GameStop's Deal With Microsoft Gives It a Cut of Every Digital Game Sale

The deal GameStop (NYSE: GME) negotiated with Microsoft (NASDAQ: MSFT) last week is apparently better than many people thought.

While shares of the video game retailer got a big boost from the original announcement, which focused heavily on GameStop using the software giant's back-end solutions to better meet customer needs in the digital gaming era, largely unnoticed was a sentence saying both companies will "benefit from the customer acquisition and lifetime revenue value of each gamer brought into the Xbox ecosystem."

Young man playing video games online

Image source: Getty Images.

That apparently intrigued Domo Capital Management enough to dig further. According to website Ars Technica, the private equity firm spoke with GameStop directly, which confirmed the retailer "will receive a portion of the downstream revenue from any device we will bring into the Xbox ecosystem."

What that means is GameStop will get a cut of any digital game download, downloadable content, microtransaction, or paid subscription made through each digital gaming console it sells.

A new opportunity to participate

That's a significant development even if the actual percentage GameStop receives doesn't really amount to much, as some analysts suspect.

The video game retailer is now incentivized to sell Microsoft's all-digital consoles as well as those which still use physical media. It has also set itself up to receive a revenue stream from digital and online gaming that it was previously closed off from.

Although analysts don't GameStop will receive all that much money because Microsoft isn't incentivized to give away much money -- it would sell its consoles regardless of whether GameStop did or not -- it helps keep the retailer engaged and a part of the gaming community.

When the deal was announced, Microsoft said it viewed GameStop as an important component of its gaming ecosystem and it was "pleased to elevate our partnership." Now that looks to mean financially, as well as through back-office support.

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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Microsoft. The Motley Fool recommends GameStop and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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