GameStop's Used Game Business is Failing

GameStop's used game business is failing. Touted as one of the largest video game retailers in the world, GameStop has seen better times. The business model is simple; sell new and used video games and software at a discounted price. Used games accounted for approximately 31.4% of GameStop's revenue for the second quarter. High margins resulted in higher returns.

Sales of video games are a multi-billion dollar industry. From hardware to software and accessories, video games are a thriving operation, until now. The video game industry released figures from market researcher NPD Group, video game sales drop 8 percent in September. The trend has moved away from bricks and mortar retailing to digital downloads.

This trend hurts retailers such as GameStop since its business model does not revolve around digital downloads.

A recent court case involving software publishers and merchants could further hurt GameStop. The 9^th US Circuit Court of Appeals has ruled that resale of a publishers software can violate licensing agreements. In short, the court ruled against the plaintiff stating a licensing agreement does not supersede the First-sale Doctrine.

In the event this ruling was to stand, GameStop would no longer be able to buy and resell used software pursuant to the manufactures licensing agreement. Although the case was in regard to computer software, all games could be affected.

In light of the recent fears, GameStop shares have dropped over 10%. The foreseeable future should see video game manufactures standing behind retailers such as GameStop. Without an outlet to sell games, the viability of the market will be lost. Financially, companies could stand to lose close to $1 billion annually.

If the suit is overturned, GameStop must begin to rethink their strategy in the event a similar lawsuit is brought up again. Since the trend is digital downloads, GameStop must expand their reach into the digital market. They should create kiosks to download games and services where they would receive service income. When sales are down GameStop must begin to reinvent or force become irrelevant.