The bigger picture for investors is that game publishers in the US are still almost entirely in the same business they have been in for 20 years: selling new games at retail. As a result, the big publicly traded domestic publishers are not participating in any meaningful way in two of the hottest parts of the global video game industry: subscription-based online gaming and trade-ins of used games.
Those two sectors are very different; online gaming is growing quickly but remains risky, while the used game business is more mature but remains tremendously profitable. Yet each represents a major challenge to the publishers' traditional business model.
Over all, GameStop appears on track to generate about $3 billion in revenue this year. Of that, it looks like $800 million to $1 billion will come from the sale of used software, hardware and accessories. Just how profitable that segment is has only recently become clear to investors.
The quarter that ended in October was the most recent with GameStop results and was the first in which the company broke out results for its used segment. They were eye-popping. Used products made up almost 32 percent of the company's total retail sales and almost 44 percent of gross profit. Even more impressive, while GameStop's gross profit margin on new hardware sales in the quarter was less than 11 percent, and on new software less than 25 percent, the company generated a whopping 45 percent profit margin in its used segment.
