Interview: Tony Bartel On GameStop's New Digital Strategy

After running relatively quiet on the digital front for a long period, GameStop came out with both guns blazing last week. The surprise purchases of Stardock's Impulse digital distribution service and streaming technology firm Spawn Labs put the company in direct competition with Steam and OnLive. And it's just getting started. GameStop is preparing a big push in the tablet computer space – one that's already starting to trickle out. Five Dallas stores are letting people trade in their tablet devices as part of a pilot program. (It will go nationwide later this year.) And company president Tony Bartel says the company is even considering making its own tablet. "If we can work with our partners and the OEMs and they come up with a great tablet that is enabled with a great gaming experience and coupled with a bluetooth controller, then there's no need to go out and develop our own," he says. "But if we can't find one that's great for gaming, then we will create our own." Tablets, he says, are "the next explosion in the gaming space." And GameStop is hoping to position both Impulse and Spawn to cater to that audience segment, making previous purchases of PowerUp Rewards members available to them at no additional cost. Similarly, fencesitters will be able to play a limited segment of virtually any game to help them decide whether they want to purchase it. "Our customers are beginning to consume games in a hybrid manner, both physical and digital, so we are becoming a hybrid company to meet their needs," says Bartel. "Both of these programs are designed to sell more of the games we sell today." One thing that won't be a part of the company's digital plan is used games. GameStop is certainly counting on digital being a growing part of its revenues (with an expected increase from $290 million this year to $1.5 billion by 2014), but doesn't believe brick and mortar locations are going to go away anytime soon. And as long as those are around, trade-ins will continue to flow. "We really don't anticipate we're going to have a model [for digital] where people can trade a game back in," says Bartel. Instead, the company hopes to find the sweet spot in game pricing – something higher than the 99-cent model that Nintendo has so famously derided, but something lower than the $60 price point the major publishers prefer. "Our whole premise is there are a lot of people caught up in the 99 cent fray and a lot of people are frustrated by that," he says. "We really believe that's a chance for us to lead the tablet playing field. … Just like people create [lower-priced, immersive] games for the PC, we think people will begin to create immersive games for a higher price for the tablets. Someone needs to offer those games, and that's something GameStop will be the leader in doing." This is, of course, just a first step – and hardly a guarantee. The Spawn Labs streaming service is still in testing. The company expects to have two private betas this year, with a wider launch in 2012. That gives OnLive a chance to establish a bit of a foothold. But OnLive focuses only on PC games. GameStop plans to offer streaming console games to other screens. (At its investor's day, the company says it showed LittleBigPlanet and Halo: Reach streaming to tablets.) "[We can] literally use the consoles in a data center environment and stream those to the player with little to no latency," says Bartel. Similarly, Impulse is dwarfed by Valve's Steam distribution service. That leads to the question: Why did GameStop buy a smaller competitor and not the digital industry's 500 lb. gorilla? "Of course, you can't walk into the digital space without tripping over Steam," says Bartel. "We have talked to 500 companies in the past 16 months to look at them as potential acquisition candidates. … The reason we went with this tech is we really felt like it was easier for us to buy a technology in which we could integrate - from the foundation level - our PowerUp Rewards program." Over 8 million people have signed up for that program since its launch eight months ago – with 5 million of those paying $15 per year for the 'pro' service. By the end of the year, GameStop expects the number to hit between 12 and 15 million. Those customers spend on average $65 more per person than non-members, according to Lazard Capital Markets, and shop at GameStop twice as often, reflecting why it was so important to integrate that into any digital offerings. One area you won't find GameStop exploring is digital video. Asked on a conference call if the company would consider launching any sort of Netflix competitor, given its new digital capabilities, Bartel offered a very direct reply: "We are totally focused on gaming," he said. "That's what we know. That's who we are. We have no plans whatsoever to move into the movie streaming space."