GameStop, the world’s biggest video game retailer with 6,600 stores, plans on generating $1.5 billion in digital online revenues by 2014.
That means the company is trying to create a hybrid digital/physical retail business, following its customers online so that it won’t become the equivalent of Tower Records or Hollywood Video — two retail chains that didn’t survive the transition to a digital world. If it can pull off the transition, it will be a rare example of an offline business that succeeds in a shift to an online business.
To do that, GameStop last week acquired two digital game distribution businesses, Impulse and Spawn Labs, for undisclosed amounts.
“Our customers are becoming hybrid physical and digital customers, and we are becoming a hybrid company to meet their needs,” said Tony Bartel, president of the Grapevine, Texas-based game retailer.
As we noted last week, GameStop will work closely with Spawn Labs to develop its game streaming service and integrate it into GameStop’s own web site and Powerup Rewards program for frequent purchasers. Spawn Labs was founded in 2009 and lets users play games on home machines while they’re traveling with laptops. The game plays in a console and streams to the laptop. You can interact with the game and the changes are sent back to the console.
But Spawn Labs can also stream games directly to consumers. The Impulse deal is also in the digital distribution space. Impulse lets you buy games online and download them to play on your computer, much like Valve’s Steam service. Impulse is a digital downloads portal of Stardock Systems with more than 1,100 games. It provides digital rights management and copyright protection tools for publishers. It enables game publishers to entice users with features like achievements, account management, friend lists, chat, multiplayer game lobbies and cloud storage. GameStop will continue to operate Impulse, but it will also integrate the digital distribution technology within its own web site in the coming months.
Steve Nix, a former executive at ZeniMax/id Software, has joined GameStop as general manager of its digital distribution business. There are plenty of reasons for GameStop to move with a lot of speed. Physical retailers such as Borders, Hollywood Video, Game Crazy, and Tower Records have all bitten the dust after being undercut by the low-cost infrastructure of stores on the web.
In the call, Bartel said that GameStop’s board challenged the company two years ago to move into digital revenues. This year, GameStop said it had set aside $100 million to spend on digital initiatives and only $70 million on store openings and store remodels. That’s much different from a few years ago, when the company was opening tons of stores.
During 2011, GameStop estimates it will close 200 stores. In the U.S., Bartel said, it will have zero change in its overall square footage, as it will both close and open stores. Overseas, it will likely add more stores. During 2010, GameStop said its digital online business grew 61 percent to $290 million, in no small part due to is acquisition of indie online games site Kongregate.
Stardock said its Impulse service has about 10 percent of the PC digital game delivery market, compared with about 70 percent for Valve’s Steam. Now GameStop will be in a position to compete against other digital game streaming firms such as OnLive, Gaikai, Otoy, Playcast and Spoon.
Besides moving into digital, GameStop has been remodeling stores to make them more appealing to gamers. It has been setting up new digital hybrid loyalty programs and is promoting its online game properties inside stores.
Bartel said Spawn will be able to stream games to tablet computers and Impulse will be able to distribute games to tablets via downloading. But some modification will be required for games to take advantage of the touchscreen interface of tablets.