David Perry: GameStop CEO Spewing 'Nonsense,' Selling Film Cameras in a Digital World

By Blake Ellison, Sep 10, 2008 2:53pm PDT Yesterday, we covered an interview with GameStop CEO Dan DeMatteo in which he predicted continued shortages for the Nintendo Wii this holiday season. In the same interview, DeMatteo had a few things to say about digital distribution, many of which could be expected of the leader of the gaming world's biggest brick-and-mortar retailer.

"The first digital distribution was Napster and it was illegal. Let's just start there," he commented, starting a lengthy diatribe in which he credited GameStop's famed used game trade for making "the average value of a current generation game ... about $20" after accounting for GameStop's buy and sell prices for used games.

David Perry, the founder of now-defunct Shiny Entertainment and CCO of Acclaim Games, felt the need to publicly respond to DeMatteo's treatment of the digital distribution industry, and in so doing wrote an even more lengthy letter to GameDaily. "I'm a major fan of GameStop," he began, "[but] I hate to think someone this powerful can put out this kind of nonsense in an interview and confuse professional investors."

The entire text of Perry's letter follows:

Whoa,

I'd love to publicly respond to the Dan DeMatteo article. (GameStop CEO)

Firstly, I'm a major fan of GameStop; I've spent thousands of dollars there, so there's no weird grudge. They have made us many millions in previous years.

That said, I hate to think someone this powerful can put out this kind of nonsense in an interview, and confuse professional investors, that might have been interested in the digitally distributed future of the games business. Some developer (or publisher) pitching a digitally distributed strategy might have just been 'thrown under the bus' today by Mr. DeMatteo.

Where to start? Sheesh...

He says we are 12-17 years away from downloading games digitally? I know he's got to pretend that digital distribution isn't relevant (or any kind of threat) to protect his stock price, but I guess Steve Jobs is miles off course then (100,000,000 digital downloads in the first 60 days of opening Apple's 'Digitally Distributed' App Store.) Or that iTunes is now the biggest music retailer in the world. There's tons of games I can download today, digitally, on console and PC. 12-17 years? Try right now.

What is the Amazon strategy? What is the Netflix strategy? To distribute entertainment digitally.

This wave will be just like the disruption the camera industry experienced – you can hope "digital" won't show up and keep selling film cameras, or you can embrace the future. Every major camera company alive today embraced the digital future. It's not like he or GameStop has any part in deciding where or when; the consumers will decide. Let's face it, he's running the shop that sells the film.

The big BOLD part of the article: "I think the argument that [used game sales] competes with the new games is false. Imagine what new car sales would be like if you couldn't trade in your old car." Well that's interesting, as the vast majority of our industry has no issue with people selling their games on as many times as they like (eBay thrives on it.) What we object to is that our key retail PARTNER decides to pitch our consumers with rhetoric like, "You'd be crazy to buy the new copy, when you can buy the used one for less, and we guarantee it will work." Back to your car analogy, try partnering with Ford, doing co-op advertising TOGETHER, have Ford spend even more money dressing up your stores etc., then when a consumer finally walks in to buy a new Ford and says, "I'd like to buy a new Ford please," then your salesman (who is SUPPOSED to be Ford's promotional partner) says, "You'd be crazy to buy a new one, here buy this old Toyota instead, it's great, it's cheaper and we guarantee it will work." You'd be Ford's partner for about 5 seconds. Oh, and yes, if you stopped selling used games, I'd bet NEW game sales would go up. Let's try it!

In reality, every game that goes "digital" will drop in price for the consumer (when compared to today's system). "Price" will always be a key part of the "buy" decision for consumers, and removing fees for GameStop, Packaging Design, Packaging Materials, Manuals, Shipping, Insurance, Manufacturing, Distribution, In-Store Promotions, Co-Op Advertising, RETURNS etc. will help consumers see attractive price drops. For publishers, removing 1st party fees to make custom expensive Blu-ray discs will be a nice price reduction also. And yes, as an industry we have no problem paying a distribution fee (as we are very used to that due to our relationship with GameStop).

Mr. DeMatteo talks about downloading 30GB games taking too long? Again, does he really (honestly) think we will force users to download 30GB before they can even start to play a game? Obviously, large data will get streamed as required, as that's how things work in a digital world. How can Apple get an HD movie to play in seconds? No 72 hour download required as he quotes. Also the vast majority of games are nowhere near 30GB anyway, and what about data compression? (Sigh.)

This statement is tough to swallow also... GameStop will "GIVE" out $1B to their consumers to go and buy new games with. That sounds just fantastic if it were true. Sadly, GameStop's core business is used game sales (see graph [linked], courtesy of Edge.) You have to sell more used games (on a gross revenue basis) to beat the sales revenue on new games; at the same time, used games get a much higher profit margin for GameStop. So it's just too important a revenue stream for them, if they have to tap-dance to explain it, they will. In reality, gamers turn around and spend that money on used games (more than new games as seen in the chart), with 100% of profits (on those used game sales) going to GameStop. So to make the point really clear: We actually don't mind GameStop selling used games, IF, they did it elsewhere, like on eBay or if they started www.BuyUsedGames.com or something like that. We do care when they are our partner, and when we are sending OUR consumers into their stores (especially when we make them special edition builds – as they commonly request), and then they push their used games business. That's where the line gets crossed.

Finally, he made some crazy reference that "Publishers are afraid to death of piracy." Yet, as we know, piracy (& hacking) can be tamed by server authentication. China is the living proof of this, where they have a non-existent console media business, and a thriving digitally downloaded industry. A digital distribution industry which grew 69.5% last year, dramatically faster than our retail industry.

So, to turn the tables, I personally feel GameStop are just blindly putting their foot on the gas pedal to speed up digital distribution (thanks to their policies); if they are smart they will be investing very, very heavily in digital distribution. If they want their company to still exist in 12-17 years, I'd go and buy STEAM from Gabe Newell, which technically can't exist yet as Gabe is clearly 12-17 years ahead of the curve.

David Perry
CCO Acclaim Games, Inc.
(Yes, we make our living from Digitally Distributed Games. 100% of our games are profitable.)

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