GameStop Corp. (GME), Activision Blizzard, Inc. (ATVI), Zynga Inc (ZNGA): How the Gaming Industry Is Getting its Head Chopped Off

The E3 gaming conference is one of those things that almost every teenager looks forward to. It’s a more popular trending topic than Megan Fox. In the past month alone, according to Google AdWords, Xbox got 45.5 million searches; comparatively Megan Fox got 4 million. Guess we know what’s going through the minds of young adults these days.

I believe that there are three companies in the video gaming industry that will lose a lot of money in the immediate future.

GameStop Corp. (NYSE:GME) a dying business

GameStop Corp. (NYSE:GME) could be in a serious trouble going forward. For now, the company was able to avoid a complete disaster from the coming revolution in digital technologies. Both Sony Corporation (ADR) (NYSE:SNE) and Microsoft Corporation (NASDAQ:MSFT) will support used games. Even so, the company is hardly out of the woods yet.

Source: Statista

Going forward it is highly probable that physical video game sales will continue to decline at an even faster rate. This is because of online video game distribution. Services like the PlayStation Network and Xbox Live will sell digital copies of video games, and with Internet speeds increasing, buying at home could become the norm.

In the upcoming console generation, the PlayStation Plus and Xbox Live will be giving gamers two free games a month in order to help justify a membership to play online. This will further diminish the demand for physical video game disks, making it that much more difficult for GameStop Corp. (NYSE:GME) in the future.

In the past four years physical video game demand has declined by 35%. GameStop Corp. (NYSE:GME) is hoping to address this with the launch of its online video gaming store, but I see no way in which the company will be able to offset the losses from physical disc sales.

Source: GameStop

GameStop Corp. (NYSE:GME) has had a lot of difficulty in its most recent quarterly earnings release, with new video game hardware, new video game software, and pre-owned video games all reporting declines. Going into the holiday season with the release of the PlayStation 4 and Xbox One, the amount of money made from new system hardware should improve.

Even with a pent-up product refresh cycle, analysts on a consensus basis anticipate the company to report a 1.3% year-over-year decline in earnings. The good doesn’t offset the bad in this stock.

The end of MMORPG’s

Activision Blizzard, Inc. (NASDAQ:ATVI) is in for some trouble. Over the past several years, the demand for its World of Warcraft franchise has consistently declined. In 2008, the number of World of Warcraft subscribers peaked at 12 million. In the first quarter of 2013, the number had dropped to 8.3 million. The decline in demand for World of Warcraft will continue because of changes in revenue models. Currently paid-for-winning is on the rise, a concept where players in a multi-player game can buy in-game features that allow them to better compete with their friends. This means that video gaming will become more about the size of a player’s real-world pocket book rather than in-game skill.