GameStop says it is considering creating a video game tablet to compete with the iPad 2. Along with its acquisition of digital game distributor Kongregate, this move shows that the brick-and-mortar video game store realizes its days of selling physical games are numbered.
GameStop would have a difficult time launching a tablet in this crowded market, but there are three major reasons why it would be a smart move.
1. Digital games are on the rise
Boxed console games are still a large market, but they are experiencing more competition than ever:
- Popular online services like Valve's Steam deliver on-the-shelf games as computer downloads
- OnLive makes XBox 360 and PlayStation 3 games playable on the iPad
- Apple (APPL) has sold hundreds of thousands of games since the app store launched, threatening the previous mobile leader, Nintendo (NTYDO)
2. Apple wouldn't give it enough control
It would be much easier for GameStop to simply become a publisher on the iPad 2, iPod, and iPhone. But if it really wants control and, most importantly, more money, then its own tablet might be the way to go.
First, Apple is a notorious control freak when it comes to content. It censors anything remotely controversial. Mainstream video games can be extremely sophomoric. For instance, the long-awaited, adult-oriented Duke Nukem Forever, is sure to be a hot seller at GameStop stores, but it likely will never be sold on the iPad 2 because of Apple's conservative views.
Second, GameStop president Tony Bartel basically agrees that iPod and iPad games are priced too cheaply to be high quality -- putting the company in the same corner as Nintendo, Sony (SNE), and other Apple competitors:. The average home console game runs about $50 and mobile game about $20, while the average Apple game app runs about $4. In fact, some Apple game apps are free.
GameStop has no interest in selling cheap games. It gets a serious chunk of those $50 console games sold in its stores and through its website, something that couldn't be matched with Apple's low-end pricing and 30 percent cut off the top. It would rather create its own platform and charge other companies to have their games on it. The company remains noncommittal on the tablet subject, but all signs point to it happening.
3. GameStop wants to be Netflix, not Blockbuster
GameStop is doing extraordinarily well in the recession, clearing $3 billion during the last holiday season alone, but it is wise enough to plan for the future. It is ensuring that it can handle both physical and digital games, like Netflix supporting both DVDs and online streaming. Of course, the difference is that GameStop is selling, not renting video games, so it has a lot more invested in details like how much games cost and on what platform they will be distributed. GameStop would gain a lot of control by owning the gaming platform itself.
Launching its own game-focused tablet would be a risky maneuver, as all of the iPad adversaries seem to be flopping -- but it isn't nearly as risky as relying on physical games to drive profits in years to come.
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