GameStop CEO: Digital will be a $1 billion business for us in 2015

John Gaudiosi

GameStop still gets the lion&#8217;s share of its revenue from traditional brick-and-mortar stores, but the specialty video game retailer is hardly panicking.<div class="paywall-selector"></div><div class="paywall">
&#8220;We&#8217;re trying to drive an internal rate change that’s faster than the world around us,&#8221; says CEO Paul Raines. &#8220;We have a pretty healthy digital business, which includes downloadable content (DLC) for PC and console games, full game downloads, Steam points cards and currencies, and casual games site Kongregate’s online and mobile games sales. We see that as a $1 billion business this year.&#8221;
Digital sales accounted for $948 million of <a href="http://investor.gamestop.com/phoenix.zhtml?c=130125&amp;p=irol-newsArticle&amp;ID=2029028">GameStop’s $9.3 billion in revenue</a> in 2014. The retailer owned an estimated 42% share of the downloadable games market last year.
The video game industry is relying more on digital sales with $11.1 billion of the global video game business&#8217;s estimated 2015 revenues of $82.5 billion coming from that market, according to SuperData Research CEO Joost van Dreunen. But Raines says one of GameStop&#8217;s old sales standbys isn&#8217;t going anywhere.
&#8220;Disc-based games will be around forever,&#8221; he says. &#8220;The market has seen physical music sales down 50% from its peak and physical movie sales down 60% from its peak, but even in a doomsday scenario, disc-based games will be around for a long time. I see a complimentary business where we sell discs plus download like the current console mode. Virtual reality games will also likely follow this model.&#8221;
<div class="vodvideocontainer" style="position: relative; padding-bottom: 56.25%;"><iframe src="//fortune.com/videos/embed/3d5e5706-041b-4767-a241-3c0994a03fc0" style="position: absolute; top: 0; left: 0; width: 100%; height: 100%; overflow: hidden;" scrolling="no" frameborder="0" allowfullscreen></iframe></div>
&nbsp;
Gamers are still investing in new consoles at a rate that&#8217;s outpacing launches in the past. <a href="https://fortune.com/company/gamestop/" target="_blank">GameStop</a> (GME) has tripled the number of PlayStation 4 units it&#8217;s sold vs. the PlayStation 3 (SNE), and has nearly doubled sales of Xbox One units vs. the Xbox 360 (MSFT). The retailer sold 42% more PS4s and Xbox Ones in the second quarter of 2015 than it did in a year ago.
GameStop continues to benefit from both the sale of pre-owned games, which saw a 5% constant currency rise in the second quarter. Raines notes that type of increase is significant for its <a href="https://fortune.com/2014/12/15/gamestop-walmart-used-video-games/">used games business</a>, although international growth is outpacing U.S. growth. He expects the pre-owned sector to further increase once consumers&#8217; transition to new consoles is complete.
Used game sales generate over $1 billion in trade credits annually for GameStop, of which 70% of that is used by customers toward the purchase of new products, the company says. One of GameStop&#8217;s core strengths, according to Van Dreunen, has always been its back-end accounting for used games sales, which hasaccounted for up to 25% of earnings.
GameStop is embracing new technology to increase game sales in stores and online. The retailer has 43 million global Power Up Rewards members, including 24 million in the U.S. That rich user data, combined with new predictive technology from Certona and other partners, has allowed GameStop to experience an immediate 14% increase in total online Web revenue and a 14% increase in total mobile online revenue from personalized recommendations year-over-year from 2013 to 2014.
The retailer is also testing new augmented reality (AR) beacons in 40 stores in Austin, Texas and three other markets. The beacons connect to customer smartphonesloaded with the GameStop app, and game trailers and merchandise suggestions are made in-store based on a shopper&#8217;s individual preferences.
&#8220;Augmented reality is working in our Austin stores,&#8221; Raines says. &#8220;People are purchasing items off game trailers we beam to their phones. We measure this conversion rate by store through traffic counters&#8230; AR stores are converting at a much higher rate, which makes sense, because it&#8217;s putting more content in consumers&#8217; hands.&#8221;
Virtual reality (VR) will become a widespreadphysical reality in the first half of 2016 as HTC Vive, Oculus Rift, and <a href="https://fortune.com/company/sony-2/" target="_blank">Sony</a> Morpheus launch. Raines says VR could be huge for the video game market and could help Sony sell even more PS4 hardware.
&#8220;If you look at how we worked with the console makers with our Power Up Rewards data and our customers&#8217; buying habits, we&#8217;re doing the same thing with our VR partners,&#8221; Raines says.
GameStop plans to increase its in-store and online PC hardware line, since many gamers will have to upgrade to run HTC and Oculus head-mounted displays. The retailer will offer in-store product demos for all three VR systems.
“Analysts believe there could be 10 million VR users by the end of 2016, and there are hardware forecasts of $30 billion by 2020,” Raines says. “We’re going to be the destination for VR.&#8221;
[fortune-brightcove videoid=4445152977001]
&nbsp;
GameStop is hedging its bets in ancillary markets that intersect with gamers. Raines says its June purchase of gadget seller ThinkGeek came from members of its PowerUp Rewards incentive program requesting ThinkGeekgift cards from the GameStop catalog.
The Sept. 25 opening of <a href="https://fortune.com/2015/09/03/thinkgeek-physical-store/">the first ThinkGeek retail location</a> in Orlando, Fla. is in a former GameStop store, something the company continues to do with its Spring Mobile and Simply Mac retail brands.
“If this retail test goes well, we’ll open additional ThinkGeek stores,” Raines says. “We saw a 38% increase in the collectibles category in Q2, and we’re actively pursuing video game licenses so we can deliver fans of Uncharted games the physical game, the digital content, the T-shirts, the scaled replicas, and other merchandise.”
Van Dreunen says GameStop is mitigating the risk that digitalization poses by diversifying its product and services categories. By acquiring several smaller technology and telecom-related retail chains, it is aiming to both expand its addressable market and increase earnings per customer. But as more gamers inevitably shift to digital, van Dreunen sees an end to the expansion of GameStop&#8217;s namesake stores.
“As we reach the zenith of the current console cycle, we anticipate GameStop to start reducing its retail footprint next year,&#8221; van Dreunen says. &#8220;It knows it has to do something, and so far it only seems capable of delaying the inevitable. Just as <a href="https://fortune.com/2015/02/08/radio-shack-career-lessons/">Radio Shack</a> or <a href="https://fortune.com/2015/09/28/bad-ceo-decisions/">Blockbuster</a>.&#8221;
But Raines saysthe investment GameStop is making in technology both on- and offline is paying off with customers, And the company has the ability to flip more retail locations into its other brands like ThinkGeek.</div>

