There are two companies that I’ve been watching closely, GameStop (GME) and NetFlix (NFLX) because their current business model has about 3-5 years before they begin seeing significant decreases in their revenue. Currently, the two of them account for over $10.58billion worth of market cap so as investors and consumers, we certainly like them.
Their current business model needs to change. Digital distribution of files (games or movies) are not “if” but “when” and as long as it’s easy for the consumer to download. GameStop sells video games and peripherals in their retail stores but as games become distributed on the Xbox Live, Sony PS3, and Wii platforms, the need to walk down the street to a retail store will become less and less.
NetFlix is experiencing business model disruption because I can access movies on-demand from my cable carrier and watch whatever I’d like, on demand. It’s only a matter of time until my cable carrier has enough movie inventory available for me to watch that NetFlix becomes extinct.
In October 2006, GameStop publicly recognized this issue and announced the opening of their digital distribution service. In January 2007, NetFlix made their respective announcement about digital distribution.
I’d like to see one mega-store that has everything online that can be downloaded. Why seperate out music from movies and games? Why not all together? Is it going to come down to rights? Will Sony go in one direction and EA go in another? If so, the market is going to be fragmented and you’ll have bidders trying to “buy” inventory from these respective rights holders.
Also, keep your eye on the ecosystem of digital distribution. Who provides the infrastructure to enable the distribution of digital downloads to happen? The storage? Bandwidth? Payments? Rights?
I’m curious to see how it plays out.
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