Reports That Sony Has Killed GameStop Are Premature

Reports That Sony Has Killed GameStop Are Premature
A GameStop store
Photograph by Patrick T. Fallon/Bloomberg

Video-game retailer GameStop has been declared dead more than once in the last year or so. First, there were reports that Sony and Microsoft weren’t going to include disk drives in their new consoles. (Both did.) Then the console makers were expected to put technical restrictions on used games. (They didn’t.) This year’s International Consumer Electronics Show has brought another round of doomsaying, set off by Sony’s announcement on Tuesday that it plans to launch a streaming games service this year.

The service would allow players to stream PlayStation 3 games on Sony’s consoles, as well as on its Bravia brand of Internet-connected televisions. GameStop’s stock dropped by more than 8 percent over the course of the day as investors worried that people wouldn’t buy used games from a store if they could stream them directly from Sony. Now would be a good time to nod knowingly while thinking about Netflix and Blockbuster.

There are reasons to question this parallel, for now at least. Netflix’s data management techniques seem pathologically clever, but video games are tougher to handle than movies. Because someone watching a movie presses a button and then sits there for 90 minutes or so, companies that stream video have some wiggle room to begin showing a movie as it loads. A gaming service has to carry the message from each urgently pushed button on someone’s couch to a central server and back multiple times per second.

The difficulty of pulling this off was illustrated by the failure of OnLive, a streaming gaming service that was much ballyhooed before going belly-up in 2012. There was enough of a delay that some users in places far away from data centers had trouble playing certain games. On top of that, it was difficult for game developers to recode their games to work with OnLive.

Sony’s version is being built by Gaikai, an OnLive competitor that Sony bought for $380 million in 2012. It is possible that the company has solved the technical problems that bedeviled OnLive, but Sony isn’t explaining how. Its presentation of Playstation Now was typical of CES announcements, coming with few specifics and vague promises of a full-scale launch. What is announced in Vegas often stays there.

Brian Blau, an analyst at Gartner, says there’s something to be read into the lack of specifics. “I’m sure that there’s all kinds of technology issues they’re having to solve, probably on a per-game service,” he says. “A game has to work 100 percent. Let’s say it works 98 percent. That may not be good enough.”

Even as an expression of intent, Playstation Now is a threat to GameStop. The retailer’s revenue from used video-game products in fiscal 2013 was $2.4 billion. Sony and Microsoft would surely like to recapture some of that by selling streaming access to games instead of letting the secondary market thrive outside of their control. Then again, this isn’t the first time we’re hearing this. Sony’s acquisition of Gaikai wasn’t a secret, and the company has made periodic statements about its interest in streaming for games.

Further, the people running GameStop are a resilient bunch. There’s no doubt that things are tough in retail, but the company has expanded into the digital business and bolstered its revenue by selling non-gaming devices such as used phones. It has always described Sony as a partner. “We are looking forward to working with them on including the new PlayStation Now service as part of our portfolio of gaming products we offer our customers,” the company says.

So why the burst of pessimism? Michael Pachter, an analyst with Wedbush Securities, says the market’s reaction to the Playstation Now news seemed out of proportion, especially when streaming has been “spectacularly unsuccessful” so far and the new generation of consoles are providing a wave of sales for GameStop. But the periodic panics show a flavor of disbelief that won’t go away. At a time when enormous retailers have all fallen victim to the Internet, a company whose main business is selling technology in actual stores just seems too good to be true.

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