Market Overview

Are GameStop's Tablets a Joke, a Success, or So Bad They Aren't Worth Mentioning?

More importantly, should Apple be worried about GameStop's entry into the tablet market?

The simple answer: NO!

Despite the promise of a store-branded device, GameStop (NYSE: GME) has chosen to launch a series of generic tablets without any modifications. These devices include the Samsung Galaxy Tab 10.1, the Asus Eee Pad Transformer, and the Acer Iconia. The video game retailer is so excited about these tablets that it launched a special page to promote them – gamestop.com/tablets.

Every tablet comes pre-loaded with six games: Cordy, Monster Madness, Riptide GP, Re-Load, Sonic CD, and Dead Space (the crappy tablet version, not the awesome console version developed specifically for Xbox 360, PlayStation 3 and PC).

While I will always have a special place in my heart for the most obscure chapter in the Sonic the Hedgehog series, it's kind of hard to contain my laughter right now. In fact, I don't think I can hold back the laughter…any…longer…

Ha-ha-ha-ha-ha-ha!

Sorry for the outburst. It was a natural reaction to GameStop's lousy business decision. In addition to ignoring the fact that consumers will not drop $329 (for the Iconia), $399 (for the Eee Pad Transformer) or $499 (for the Galaxy Tab) to play old games, GameStop is seemingly oblivious to the harsh realities of the tablet market. Most significantly, each of these tablets already had their shot at retail. And they, like every other iPad competitor, failed so badly that the tablet market is often referred to as the “iPad market.”

GameStop's decision to sell old tablets with old games is a strong indication that the company wants to compete in the tablet market but doesn't know how. Rather than wait a year or two to introduce a serious, more viable product, GameStop chose to release a product that feels cheap, imitational, and painfully rushed. While Apple (NASDAQ: AAPL) sits back and quietly prepares the launch of the iPad 3 – a tablet that people actually care about – GameStop must have felt that it was better to enter the market as soon as possible.

That irrational thinking will single-handedly eliminate any hope the company had of releasing a quality product in the future. By starting with these tablets, consumers will view GameStop as just another outlet for crappy iPad knock-offs. Consequently, they will be less likely to return to GameStop for tablet purchases in the future.

That, however, assumes GameStop will continue to support the tablet market. All things likely, it won't. When corporations incur a loss (and to be clear, GameStop is all but guaranteed to take a loss on this venture), they tend to exit the market that caused the problem. While GameStop could look at this situation with a grain of logic and realize that it is wholly responsible for the forthcoming loss, the company is likely to make a bunch of excuses.

“The tablet market is very competitive,” one exec will proclaim at a meeting.

“We couldn't possibly predict how difficult this launch would be,” another will say.

Finally, some guy in a $4,000 suit will talk about how powerful Apple is, how strong the iPad brand is, and how it is unlikely that GameStop will be able to compete effectively without a substantial investment in hardware development.

At that point, the corporate team will look around the room, sip their $5 coffees, and quietly discuss how they are going to move away from the tablet market and instead focus on other areas of the game industry. In public, GameStop will promote its apps and other digital offerings. But behind the scenes, company execs will admit that they made a mistake. Not a large enough mistake to kill their bonuses, I'm sure, but a mistake nonetheless.

There are, however, three winners in this scenario: Acer, Asus and Samsung. Each of these manufacturers found a way to unload old crap on a large retailer. Who else could have pulled that off?

ACTION ITEMS:

Bullish:

Though I find it hard to believe that any investor will support GameStop's tablet strategy, if you have faith in its future, consider the following trade:

  • As the leading developer to join forces with GameStop for its pre-loaded game collection, Electronic Arts (NASDAQ: ERTS) is poised to benefit from the success of these tablets.

Bearish:

If you're skeptical of GameStop's strategy in selling old tablets with old games (FYI: Sonic CD was originally released in 1993), investors may want to consider the following trades instead:

  • Apple (NASDAQ: AAPL) is the obvious (and safest) bet for anyone looking to invest in the tablet market.
  • While Electronic Arts has become the number-two player in social gaming, Activision (NASDAQ: ATVI) is one of the more successful publishers of iPhone and iPad games. This can be heavily attributed to the Call of Duty: World at War Zombies series.

Follow me @LouisBedigian

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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