Kyle Nazario

I recently watched Dan Olsen’s magisterial video essay “This Is Financial Advice,” in which he explains the cult of GameStop and Bed Bath & Beyond. To give a microscopic summary of a three-hour video, there is a large group of people who believe the stock of failing American mall retailer GameStop is going to rise to stratospheric levels, making GME holders the wealthiest people on the planet. That’s the tip of the iceberg. Watch the video.

At the start of his essay, Olsen explains when GME true believers talk about “GameStop,” they are not discussing the actual, literal retailer. They are referencing a vast belief system that the financial system is rigged (sure) and that they can beat it by buying GameStop stock (ehhhhh 🤔).

This distinction helped me understand GME apes, as they call themselves, because as an avid gamer for multiple decades, I could never imagine loving GameStop. It’s an awful store with no place in modern gaming. In 10 years, GameStop will be dramatically smaller or dead.

People can believe whatever they want about the stock and MOASS and vast conspiracies, but the actual mall retailer GameStop is as dead as a company can be. They are Blockbuster after the invention of Netflix. I closely follow the gaming industry, so believe me when I say this company is toast.

Let’s go over the many, many reasons GameStop will be smaller or dead in 10 years.

Quick background

Why are you writing this post? Because it boggles my mind to see so many people talk about “GameStop” without talking about the actual, literal retailer. As a longtime gamer, I wanted to explain why the real GameStop is in trouble.

What are your qualifications? Being an enthusiastic gamer for a couple decades and dealing with GameStop. That’s all. I’m not a financial analyst or anything.

Are you a paid shill, writing this to spread disinfo and bring down the stock price? Please. I am a professional software developer who blogs for fun. No one has ever paid me a cent for anything on this personal blog. Also, no one would, because my traffic is not exactly amazing.

(Work hard, kids, and you too can get eight page views per week on your review of Apple Watch podcast apps!)

Are you going to talk about MOASS or [insert conspiracy here]? No. We’re staying in reality today. We’re discussing the real store and real gaming industry.

Isn’t it obvious GameStop is in trouble? Yes! It is, and yet hundreds of thousands of people are subscribed to subreddits claiming it isn’t. So here we are.

So. Let’s get down to business and explain why GameStop is toast.

1. Digital downloads are replacing their business

Beginning in the ’80s and ’90s, games were stored on physical cartridges or discs which were placed into a console. This is the world in which GameStop was born, and it suited them. Online shopping and high-speed internet were still growing, so putting physical stores in every mall in America was a pretty profitable way to get game discs into players’ hands.

But, in 2005, Microsoft released the Xbox 360.¹ It and the PlayStation 3 (2007) could download games from the internet, straight to an attached hard drive. Every major game console since then has had digital downloads. PC games have been primarily digital for about as long.

As a gamer, I cannot over-emphasize how much more convenient it is to buy digital. I can purchase a game in seconds without leaving the couch. Compare that to getting in the car, driving to the store, finding a boxed case on the shelf, buying it and driving home. Sure, digital games take time to download, but so do discs. When you put a disc in a PS5, it installs the game to the hard drive. You’re going to see a loading screen either way.

While a significant number of gamers still prefer physical media (for resale, sharing or longevity purposes or lack of internet), the vast majority of the industry is and will continue to be digital. Hell, the entire mobile games industry, which dwarfs console/PC gaming, has always been digital-only.

This reality is obviously terrible for GameStop. Every digital download is a sale GameStop didn’t make. Digital games also cannot be resold, and used games sales used to be a massive profit center for the retailer.

This is not a trend that will reverse itself. Customers have overwhelmingly chosen the more convenient method of purchase. It is not the fault of anyone working at GameStop - it’s an industry-wide secular change.

1a. GameStop can’t compete on selection

One of the biggest surprises of 2024 is Balatro, an addictive singleplayer poker game. For months this spring, it was the hottest indie in console/PC gaming.

Like most indie games, it was only available as a digital download. Physical editions have turned into a luxury for big-budget AAA games. Super successful indies sometimes get limited physical runs (including Balatro, soon), but not everything is released physically. Not even close.

If you wanted to play the hot new poker game this spring, you couldn’t have bought it at GameStop.

1b. GameStop’s products are undifferentiated

A video game or console sold at GameStop is identical to one sold at Walmart, Amazon and Target. Every game they sell is also identical to the digital versions. There’s no reason to shop at GameStop.

A decade ago, game publishers used to cut deals where buying a game from a specific retailer would give you special in-game items or other bonuses. For example, one of my favorite games, Mass Effect 2, offered an exclusive armor set for people who pre-ordered the game from GameStop.

Game publishers don’t do these deals much anymore, because they don’t have to. Digital broke GameStop’s bargaining power.

2. Shopping at GameStop is awful

GameStop’s long-term prospects have another serious issue - shopping there is horrible. I don’t mean to be rude to the many normal, nice people who work at GameStop and try their best, but many customers have walked out of their stores unhappy.

Again: I’m so sorry if there are GameStop employees reading this. I know you all are doing your best, but the subreddit for GameStop workers is jammed with horror stories of employees screaming at customers, sneaking extra charges onto purchases (which is sometimes store policy), lying to customers, aggressive upsells, selling used games as new, insultingly low trade-in offers, lazy customer service and not having pre-ordered games on launch day.

GameStop has zero goodwill among the gaming community. Frankly, I began avoiding the store years ago because the prospect of batting down endless upsells at checkout seemed exhausting.

