Did Facebook and Mobile Gaming Kill GameStop?
According to a recent report from NPD Group, the traditional video game industry is taking a beating. Retail video game sales plummeted 42 percent in April, compared to the same month last year. It was the fourth consecutive month of double-digit declines for the sector. Facebook (NASDAQ:FB) and mobile gaming through products from Apple Inc. (NASDAQ:AAPL) and Google Inc. (NASDAQ:GOOG) continue to pressure brick-and-mortar stores.
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The market research firm announced that retailers raked in $292.1 million in game sales last month, down sharply from $503.2 million a year earlier. The only part of the video game segment that showed an increase was accessories, which edged slightly higher to $148.6 million from $147.8 million. According to Matt Matthews from Gamasutra, if the decline from 2011 continues at the current rate, retail video game revenue in the United States for 2012 could fall below the $12.6 billion amount seen in 2006, when Microsoft’s Corp. (NASDAQ:MSFT) Xbox 360 was just booting up.
“Simply stated, there were notably fewer” new game releases, explained NPD analyst Anita Frazier, according to GameZone. “I think it’s a simple as that, because when we see compelling content come into the market, the games are still selling as well as ever. We just saw a lot less of this in April as compared to last year.” However, the problem is that fewer compelling games are coming to the market and consumers are satisfying their gaming needs through less expensive apps, found on tablets and smartphones.
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Companies are having to rely more on past blockbusters to attract attention and sales. Activision Blizzard Inc. (NASDAQ:ATVI), the world’s largest video game maker by market capitalization, recently launched Diablo III, a new version of the popular exploration game that last debuted in 2000. In 2010, the company also released a sequel to StarCraft, a whopping 12 years after the original.
Cheap or even free games from Facebook and mobile devices have also given way to the rise of the casual gamer. Addictive games such as “Words with Friends” and “FarmVille” from Zynga Inc. (NASDAQ:ZNGA) allows users to receive their gaming-fix without spending $60 on a single console game. The quality is certainly lower on Facebook or apps, but when it comes to spending $60 on a console game or $5 on an app, the quality appears to be good enough.
GameStop Corp. (NYSE:GME) is one of the clear losers in the shift taking place among the video game industry. The world’s largest brick-and-mortar video game retailer recently announced dismal financial results before Thursday’s opening bell. For the first-quarter, the company earned $72.5 million (54 cents per share), compared to $80.4 million (56 cents per share) a year earlier. Revenues also declined 12.2 percent to $2 billion from the year-earlier quarter. For each of the last four quarters, the company has seen its net income fall. In the fourth-quarter of the last fiscal year, net income fell 26.5 percent while the figure fell 1.5 percent in the third-quarter of the last fiscal year and 23.4 percent in the second-quarter of the last fiscal year. Shares of GameStop closed 11 percent lower on Thursday and are down 23 percent year-to-date.
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