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

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

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

Aurich Lawson / Microsoft / Getty Images

In a seemingly unprecedented deal, GameStop will now share in the lifetime digital sales revenue—including for full game downloads, DLC, and subscription plans—for any Xbox console sold through its stores. How much that arrangement will impact the bottom line for the struggling retailer is still an open and heavily debated question, though.

The first sign of this new revenue sharing arrangement actually came somewhat hidden in a press release GameStop issued last week, trumpeting a “Multi-year Strategic Partnership with Microsoft.” That announcement focused heavily on GameStop agreeing to use Microsoft’s cloud-based infrastructure for its back-end sales systems and a deal for store associates to start using Microsoft Surface tablets going forward.

Buried in that press release, though, 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 each gamer brought into the Xbox ecosystem.”

While casual readers probably missed the potential import, investors homed in on that sentence. “I received an email from [GameStop Investor Relations representative] Eric Cerny and in the email he said, ‘We are allowed to state we will receive a portion of the downstream revenue from any device we will bring into the Xbox ecosystem,'” Domo Capital Management President Justin Dopierala told Ars in an interview. He added that Cerny later clarified in a phone call that the deal applied to all digital sales on all next-gen Xbox consoles sold through GameStop.

Loop Capital analyst Anthony Chukumba confirmed that same basic outline to Ars Technica based on his conversations with GameStop management. “The way it’s going to work is for every Microsoft Xbox console that GameStop sells going forward, GameStop will get some percentage of the revenue from every digital full game download, DLC, microtransaction, and any subscriptions as well,” he said.

GameStop and Microsoft have yet to respond to a request for comment from Ars Technica.

How big of a slice?

A cut of every digital sale for the lifetime of every GameStop-sold Xbox console could be a significant boon for GameStop’s bottom line, especially as gamers continue to gravitate away from physical sales of games on discs. But a lot depends on the actual size of that revenue share, a specific figure both analysts said GameStop was holding closely to its chest.

Dopierala, who has been rather bullish on GameStop since last year, estimates GameStop’s cut could run anywhere from one to 10 percent of all digital revenues for those consoles, a share that he says “materiality could be quite large, especially as time goes on.”

But Chukumba told Ars he thinks GameStop’s cut of digital sales is much lower, somewhere under one percent. “I don’t believe it’s large enough to make a significant impact on GameStop’s financial results going forward,” he said. “Largely, I don’t believe that [it’s a bigger cut] because what is Microsoft’s incentive? I don’t see what this does for Microsoft exactly. If they didn’t have this, would they sell fewer Xboxes?”

Buy, sell, trade... and earn GameStop a cut of digital sales?
Enlarge / Buy, sell, trade… and earn GameStop a cut of digital sales?

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

To that end, Dopierala said he’s “pretty confident” that Sony is already in talks with GameStop on a similar revenue sharing deal to ensure Microsoft doesn’t get preferential treatment in the stores. “I think Sony might be next in line,” he said.

For Chukumba, though, arguments about GameStop’s console-marketing might not “hold a lot of water.” He likened the console wars to the US political system; just as the vast majority of voters already know if they’re Republicans or Democrats, the vast majority of gamers already know if they want a Sony system or a Microsoft system going into the store.

“If you’re a gamer, you’re not asking them, ‘What console should I buy?'” Chukumba said. “You’re asking, ‘Where’s the PS5? Where’s the Xbox?’ I don’t really believe at this point that GameStop could really influence that. Maybe a grandmother coming in, they could influence that a bit more, but that’s kind of like undecided voters, there’s not too many of them.”

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