GameStop Members May Snub Next-Gen Console Restrictions
Stock Chart for GameStop Corp (GME)
The Grapevine, Texas-based specialty retailer, which gets almost half its profit from sales of used discs, cited surveys of its most active customers, the 21 million U.S. members of its PowerUp Rewards loyalty program. Those buyers would be less likely to purchase a next-generation console that limits trading in pre-owned games, Matt Hodges, a GameStop spokesman, said without providing details of the surveys.
“We know the desire to purchase a next-generation console would be significantly diminished if new consoles were to prohibit playing pre-owned games, limit portability or not play new physical games,” Hodges said in an e-mail. He said the company won’t comment on speculation about the specifics of third-party hardware.
The retailer’s statement follows a report by the video-game website Edge.com that Microsoft’s next Xbox will include technology that blocks game resales. The system would register video games over the Internet and render resold titles useless, Edge.com reported, without saying where it got the information.
The Edge.com story sent GameStop down 6 percent to $25.20 in New York yesterday, its biggest drop in almost a month. The stock gained 4 percent in 2012.
Microsoft, based in Redmond, Washington, is expected before the end of the year to begin selling a new Xbox that includes more processing power and more home-entertainment features, people with knowledge of the situation said last year.
“We do not comment on rumors or speculation,” David Dennis, a spokesman for Microsoft, said in response to the Edge.com report. “We are always thinking about what is next for our platform, but we don’t have anything further to share at this time.”
GameStop’s PowerUp Rewards program offers gamers advance notice of sales, promotions and collector’s items. A paid tier gives an additional 10 percent off any used games and accessories, and access to downloadable content from Microsoft and other video-game publishers.
The retailer is working to share its loyalty program information with console makers and video-game developers to increase sales of next-generation products, Chief Executive Officer J. Paul Raines told analysts in November.
“We can tell console makers how many people want a particular feature on their console and we can share with software manufacturers what type of games do people want to play,” Raines said.
About 75 percent of GameStop’s 2012 U.S. sales were attached to PowerUp members, with those customers spending about five times as much as non-members, according to the company.
Michael Olson, an analyst with Piper Jaffray Cos., disputed the Edge.com report in a research note and said the share-price drop is a buying opportunity.
“We are confident that both the new PlayStation and the new Xbox will support used games,” Olson wrote.
GameStop got 27 percent of its revenue and about 46 percent of gross profit from used video games in the fiscal year that ended in January 2012, according to data compiled by Bloomberg. In its most recently reported quarter, used game sales were 28 percent of revenue and 43 percent of profit.
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