffer from is awareness. We believe that with all that increased traffic coming in you're going to have tremendous awareness of these new categories."

"We see those fast growth businesses, like mobile and digital, accelerating along with the [next-gen] console launch."

Joe Gorman, VP of GameStop's mobile division, was very clear about the company's increasing reliance on mobile phone and tablet sales, pointing to that industry's rapid product cycle as being a healthy driver of revenue. "We know that, right now, the [mobile] cycles are so fast, that we [can] take advantage of that from a trade-up stand point," he said. Contrast that with the videogame industry's near decade-long approach to home consoles and it's easy to see why this would be an attractive growth area for GameStop. Just don't expect GameStop to convert into a prepaid carrier along the lines of Virgin Mobile or Boost Mobile. Despite a leaked presentation from last year that seemed to indicate otherwise, GameStop Mobile has "no plans to be an MVNO," Gorman emphasized. "At our core, we're a retailer. That's what we do."

But really it's what consumers do that dictates GameStop's ancillary businesses. Take mobile, for example. Gorman explained that the company saw a natural convergence between the gaming brands consumers love and the ecosystems they're tied to and exploited it. That overlap of interests has led to a somewhat surprising result: the Nokia Lumia 900 is one of GameStop Mobile's "best-selling SKUs." To be clear, that's for new phone sales, not refurbs. Why? According to Gorman, "It just hits exactly what [the GameStop] customer wants. They're Microsoft fans. It stands to reason that ecosystem touches them." Again, it's that confluence of interests that GameStop's eyeing for future growth. So, say Sony decides to tighten its focus and bring its Android devices more closely in line with the PS4, GameStop will be ready to service that consumer appetite.

The Nokia Lumia 900 is one of GameStop Mobile's "best-selling SKUs. It just hits exactly what [the GameStop] customer wants. They're Microsoft fans."

If you're looking to GameStop as a barometer for the coming console wars, prepare to be disappointed. Gorman cautiously toed the company line when addressing consumer preference for the PS4 and Xbox One, saying only that interest in both is "about even." Though he and Bartel expect mobile phone, as well as PS3 and Xbox 360 trade-ins will heavily factor into new console purchases, there could also be an alternative subsidized solution on the horizon. Bartel wasn't aware of any current plans to do so from Microsoft or Sony, but did say that subsidized strategy would likely come into effect once "consoles are commonly in stock" at all retailers and the initial launch frenzy subsidies.

GameStop has no clear digital strategy, plans to take a 'wait and see' approach to the nextgen

With all this talk of future growth and ancillary business opportunity, I couldn't help but wonder if GameStop would make an eventual play for the Android gaming market à la Ouya. I asked Bartel if he had any such designs in mind for a dedicated console and even referenced GameStop's 2011 Android-gaming tablet gambit. His answer, in short, was a semi-definite 'no.' "I would say that that's not a part of the roadmap right now." He then added that the company might consider it "...if we heard the gamer clamoring for something that they wanted and it did not exist in the marketplace." Turns out, the company did, at one point, toy with creating a branded gaming tablet, but eventually realized its strengths were more in "providing the content... helping people get the content... [and the] device to play it on" than manufacturing a dedicated device.

On the whole, GameStop's business model is more reactive than proactive. The ball, it seems, is entirely in the GameStop consumer's court -- if significant consumer demand exists, the company will mold itself to service it. It's that message, a focus on adapting to consumer trends that Bartel consistently reinforced during our interview, be it for the company's mobile, digital, or even Android gaming strategy. "We're going to have to wait and see how it [all] goes. We'll be right at the forefront of what the consumer wants." Gamers, it's your move.

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