GameStop 2008 Annual Report Download - page 19

speeds in the 1980s to high speed processors in today’s gaming systems, such as the Sony PlayStation 3
launched in November 2006 in North America and the first quarter of fiscal 2007 in Australia and Europe,
the Nintendo Wii launched in November 2006 worldwide, and Microsoft Xbox 360, launched in the fourth
quarter of 2005 in North America and Europe and the first quarter of 2006 in Australia. In addition, portable
handheld video game devices have evolved from the 8-bit Nintendo Game Boy to the 128-bit Nintendo DS,
which was introduced in November 2004 in North America and the first quarter of 2005 in Australia and
Europe, and the Sony PlayStation Portable (the “PSP”), which was introduced in 2005. Technological
developments in both chip processing speed and data storage have provided significant improvements in
advanced graphics and audio quality, which allow software developers to create more advanced games,
encourage existing players to upgrade their hardware platforms and attract new video game players to
purchase an initial system. As general computer technology advances, we expect video game technology to
make similar advances.
•Today’s Gaming Systems Provide Multiple Capabilities Beyond Gaming. Most current hardware plat-
forms, including the Sony PlayStation 2 and 3 and Microsoft Xbox and Xbox 360, utilize a DVD software
format and have the potential to serve as multi-purpose entertainment centers by doubling as a player for
DVD movies and compact discs. In addition, the Sony PlayStation 3 and PSP, the Nintendo DS and Wii and
Microsoft Xbox 360 all provide internet connectivity and the Sony PlayStation 3 plays Blu-ray discs.
•Backward Compatibility. The Sony PlayStation 3, the Nintendo DS and Wii and Microsoft Xbox 360 are,
to some extent, backward compatible, meaning that titles produced for the earlier version of the hardware
platform may be used on the new hardware platform. We believe that during the initial launch phase of next-
generation platforms, backward compatibility results in more stable industry growth because the decrease in
consumer demand for products associated with existing hardware platforms that typically precedes the
release of next-generation hardware platforms is diminished.
•Introduction of Next-Generation Hardware Platforms Drives Software Demand. Sales of video game
software generally increase as next-generation platforms mature and gain wider acceptance. Historically,
when a new platform is released, a limited number of compatible game titles are immediately available, but
the selection grows rapidly as manufacturers and third-party publishers develop and release game titles for
that new platform.
•Broadening Demographic Appeal. While the typical electronic game enthusiast is male between the ages
of 14 and 49, the electronic game industry is broadening its appeal. More females are playing electronic
video games, in part due to the development of video game products that appeal to them. According to ESA,
approximately 40% of all electronic game players are female. ESA also states the average game player is
35 years old and the average age of the most frequent game purchaser is 40; however, the video game market
also includes approximately 26% of Americans over the age of 50. In addition, the availability of used video
game products for sale has enabled a lower-economic demographic, that may not have been able to afford the
considerably more expensive new video game products, to participate in the video game industry.
Used Video Game Products. As the installed base of video game hardware platforms has increased and new
hardware platforms are introduced, a considerable market for used video game hardware and software has
developed. Based on reports published by NPD Group, we believe that, as of December 2008, the installed base of
video game hardware systems in the United States, based on original sales, totaled over 185 million units of
handheld and console video game systems. Of the total installed base, 80 million is comprised of the current
generation of video game platforms as follows: 6.8 million Sony PlayStation 3 units, 17.5 million Nintendo Wii
units, 13.9 million Microsoft Xbox 360 units, 14.3 million Sony PSP units and 27.5 million Nintendo DS units. The
remainder of the installed base consists of legacy video game platforms, including Sony PlayStation 2, Microsoft
Xbox, Nintendo’s GameCube and Game Boy Advance. According to the IDG, the installed base of hardware
systems as of December 2008 in Europe is approximately 108 million units. The Interactive Entertainment
Association of Australia reported as of the end of 2008, the installed base on the current video game platforms
stands at 1.0 million Nintendo Wii units, 0.5 million Microsoft Xbox 360 units, and 0.4 million Sony PlayStation
3 units. Hardware manufacturers and third-party software publishers have produced a wide variety of software titles
for each of these hardware platforms. Based on internal Company estimates, we believe that the installed base of
4