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Microsoft will give GameStop a share of Xbox’s digital revenue



Microsoft will give GameStop a share of Xbox's digital revenue

Aurich Lawson / Microsoft / Getty Images

In what appears to be an unprecedented deal of business, GameStop will now share in the lifetime digital sales proceeds – including full game downloads, DLCs and subscriptions ̵

1; for every Xbox console sold through its stores. However, the extent to which this agreement will affect the bottom line of the ailing retailer is still open and hotly debated.

The first sign of this new revenue-sharing agreement was somewhat hidden in a GameStop press release released last week that sparked a “multi-year strategic partnership with Microsoft.” That announcement was focused heavily on GameStop, who agreed to use Microsoft’s cloud-based infrastructure for its back-end sales systems, and a deal for store employees to use Microsoft Surface tablets in the future.

However, buried in that press release was a vague sentence that could be much more important to GameStop’s future: “GameStop and Microsoft will both benefit from the customer acquisition and lifetime revenue value of every player that is brought into the Xbox ecosystem.”

While casual readers may have missed the potential import, investors have gotten into that phrase. “I received an email from [GameStop Investor Relations representative] Eric Cerny and in the email he said, “We’re allowed to state that we get a portion of the downstream revenue from every device we bring to the Xbox ecosystem,” said Justin Dopierala, president of Domo Capital Management, in one Interview with Ars added that Cerny later made it clear in a phone call that the deal applies to all digital sales on all next-generation Xbox consoles sold through GameStop.

Loop Capital analyst Anthony Chukumba confirmed the same floor plan to Ars Technica based on his discussions with GameStop management. “The way it will work is for every Microsoft Xbox console GameStop sells in the future. GameStop will generate a percentage of sales from every digital full game download, DLC, microtransaction and all subscription,” he said.

GameStop has not yet responded to a request from Ars Technica for comment. Microsoft declined a request from Ars Technica for comment.

How big is a slice?

A cut in every digital sale throughout the life of every Xbox console sold by GameStop could be a significant boon to GameStop’s bottom line, especially as gamers continue to turn away from physically selling games on discs. However, a lot depends on the actual size of this revenue sharing. According to a certain number, both analysts were holding GameStop close to their chests.

Dopierala, who has been rather optimistic about GameStop since last year, estimates that GameStop’s cut could be anywhere from one to 10 percent of all digital revenue for these consoles. “”

But Chukumba told Ars he thinks GameStop’s reduction in digital sales is much less, somewhere under a percent. “I don’t think it’s big enough to have a significant impact on GameStop’s future financial results,” he said. “On the whole, I don’t think so [it’s a bigger cut] because what is the incentive from microsoft? I don’t see exactly what this means for Microsoft. If they didn’t have that, would they sell fewer Xboxes? “

Buy, sell, trade ... and GameStop bring in part of the digital sales?
Enlarge /. Buy, sell, trade … and GameStop bring in part of the digital sales?

For Dopierala, cutting in GameStop only makes sense if Microsoft wants the massive retailer to market its systems at a major point of sale. “GameStop sells a lot of consoles,” he told Ars. “They don’t want them not to push any of your devices. Maybe they push Xbox more than PlayStation [thanks to this deal], maybe not.”

To that end, Dopierala said he was “pretty confident” that Sony is already negotiating a similar revenue sharing agreement with GameStop to ensure Microsoft doesn’t get preferential treatment in stores. “I think Sony could be next,” he said.

For Chukumba, however, arguments about GameStop’s console marketing might not be “watered”. He compared the console wars to the US political system; Just as the vast majority of voters already know whether they are Republicans or Democrats, the vast majority of gamers already know whether a Sony system or a Microsoft system should come to the store.

“If you’re a gamer, don’t ask them, ‘Which console should I buy?'” Chukumba said. “You ask, ‘Where’s the PS5? Where’s the Xbox?’ I don’t really think at this point that GameStop could really influence that. Maybe a grandmother will come in, she could influence that a bit more, but it’s like with undecided voters, there aren’t too many of them. ”


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