As gaming goes digital, GameStop CEO Paul Raines is finding ways to back up his brick-and-mortar business.

GameStop CEO Paul Raines: Digital will be a $1 billion business for us

legacy

GameStop

Retail

Tech

GameStop CEO Paul Raines: Digital will be a $1 billion business for us | Fortune

Ryan Hogg

Alexandra Bacon

Michael O'Leary, chief executive officer of Ryanair Holdings Plc, during a Bloomberg Television interview in London, UK, on Monday, May 19, 2025. Ryanair said profit growth this year will depend on working through the risk of tariff wars, geopolitical conflicts and macro-economic blows.

Ryanair fares set to rise by nearly 20% as airline plots profit rebound

/europe/2025/05/20/ryanair-fares-rise-profit-rebound/

Will Kubzansky

Kim Bhasin

Bloomberg

Nike poised to win in Dick’s Sporting acquisition of Foot Locker

/2025/05/19/nike-poised-to-win-in-dicks-sporting-acquisition-of-foot-locker/

Leo Schwartz

Meet your startup’s next recruiter: Your venture capital firm

/2025/05/19/goanna-capital-recruiter-venture-capital-tech-startup/

Sabah Meddings

Diageo plans $500 million of cost cuts as U.S. tariffs kick in

/europe/2025/05/19/diageo-plans-500-million-cost-cuts-us-tariffs-results-trump/

Josh Boak

The Associated Press

Trump’s tariffs may mean Walmart shoppers pay more, his Treasury chief acknowledges

/article/trump-tariffs-walmart-price-hikes-shoppers-scott-bessent/

Swiss running brand On became $3 billion richer in the last week. It’s coming for Nike and Adidas next

/europe/2025/05/17/on-running-shoes-sales-vs-nike-adidas/

Sara Braun

Some degrees don't guarantee a return on investment: These are the 10 worst-paying college majors

https://fortune.com/2025/05/19/some-degrees-really-are-a-waste-of-time-and-money-these-are-the-10-worst-paying-college-majors/?itm_source=parsely-api

Emma Burleigh

This Gen Xer charges $38 an hour to wait in line—including for the Diddy trial and sample sales. Now he’s made a business empire out of standing around all day

https://fortune.com/2025/05/18/gen-x-entrepreneur-line-sitting-business-nyc-diddy-trial-sample-sale/?itm_source=parsely-api

Orianna Rosa Royle

Gen Z are increasingly becoming NEETs by choice—not in employment, education, or training

https://fortune.com/article/gen-z-are-increasingly-becoming-neets/?itm_source=parsely-api

Sydney Lake

Delta CEO says air traffic control systems are so outdated that some commercial flight routes were faster in the 1950s than they are today

https://fortune.com/2025/05/16/delta-ceo-air-traffic-control-1950s/?itm_source=parsely-api

Preston Fore

Millionaire music icon Usher says degrees still matter—but that the piece of paper won’t actually give Gen Z ‘power’

https://fortune.com/2025/05/16/multimillionaire-music-icon-usher-gen-z-advice-degrees-important-but-show-up/?itm_source=parsely-api

Stuart Dyos

'Doubt and hesitation' are ripping through the housing market: 'People are starting their home search, then backing out'

https://fortune.com/article/housing-market-buyers-backing-out-mortgage-prices/?itm_source=parsely-api