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In the past 10 years we’ve witnessed several game changers with the coming of the Digital Age. In some degree businesses have become extinct today or are on the verge of falling off. I’ll mention two that took the retail business by surprise and then the next that may follow suit.

In the past 10 years we’ve witnessed several game changers with the coming of the Digital Age. In some degree businesses have become extinct today or are on the verge of falling off. I’ll mention two that took the retail business by surprise and then the next that may follow suit.

1. Photography and Cameras
   • The victim Eastman Kodak (EK) – Kodak was ill prepared. They did not take advantage of the 21st century technology. It took them for surprise which forced them to make  capital burden expenditures. Itwas  to update their niche Photography printing services which run rampant through Pharmacies and Supermarkets. Their stock was at an all time high of $95 in 1998. It now trades just shy of $6. The business remains intact and sits on roughly $1.5 billion in cash. They have lost significant amount of market share the past decade to the likes below.
     • The Game Changers – Hewlett Packard (HPQ) in the Digital Printing and home photo printing; SnapFish & ShutterFly (SFLY)- Low cost Internet Digital Photo printing
     • HPQ continues to chip away at EK market-share as they have recently sealed a deal with Wal-Mart (WM) to roll out 50 HP photo kiosks at their West Coast locations.
2. DVD‘s & Video Game Rentals
   • The victim Blockbuster (BBI) $ .40, Dollar Video, & West Coast Video. Blockbuster is the only one that remains in this once lucrative business. Again new technology and concept took them for surprise. Their business is catered around stand alone retail locations saturating the US. At one point they had over 9,000 locations in 25 countries. Now they dwindle to approximately 35% of stand alones throughout their portfolio. They have been attacked on all fronts.
     • The Game Changer - Netflix (NFLX) $71 Why drive to to a Blockbuster when you can order home via the Internet and borrow as long as you’d like with no late fee? It was an instant hit! Stock took off, business revenues were increasing 50 fold, year over year while BBI is on the verge of becoming extinct like their former foes.
     • On demand from Verizon, Cablevision, Time Warner, and Comcast has also made on an impact on BBI’s revenues which took an additional chunk of cash flow.
     • GameStop (GME)$18.91 Operates 6,200 locations worldwide. They have  grown at a rapid pace in providing video game new/used purchases in their small shop of 2,000 sqft retail space generating on average $750,000 per store.

Now onto the next game changer which I’m certain will take the Gaming industry by storm. It’s a private company named OnLive. 

OnLive is launching the world’s highest performance Games On Demand service, instantly delivering the latest high-end titles over home broadband Internet to the TV and entry-level PCs and Macintosh computers. Founded by noted technology entrepreneur Steve Perlman (WebTV, QuickTime) and incubated within the Rearden media and technology incubator, OnLive spent seven years in stealth development before officially unveiling in March 2009.

OnLive, together with its Mova subsidiary, lies directly at the nexus of several key trends, all of which are reshaping the way we think about and use digital media:

• The shift to cloud computing, (i.e. Vmware and Google) displacing the limitations, cost and complexity of local computing;
• An explosion of consumer broadband connectivity, bringing fast bandwidth to the home;
• Unprecedented innovation, creativity and expansion within the video game market.

Pioneering the delivery of rich interactive media to the home, OnLive will change the way that entertainment applications are created, delivered and consumed.

It’s set to Launch June 17, 2010. They have partnered with EA Sports, Ubisoft, AMD, Gameloft….ect.

The actual game is hosted on the company’s servers, and streamed in real-time to the customer’s PC or TV. The company spent several years developing technology so that gamers would not experience any controller delays. The service has been in beta tests for the last several months. It’ll become commercially available on June 17 for $14.95 per month – though that fee will not cover the additional costs of buying or renting games. Prices for games will be set by publishers and be announced as the games become available. OnLive is part of a larger trend in the video game industry, which is moving aggressively to new digital distribution models. While any games are still sold as packaged goods through retailers, more services are allowing gamers to buy and download games through the Web.

Console makers such as Microsoft Corp. MSFT 29.11, Sony Corp. SNE 37.94, and Nintendo NTDO 38.30, all operate online game channels.  

Whether OnLive succeeds or not I believe Sony, Microsoft, and Nintendo already see this as a threat as cloud computing takes hold. Sony has already launched a cloud themselves coded “PS Cloud”

The real threat is to GME

Or opportunity for investors as we cannot recommend Gamestop as a lucrative long term investment. You’re hearing this first here! Gamestop will follow BlockBuster’s path to non existence of course if they can adapt as Kodak has done so the past decade. (Odds of succeeding very slim 20%) Games of the future will be streamed online rather purchased via street stores. The only caveat that remains which gives Gamestop some time for survival (3 years)  is that the infrastructure is not in place to transfer fast and constant stream of High Definition over lines. BUT….Google and Cisco recently stated they have the routers and Technology to launch super high speed Internet connections. (CSCO splashed the headlines this past Tuesday. It’s ironic how everything relates to one another)

Take this note of warning to GME investors first heard here!!