GameStop: Next Xbox will be "a very hot, compelling device"

Leading video games retailer GameStop saw its sales drop seven percent last year, and chief executive J. Paul Raines sees much of the decline attributable to the console cycle itself. With fewer games to sell, the impact is being felt on the used games side as well, but Raines told GamesIndustry International last week following the GameStop earnings call that he's very excited for next-gen, and he's especially eager for Microsoft to take the wraps off its next-gen Xbox.

"We've been spending a lot of time with Microsoft, but we have to let them take the lead on this, but it will be a very hot, compelling device. They are doing some really cool stuff, and I'm eager to hear them start their announcements because I think the world is going to stand up and take notice," Raines commented.

While some in the industry have a negative sentiment towards the console space overall and believe that next-gen consoles simply won't sell the same volume that we've seen in previous cycles, Raines remains optimistic.

"I think that's going to be a big debate in the next few months. I think publishers, if you ask them, wouldn't mind seeing a price increase"

Raines on next-gen title pricing

"We don't subscribe to that. The cool thing with GameStop is, we've got a lot of gamers here and we've got a lot of people [on the team] who've seen every console cycle. And what's interesting to me - I was talking to one of our founders, Dan DeMatteo, and he was telling me every console cycle you get people who will say 'there will never be another console,' or 'what else can the consoles do?' And we just believe it's a cycle and we just haven't had a new product in so long. But we certainly don't believe that the new consoles won't be as exciting," he said, adding that the nearly 900,000 people who signed up for the "First to Know" list to hear more about the PS4, and the 34 percent of PowerUp Rewards members who expect to buy a PS4 in the next 12 months is proof of the buzz around new consoles. "There's a lot of demand for PS4, and I think there will be for the next Xbox as well, once it's announced."

And as much as some have discounted the Wii U already and think the launches of new consoles from Sony and Microsoft will make Wii U irrelevant, Raines knows better than to count Nintendo out. "This industry has a lot of cynicism and people love to say stuff isn't going to work, but we think the Wii U is a real console that's been disappointing for a couple months, but we think there's more there when the first-party titles come out. Nintendo's got a few up their sleeve," he said.

Raines believes that getting tablet and mobile gamers on board with consoles again can increase the overall pie, which should help Nintendo too. "Remember that the whole industry has given so many dollars to tablets and phones - and we're in both those businesses - but if we can get some of those people back into console gaming, there's a lot of dollars to go around," he noted.

Assuming next-gen platforms do well, publishers will have to think carefully about software pricing. Some, like Wedbush analyst Michael Pachter, have already predicted that $70 will become the new next-gen title price, but Raines wouldn't fill us in. He does think the pricing issue is likely to be hotly contested, however.

"We think there's an opportunity there but that's really in the hands of Sony and Microsoft and Nintendo. Certainly, we're not waiting on that. We're selling more DLC and accessories so consumers can spend more on a title, but whether or not that title goes up in price or not, I think that's going to be a big debate in the next few months. I think publishers, if you ask them, wouldn't mind seeing a price increase," he said. "The other thing is, pre-owned games make new games cheaper. If you buy BioShock from us, you know you're going to get 20-25 bucks for it after you finish it in a few months. That makes games cheaper for people and that helps pay for new games. So whatever you want to say on price points, you have to understand that pre-owned plays a role in that."

As for the future of GameStop and the industry at large, Raines doesn't buy into the whole "retail is dying" mantra. Even with the digital transformation we've seen in the last few years, Raines is confident that retail will have its place.

"We don't think digital is going to replace retail. I know everybody likes to get worked up and dream about a world without stores and all that, but our point of view is that consumers want both," he told us. "Right now, about seven percent of GameStop's revenues are from digital, but most of them are bought in store. People will come to our store and buy BioShock and then they'll also buy season pass DLC or a Steam download, or they might go play on Kongregate. We think there's a place for both, and one of the things that's important to recognize is technology is important but chronology is also important, and consumers just aren't ready to go massively digital yet. And when they are, we're creating the business deals that will support that. Will streaming be the killer app that kills retail? It sure hasn't looked like that yet."

Streaming, or cloud gaming, is an area that GameStop has dabbled in through its Spawn Labs acquisition, but we're getting the sense that Raines remains skeptical of cloud gaming's impact. Spawn Labs has been moved to a PC-only experience, but GameStop still isn't talking much about it.

"The technology works; we've done a couple betas with our in-store associates and we're able to stream games pretty well. But we're doing a lot of consumer research and you know what's happening is every streaming product has failed so far. OnLive was a disaster, Gaikai was taken off the market by Sony and they haven't really come to market, Otoy hasn't come, and so what we see is streaming has to be positioned differently. We're trying to understand consumers so we can position it the right way, and that's why you haven't seen us talk a whole lot about it," Raines explained.