Analyst: GameStop Expects 2009 Console Price Cuts, Slow Digital Sales Adoption
Management of major gaming retailer GameStop expects price cuts to PlayStation 3 and Wii consoles in 2009, while some strong fall and holiday season game releases should help to return the overall industry to positive growth.
Meanwhile, the company downplayed the potential growth in the digital distribution arena, claiming that cost, equipment, and market size issues will keep the segment from significantly threatening retail in the near term.
The projections were reported by analyst Arvind Bhatia of Sterne Agee, in a research note based on a meeting with four key GameStop executives.
GameStop suggests the likelihood of console price cuts has increased due to slowing sales for both Wii and PlayStation 3, although the need is greater for Sony's console.
"Management believes that a meaningful PS3 cut is highly likely in the near-term," Bhatia wrote, further specifying that a $100 cut may be coming in mid-August when EA Tiburon's Madden NFL 10
That declaration comes the same day Activision CEO Bobby Kotick declared his company could abandon PlayStation platforms
if Sony does not reduce the price of its PlayStation 3. Wii may also see a $50 cut this year to maintain its price advantage perception against its competitors.
E3 and its show of games were encouraging to GameStop management, Bhatia noted, with a powerful lineup of late-2009 games -- Modern Warfare 2, Halo 3: ODST, Guitar Hero 5, The Beatles: Rock Band, BioShock 2, Assassin's Creed 2
, and more -- combining to "drive strong growth in the back half." In fact, Bhatia said, "August should be the first positive month for software sales growth in a few months."
GameStop is less bullish on near-term digital downloads, however; the company has historically taken a publicly unenthusiastic tack towards digital distribution, and in today's research note the company claims to "have conducted the most thorough study to date."
Management believes an "addressable market" for digital distribution "will not exist until 2014." Even at that point, the company expects only 25 percent of consumers to "have access to the technology required to download full games."
The GameStop executives also pointed out that such digital distribution could cost users $100 per month, and would require a great deal of storage space. Furthermore, they claim consumers are willing to pay only $39 for downloadable games, "so publishers will be less incentivized than some in the industry think."
Bhatia's research note did not indicate whether the executives specified the reason for the projected monthly fee -- it may refer to broadband internet costs -- or the nature of the specific technology required to download games. GameStop currently offers PC games for download at full retail price from its website.