GameStop Stock Drops After Xbox Game Pass Announcement

REUTERS/Shannon Stapleton
REUTERS/Shannon Stapleton

Microsoft announced a new subscription program that will give access to a significant portion of its back catalog, and Wall Street apparently took it as a bad omen for brick-and-mortar retailer GameStop.

GameStop’s stock price dropped from $26.52 per share to $23.61 per share at its lowest on the day of Microsoft’s announcement of the Xbox Game Pass, finishing with an overall 7% drop in value. GameStop’s value has recovered somewhat in the days following the announcement but remains below its price at closing prior to Microsoft’s unveiling.

The Xbox Game Pass brings gamers more than 100 Xbox One and Xbox 360 backwards-compatible titles for a monthly $10 fee. This represents the latest direct threat to GameStop’s primary mode of business — that is, selling second-hand games at a discounted rate, bypassing both publisher and platform for profit.

Of course, digital distribution eliminates games from the GameStop retail eco-system, placing control back in the hands of the creators and distributors. It’s good for the industry, but not for a retailer that has built its fortune on the buying and selling of second-hand games. This development is especially concerning to investors since the Xbox Game Pass will feature primarily older titles; in other words, games that people would be more likely to purchase used.

If the Xbox Game Pass gains traction, the idea could very easily spread to companies like Sony and Nintendo. If so, GameStop’s entire business model could be made redundant. It’s a situation that smacks of the fall of Blockbuster Video as Netflix became dominant.

It will be interesting to see if and how GameStop responds to this new threat, and whether other major publishers take notes from Microsoft’s playbook. The business of games is changing, and it looks more and more like digital distribution is poised to take over the console industry.

Follow Nate Church @Get2Church on Twitter for the latest news in gaming and technology, and snarky opinions on both.