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GameStop Looks To Netflix For Online Business Cues

GameStop Looks To Netflix For Online Business Cues

July 19, 2010 | By Kris Graft

July 19, 2010 | By Kris Graft
More: Console/PC

Packaged goods retailer GameStop is at a crossroads, as an increasing amount of video game content is going online, circumventing the company's bread-and-butter new and used boxed game business.

Newly-appointed GameStop CEO Paul Raines is charged with the difficult task of navigating his company through the transition, and he's looking at other "multi-channel" businesses that are succeeding, namely Netflix.

"We are getting a good picture of how to balance digital and physical content," he told investment site The Street. "We have studied Netflix a lot, and most of their users still absorb physical content rather than streaming. Now we are looking to see how gaming compares."

Netflix allows users to rent movies by mail, and complements that service by providing subscribers with an online streaming video library, viewable from a PC browser or from current generation video game consoles.

The vast majority of GameStop's sales come from selling new and used hardware and boxed video games. For the fiscal year ended January 30, the company reported $9.9 billion in sales, a modest rise of 3 percent. That's compared to total U.S. video game sales in 2009 of $19.66 billion, which represented a drop of 8 percent.

Just a few years ago, GameStop downplayed the threat digital venues would have on its packaged goods business, but the retailer now openly acknowledges that a shift is occurring. The company is continuing to evolve its website from an e-commerce destination to a place where users can actually play and buy digital games. In-store, GameStop sells prepaid online time cards, and points cards that can be used on Xbox Live, PlayStation Network and Nintendo's online store. The firm is also investing in in-store kiosks where customers can purchase digital content.

But while major digital sales may be on the horizon, they're still likely a ways off, Raines said. "The technology is clear -- what's not clear is the chronology. ... We are focusing on consumer acceptance. The world won't be all digital tomorrow, even though that's what people are claiming. In this business, users still want physical content."

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