No GameStop Plans ‘Whatsoever’ to Compete with Netflix on Movie Streams

GameStop has “no plans whatsoever” to offer movie streaming as part of the cloud-based game streaming service planned for a national 2012 launch in the U.S. (CED April 4 p1), GameStop President Tony Bartel told reporters in a Monday briefing. The retail chain has no intention to compete with Netflix, which offers movie streams via videogame consoles and various other Internet-connected devices, Bartel said. Netflix has said it didn’t plan to offer games.

About five data centers will enable GameStop to offer its game streaming service throughout the U.S., said Shawn Freeman, senior vice president-digital. He didn’t say where the data centers will be located. Freeman also said GameStop expected demand for the new service “will exceed” the capital investment being made in it. The planned service was announced as GameStop announced the purchase of streaming technology company Spawn Labs and said it agreed to buy digital distribution company Impulse.

GameStop didn’t say Monday whether it would agree to keep certain games or console platforms out of the planned cloud-based service if publishers or console makers wanted it to. Spokesman Chris Olivera said: “Conversations with publishers and console makers started on Friday with the official announcement. We are pleased with initial conversations, but it is very early. That being said, I would only be speculating as to if a publisher or console maker wanted to ‘opt-out’ and how that would be handled.” Activision, Electronic Arts, Microsoft, Nintendo of America, Sony Computer Entertainment America, Take-Two Interactive and Ubisoft didn’t respond by our deadline to requests for comment about GameStop’s planned initiative. THQ declined to comment.

The retail chain bought Spawn Labs and Impulse because “it will help to strengthen our multichannel strategy by positioning us to deliver games to our customers anytime, anyplace and on any device,” Bartel said. GameStop found Spawn’s “patented gaming virtualization technology and its ability to support all major console gaming platforms to be the best fit for our current and future business plans,” he said. The Spawn technology could also be integrated into the chain’s PowerUp Rewards customer loyalty program, he said. Spawn’s technology was also customer- and “publisher-friendly,” and would allow GameStop to offer a “try-before-you-buy plan, as well as a subscription service for PowerUp Rewards members that allow them to stream” digital copies of their GameStop-purchased games, he said. The service will enable the retail chain “to sell more videogames and provide a better customer experience,” he said. “The largest point of differentiation” between the GameStop initiative and rival services “is the ability for us to stream any current-gen console game with no publisher porting or investment required,” he said.

The streaming technology will automatically determine how much bandwidth a consumer has available on the device a game is being streamed to, Bartel said. Customers will be able to request either an HD or SD version of a game, and the technology will also automatically downscale HD to SD when needed, he said. Minimum bandwidth for a game to be provided in “full 720p” HD is about 5 Mbps, said Spawn CEO David Wilson, who shifted to vice president and general manager of GameStop’s new cloud gaming division. Any HD requires at least about 3 Mbps and SD can be provided at 1-2 Mbps, he said.

Wilson and Spawn founder Pete Walker “will continue to lead the Spawn team in Austin,” Texas, Bartel said. “Heading the Impulse business for GameStop” will be Steve Nix, Bartel said. Impulse now sells more than 1,100 computer games from its website, he said. After the deal to buy Impulse closes, that company will be integrated with GameStop.com and the PowerUp program, he said. GameStop declined to say what market share Impulse now has in the game streaming market, and said only that rival Steam was a “very large player” in that space.

"Given the growing relevance of streaming and digital downloads, and the still uncertain future regarding the scope of this aspect, we believe these and other recent transactions are prudent in the short term and beneficial in the long term” for GameStop, Bank of Montreal (BMO) Capital Markets analyst Edward Williams said in a report Monday.

GameStop expects that digital sales will “continue on a 50 percent per annum gross pace over the next four years, reaching $1.5 billion from the $290 million that we just reported” for fiscal 2010 (CED March 25 p5), Bartel said. Its digital sales grew 61 percent from fiscal 2009, GameStop said last month.

"There are two issues that are keeping” downloadable content (DLC) “from being a much larger growth vehicle” for GameStop -- “discovery” and “accessibility,” Bartel said. It’s looking to “solve both of those issues,” he said. In stores, it’s already helping customers discover DLC by displaying DLC cards on the wall, while kiosks at stores allow customers to look up a game and the associated DLC for it, he said. Store employees who ring up games are also automatically prompted by stores’ cash registers if a title has associated DLC, he said.

The chain expects to have no store square footage growth in the U.S. in fiscal 2011, Bartel said. The company will “opportunistically invest in some new stores,” but it “will look for opportunities to consolidate stores” as their leases expire, he said.

BMO’s Williams also said GameStop was “applying its extensive refurbishment experience to” iPods and possibly other CE devices “in select test markets.” Via “feedback gleaned from its retail stores and reverse engineering of refurbished products,” GameStop was also “focusing increasing research and development efforts to develop exclusive products” including microphones and Bluetooth keyboards, as well as “modified console hardware packages,” he said. As an example, he said, GameStop was offering an exclusive PS3 bundle including larger hard drive storage, additional USB ports, a Blu-ray remote, HDMI 1.4 cables supporting 3D video and a one-year warranty. To compete with GameStop’s refurbishment center, rivals like Amazon, Best Buy, Target and Wal-Mart “would have to spend more than 10% of sales,” Wedbush Securities analyst Michael Pachter estimated. If GameStop is “successful in refurbishing iPods, we could envision the company creating an even greater barrier to entry” for rivals because GameStop “could not only take used iPods in trade at its stores, but could conceivably grow its used business by 20% if it were able to refurbish 10 million iPods annually and resell them for an average of $50,” he said. He questioned how significant a revenue generator the coming streaming service will be for GameStop, but said it will enable the chain to “better retain its high value customers.”