They don’t have enough loyal customers or people with a habit of shopping there. Shopping at GameStop needs to be 10 times better than downloading a game digitally, and instead it’s 10 times worse.

3. Gamers buy fewer games

For the history of gaming, most titles were finite, discrete experiences (with the notable exception of MMOs). You played Game A and beat it, then you sold it back to GameStop to get store credit to buy Game B, then C and D and so on. This world was good for GameStop, because they could sell you a lot of $60 boxed games and resell your used games sharing nothing with the publisher or developer.

The biggest story in console/PC gaming over the last 10 years, though, is the Fortnite-ification of the industry. Free-to-play live service games like Fortnite, Destiny and Apex Legends have vacuumed up massive amounts of players’ time (the most scarce resource in gaming).

I’ve seen game devs compare live services to black holes - once a player gets sucked into them, they don’t come out. People who play Rocket League every day don’t need to buy new games. They just play Rocket League. This trend has made a small number of companies extremely rich, and a large number of other game devs extremely worried.

GameStop cannot sell these digital-only free-to-play live services, which steal time from and depress sales of the titles GameStop does sell.

4. Fewer AAA games are coming out for GameStop to sell

In the old world, when you got $60 one time per game from players, big game publishers pumped out titles. But these days, the flow of new big-budget games has slowed to a trickle. Things are bad enough that GameStop is warning investors it could affect sales:

The number of new software titles available for sale has decreased in recent years… In addition, some publishers that have historically published games compatible with multiple gaming platforms have recently been acquired by console manufacturers. This consolidation could lead to a further reduction in the number of new software titles available for sale.

[…]

Any material delay in the introduction or delivery, or limited allocations, of hardware platforms or software titles could result in reduced sales.

I would offer two additional reasons for the drought of new games.

First, as the industry has continued its Fortnite-ification, big publishers have opted to support a few long-term live services instead of creating lots of new games.

No company exemplifies this better than Rockstar. The creators of Grand Theft Auto published at least one new game per year throughout the 2000s and early 2010s until 2013. In 2013, Rockstar released Grand Theft Auto V, which included GTA Online. GTA Online is a long-running live service multiplayer game that has became the focus of the entire company, probably because it makes hundreds of millions of dollars a year. They didn’t release another major new game for five years (2018’s Red Dead Redemption 2) and have released none since then. If Grand Theft Auto VI comes out next year, Rockstar will have made just two major new games in 12 years.

Second, every big-budget game that GameStop would sell in its stores, even the single-player ones, is taking forever to make.

Modern games ship with bigger worlds, better graphics and longer campaigns. They have online multiplayer. They just take a long damn time and a boatload of money to make (see Insomniac spending $300 million on Spider-Man 2).

Fun fact: Video game production cycles have gotten so long that if a big-budget game studio started working on a brand new project today, it would likely be for the PlayStation 6

- Jason Schreier, January 2023

GameStop thrives on new games. They make no money from in-game microtransactions - only sales of boxed products. This new world, where Rockstar spends 12 years working mostly on GTA Online and Insomniac takes five to make a full Spider-Man sequel, is one without a place for GameStop.

5. Publishers hate GameStop and are actively supplanting it

GameStop has no friends among the industry either. I couldn’t find exact figures, but they seem to take around 20-25% of every $60 game sale, with the rest going to the publisher and developer.

For used games, GameStop takes 100%. This used to drive publishers crazy, to the point where they put “online passes” in games requiring players to either buy the game new or spend an extra $10-15 to access online multiplayer.

Publishers are in no rush to save GameStop, who spent much of the 2000s and early 2010s extracting as much value from them as possible. They’d rather create their own storefronts and pay nothing to distribute games to customers.

6. GameStop has no good plan to fix things

GameStop management has floated a lot of plans over the years to solve the problems I’ve described. They tried becoming an e-commerce brand, but as The Wall Street Journal describes, could not execute:

Christmas 2021 was the first big test of the new e-commerce model. The company had ordered shipping containers of new products for the holiday season, but many didn’t arrive in time, according to some of the former executives.

[…]

Last year, through early December, e-commerce sales fell to less than half of what they were in the year-earlier period, according to an internal document reviewed by The Wall Street Journal. Over that period, e-commerce accounted for only about 10% of GameStop’s overall sales.

They’re selling toys and plushies, but that business is a race to the bottom with Amazon and Alibaba.

They also tried releasing NFTs before those failed, because of course they did.

As far as I can tell from their financial statements, CEO Ryan Cohen’s plan is to cut jobs and shut down stores faster than sales decline. That way, they can still be profitable despite double-digit revenue drops. From the WSJ again:

[GameStop Chief Executive Officer Matt] Furlong didn’t address that issue, but indicated that more job cuts will come this year in Europe, where the company is looking to exit some countries.

“We are taking a number of steps in fiscal year 2023 to improve our efficiency,” he said.

Thesis confirmed! “Efficiency” is business guy talk for job cuts - doing more work with fewer people. My sympathy to the employees that will be affected.

GameStop is toast

GameStop is a product of a world that doesn’t exist anymore - one where high-speed broadband internet is limited, and game consoles don’t use it. In that world, putting a store in every American mall is a logical way to distribute games.

But we don’t live in that world anymore. High-speed internet is so ubiquitous, game consoles basically expect you to connect them to the internet. Distributing games digitally just makes sense. GameStop doesn’t. They’re a relic with massive fixed costs for rent and salaries. If they exist in 10 years—and that is a big if—they will be dramatically smaller.