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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerCNBC reports that the video game industry is making progress in its efforts to offer downloads of high-quality games over the internet. Nintendo has introduced WiiWare, which lets users download games for the Wii from independent publishers. Developers set the price -- far cheaper than the high-budget games put out by the big publishers -- and Nintendo takes a chunk of the revenue. CNBC adds that "Digital delivery of all forms of entertainment is widely considered to be a foregone conclusion. Only the timeframe is in question. Not only will publishers have to learn to adapt, but game retailers such as Gamestop (NASDAQ: GME) will have to figure out how to compete directly with companies that are also clients."
What happens if the downloading trend takes off as most experts assume it will? The story of Trans World Entertainment (NASDAQ: TWMC) could be a harbinger of things to come if Gamestop is unable to adapt. As the number-one operator of mall-based CD stores, Trans World has seen its sales and profitability plummet -- the shares have declined from over $13.00 in 2005 to the current price of $2.60. The market was very late in pricing in the disastrous effects that the MP3 would have on the brick-and-mortar industry.
Maybe Gamestop can adapt. But with a P/E ratio of over 30 for a company whose business model will have to change drastically over the course of the next decade, investors may want to keep in mind the collapse of Trans World Entertainment.
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Reader Comments (Page 1 of 1)
5-19-2008 @ 5:39AM
Ole S'kool. said...
Some of us out there have a need to retain physical backup. This means that the publishers will want to retain the right to create official physical copies. MP3's and CD's make a good comparison. I know the battery in my Ipod wont last forever and it may happen by freak accident that on the same day when that battery starts losing charge - down to the 1% and falling fast - and my computer holding over 20 gigs of music crashes; while foolishly enough I never backed it up (thankfully I have). Tell me then my idea to keep all my CD's was stupid.
Also, I'll never move to just reading computer screens.... there's something about a book... holding it. And in ways, the same goes for music and video games. Having someone else's (or your) idea in your hand, literally, is powerful.
After years, hell, decades of playing video games, what I miss the most is going to arcades. Generations of kids will grow up not understanding what arcades are, or were once. They'll sit in their houses connected, but alone with millions of other kids all around the globe, instead of down at the pizza shop with a handful of friends they know from around the block. In ways, those old enough, but still young enough have seen a change in our few years (comparative to the older generations) the likes of which has never been seen before, are fortunate to have seen what we have in the evolution of gaming and communication of our species.
5-19-2008 @ 10:39PM
Jeff R said...
I find this laughable because it's like saying housekeeping firms are overvalued because there will be robots in 20 years. Seriously though, there are limitations on hard drive space that won't even be close to solved on the next gen of consoles (which won't arrive until 2012). Yes, it's inevitable, but it's not going to happen any time soon. The generation of games after that...maybe we can talk about this article then. Either way, worrying about this hurting Gamestop's sales is a decade a way.
5-20-2008 @ 2:50AM
D Murray said...
First of all, I do own GME stock, but not without reason. Here are the problems with your view in my opinion:
1) The difference in size between a downloadable song and a console game is anywhere from 8000 - 1000 times. Current ISP speeds and hard drive limits makes such on demand content highly impractical.
2) Current console hardware is not designed for such large on demand content (relatively small hard drives). The next generation of consoles, released perhaps in 3-5 years, will still unlikely be able to have the hard drive space to download many games, as that capacity, even for personal computing, is cost prohibitive.
So to sum up, the barriers to mass market use of on demand full game downloads aren`t close to being resolved, and as previously mentioned, this is worrying about a problem that will happen 10+ years from now. Eventually America will be over its fossil fuel dependency, time to short oil?