Analyst: Amazon to expand used-game biz

GameStop shareholders may have grown nervous in recent weeks with the revelation of new used-game buyback programs from Amazon.com and GameFly, with Toys "R" Us and Best Buy also exploring the market at some stores. However, a new report from Electronic Entertainment Design and Research determines that some of these new players in the used-game business pose little threat to GameStop's dominance in the buyback sector.

"We have concluded that Amazon's threat to GameStop's used video game software market share is less severe than currently perceived by the industry," EEDAR analyst Jesse Divnich said, adding, "Amazon's jump into the used video game market will likely expand the used market further, rather than steal market share away from industry leaders such as GameStop."

In the report, Divnich chose a sample of more than 75 games, comparing Amazon's buyback price (paid in an Amazon.com gift card) with the average GameStop buyback price (paid in store credit) from a cross-section of more than 50 different stores in the retail chain. Although Amazon offered gamers a better deal on a selection of some of the best-selling used games, Divnich found that the broader sample actually gave GameStop the edge in buyback prices.

However, factors including the number of games traded in, current promotions, and how the consumer wants to spend the proceeds also play into which store offers the better deal. The EEDAR report details more than a dozen such scenarios.

Divnich said that Amazon doesn't usually offer a considerable value over GameStop when it comes to buybacks, but he still believes that the program will be profitable for the online retailer. He noted that Amazon should appeal to consumers who want to turn their old games into nongaming purchases. And even though sellers can generally reap even better prices from auction sites such as eBay, Divnich notes that the complexity of selling through the service could turn off some users.

As for the trial programs operated by Best Buy and Toys "R" Us, Divnich is unconvinced that they will pose a threat to GameStop in the near term. A nationwide used program at Best Buy would require extra shelf space that the retailer simply doesn't have, Divnich noted, and could damage the chain's clean and high-end image. As for Toys "R" Us, Divnich said that the company could roll out its used program around the country in about a year, but he believes that the people who would take advantage of it don't typically shop at GameStop stores.

The full report is available from EEDAR's Web site.