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GameStop is one of the largest video game retailers in the world. The company has been selling video games for every gaming system, gaming hardware, as well as gaming merchandise since its inception in 1984. GameStop boasts more than 5000 locations across the world. It does seem like a power house of a company at first glance, but the GameStop’s shares fell from $16 a share in January 2019 to just $5 in July 2019. So, what is bringing the decline for this huge business? Well, it is exactly the same case as Netflix vs Blockbuster.

GameStop’s main business is in selling physical copies of video games on physical carriers (discs, cartages, etc.). However, just as with every other information good, it is much easier, and in many cases even cheaper, to get it online. Every single gaming platform operates its own digital storefront through which it sells its games. Sony, Microsoft, and Nintendo sell games to players directly from the gaming consoles they already need to play said games, essentially taking full control (and value) of their respective platforms. PC gamers on the other hand, have access to multiple digital stores which makes the competition even fiercer.

GameStop is having a harder time to compete with digital retailers for several reasons, the most important of which is – it is still tied down to its physical locations. The company does not operate on a franchise model and owns all of its stores. This is tied to huge costs in terms of real estate, logistics, and staff. None of the competitors have these issues. George Sherman, the newly-elected CEO of GameStop said to the CNN: “the company is in a tough place and needs to make some changes”. The first of those is to close down more than 200 locations by the end of February 2020. However, a lot more needs to happen in order to keep the company relevant.

One piece of good news for GameStop is that the next generation of Xbox and Play Station, said to be announced in 2020, will still come with a disc reader. This means that physical copies of games will not abruptly stop existing next year. The main profit generator for GameStop will still remain video games but the company still needs to innovate in order to stay alive. Sherman is correct in saying that “the gaming business is a bit of a hits business”. There will still be traffic at GameStop stores when a hot new game comes out but the main problem for the company in the coming years will be to keep this traffic going even after major releases. One possible solution would be to work closer with Sony, Microsoft, and Nintendo. Although direct competitors with their own digital stores, they can still remain key partners in terms of marketing and promotional efforts.

Will GameStop disappear like Blockbuster or is there still room for a physical storefront for video games in an increasingly digital world? It is still not to late for the company to save its business but digital threats are becoming more powerful than ever. Not to mention the potential that video game cloud streaming has on the whole industry, both physical and digital. Cloud-based services like Google Stadia might turn the whole industry on its head with subsections instead of purchases. But this is a whole other conversation…

References:

GameStop CEO says company is in ‘a tough place’ and needs to change, Shannon Liao, 2019, https://edition.cnn.com/2019/09/12/tech/gamestop-ceo-interview-layoffs/index.html

GameStop already plans to close up to 200 stores but could soon close even more, Sarah Whitten, 2019,

https://www.cnbc.com/2019/09/16/gamestop-is-closing-up-to-200-stores-and-could-close-even-more.html

We went on a tour of New York City’s GameStop stores to see if the company is doomed to become the next Blockbuster Video – read what we found, Ben Gilbert, 2019, https://www.businessinsider.nl/gamestop-failing-store-tour-shows-flawed-business-2019-8?international=true&r=US

The world’s largest video game retailer, GameStop, is dying: Here’s what led to the retail giant’s slow demise, Ben Gilbert, 2019, https://www.businessinsider.nl/gamestop-worlds-biggest-video-game-retailer-decline-explained-2019-7?international=true&r=US

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Grand Theft Auto IV (GTA 4) was released in 2008 and cost its developer Rockstar $100+ million to create. Its retail price? $60 per copy. GTA 5, the next installment in the series, came out in 2013 and set Rockstar back a record $265 million in development and marketing costs. Its retail price? Still exactly $60! Mainstream, blockbuster video games (a.k.a. AAA games) are one of the few information goods that has not changed in price in the last 20 years, despite the increased development costs or any effects of inflation. Several reasons account for this phenomenon.

At first glance it does not seem logical that the price has not changed at all in recent years. Video games are now more complex, have better graphics, offer a lot more content to players than they used to in the 90s, yet prices remain exactly the same. According to Ben Gilbert, senior tech correspondent for Business Insider, ‘The $60 price is mostly due to consumer expectation, so if you’re Nintendo or you’re Sony or Microsoft or any of the other game publishers out there, if you released your game the base level price being $70, $80, more than that, it’s a strong possibility people just won’t buy it.’

Consumers have developed a certain expectation of how much a AAA game should cost and they are in general not willing to pay more for it. This does not mean that $60 is the ideal price for consumers but it does help them plan their next purchase better. Gilbert argues that the standard price also benefits game developers since the fix price helps plan revenue and set sales targets.

Despite that, it is hard to deny that the ever-increasing competition in the video game market and growing development costs affect the bottom line of game companies. This is why companies have developed different pricing strategies in order to increase their profits.

For most AAA games $60 only gets you the ‘standard’ edition of the game. Deluxe or Collectors editions can run anywhere between $70 and $120 and will get you additional game content or physical goodies like art books or figurines. Such bundles are now very common and target hardcore fans who are willing to spend more in order to get extra value.

Another strategy is the periodic release of extra downloadable content for the game, or DLC. Extra content generates more revenue for an already existing game buy usually charging players an extra $10 – $20. DLCs actually also serve a dual purpose of reinvigorates the player base, keeping them interested and playing the already-released game.

Lastly, the most popular pricing strategy in recent years is including microtransactions to the game. Asking a small amount of cash from players for a new skin for a character or other cosmetic changes adds up quickly. In fact, microtransactions is how most mobile games, which are free to download in the first place, make all their revenue. This strategy is so profitable that it is now commonly included in $60 games.

So why do AAA video games only cost $60? In reality they don’t. Game developers use different pricing strategies to get extra value from costumers. However, from the player’s perspective things don’t seem that grim. A $60 still gets you the game you want to play – the other extras are optional. Additionally, the video game market is so saturated that discounts of the retail price pop up very frequently, essentially providing the most patient of gamers with the best value.

 

References:

Here’s the reason most new console video games cost $60, Michelle Yan and Ben Gilbert, 2018, https://www.businessinsider.com/why-video-games-always-cost-60-dollars-2018-10?international=true&r=US&IR=T

List of most expensive video games to develop, 2019, https://en.wikipedia.org/wiki/List_of_most_expensive_video_games_to_develop

Pricing Strategies for Video Games, Emin Oguz Akgoz, 2019, http://thecircular.org/pricing-strategies-for-video-games/

Image used: Why Do Games Cost $60? Why Hasn’t The Price of Video Games Changed?, The Infographics Show, 2018, https://www.youtube.com/watch?v=P6B6t_hUnpQ