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Microsoft's historic agreement with GameStop: revenue sharing on digital profits

A few days ago the news of a major agreement between Microsoft and GameStop that initially seemed related to the provision of back-end software services such as Office 365 and the like; Today we find out, however, from the investment company DOMO Capital Management,that there is much more in the agreement between the two companies: a historic agreement that could make it even cheaper for the famous chain to sell digital consoles like Xbox Series S than those with a player.

Digital game sales have long outstripped physical ones, and if this translates into strong earnings for software companies and console manufacturers, it is a cause for strong concern from traditional stores that are seeing a discounted source of revenue.

The agreement signed between the two companies aims to find a solution to this problem: GameStop will receive a percentage of the earnings of any digital purchase (games, DLC, microtransactions, Game Pass subscriptions) made on the Xbox Store in the lifetime of all consoles sold by stores worldwide of the chain.

You read that when GameStop sells you a console, new or used,it will receive a percentage of any purchase you make on the Microsoft Store from then on. Even if you buy a console from them but then take a game on disk from another retailer (or on the second-hand market), any DLC and microtransaction you make for that game will provide earnings to GameStop.

So you may have understood why we defined this agreement as historic and epochal: it has never happened before that a retail chain participated in the digital sales profits of a gaming platform, much less such a large and present global chain.

If you wonder what Microsoft earns, obviously potentially much higher sales for their consoles and, as a result, many more people who will enter the Xbox ecosystem. It's obvious that GameStop will now aim to push Xbox sales much more than rival consoles, knowing that these will bring "automatic" gains that go beyond the sale of simple hardware; They might even end up advising their Xbox Series S customers more than any other console, either because the low price would allow them to sell more, or because being fully digital would earn them higher returns over time.

In short, Microsoft's tactic is to divest some of its profits in order to secure a powerful partner in the retail world. Will it be a winning tactic? We won't know until a few years from now, when we can start pulling the strings.