Video Game Industry Outlook 'Still Blurry,' Credit Suisse Analysts Warn - GameStop (NYSE:GME)

In a report published Friday, Credit Suisse analyst Seth Sigman detailed finds from a proprietary survey of 477 gamers (210 of which are Xbox One/PS4 gamers) and how this relates to the video game industry. Here are Sigman's main findings:

Physical games, rather than downloads, are still the "preferred medium" of ownership.
62 percent of current gen respondents (or 53 percent total) may be "less willing" to trade in games as they get less credit today than they did in the past.
28 percent of current gen respondents (or 22 percent total) would opt for a digital game over a pre-owned physical if both options were similarly priced. This figure rises to 47 percent if the digital download were $10 cheaper.
29 percent of current gen respondents (or 24 percent total) would purchase a pre-owned game if a new disk is no longer available.
The supply of pre-owned games may "remain constrained" due to a less willingness of consumers to trade in old games.

Implications On GameStop's Pre-Owned Business

According to Sigman,

GameStop Corp.GME

's buy/sell/trade business is "arguably the most important" aspect of the company as it accounted for 26 percent of total revenue and 41 percent of gross profit in 2014. Sigman concluded that based on his survey, GameStop may now be put in a position where it has to offer consumers more trade in value to increase its inventory while also lowering pricing on pre-owned games to maintain the pricing gap.

Implications On Video Game Publishers

As already noted, 28 percent of respondents would opt for a digital download over a pre-owned physical copy if both options were priced the same but 47 percent would opt for a digital download were $10 cheaper. According to Sigman, the average price of a digital download for a current-gen catalog title is around $37.50, only about $1 more expensive than a physical version but $6 more expensive than a pre-owned title. Sigman calculated that if a publisher lowers the price of a digital download to $31.50 (the same price as a pre-owned version), the publisher could still earn $19.50 in gross profit dollar sold (versus $11.50 for a physical disk). In addition, a publisher generates zero direct proceeds when GameStop (or other retailers) sells a pre-owned game. As such, publishers could stand to generate incremental revenue in this scenario.

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