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Will GameStop Be the Blockbuster or Netflix of Games?

GameStop has a lot working against it. Its very business model — selling video games and consoles — was put into question by the decline in video game sales we've seen through the economic downturn.

And the games the chain sells are threatened by free online alternatives, the range and number of which continue to explode. But now GameStop may have a second life — as a digital distribution platform like Netflix.

The question on the heels of Blockbuster's acquisition by DISH — will GameStop go the way of Netflix or Blockbuster? Wall Street expected a Blockbuster-type scenario, and the stock plummeted 20 percent over the past few years.

Gamestop store
Source: Gamestop
Gamestop store

But Janney Capital Markets analyst Tony Wible issued a report on Game Stop with a "Buy" on the stock, with 10 good reasons to buy Game Stop now as the company invests in new technology to become the go-to digital destination for game content.

Game Stop's best asset is its loyal user base: its loyalty program has signed up 8 million users since it's October debut, adding 250,000 users each week. This is the key to GameStop's future as a Netflix-style program: GameStop has fans' permission to market its content. And eventually, GameStop could deliver directly to fans. And since GameStop is gathering specific information on customers' likes and buying history, it can target individuals with customized deals. This could work like Netflix's recommendation engine.

And eventually GameStop could be *the* destination for gamers to forgo stores entirely. GameStop has a presence in downloadable content, PC downloads and streaming and console downloads and streaming. It seems perfectly positioned to become the equivalent of Amazon for these digital products.

The monthly video game numbers from NPD tell a consistent story: hard-core gamers continue to buy games, but everything but the top tier releases tend to suffer. And casual gamers just aren't willing to pay up for as many games as they used to when so many casual games are available for free, or a dollar or two, on their iPhone or iPad.

GameStop is all about the video game industry's sweet spot — it's not going for every family that plays Farmville. But if it can build a digital distribution platform that reaches the nation's hard core gamers, that's a huge business for what was once written-off as a brick-and-mortar chain.

Questions? Comments? MediaMoney@cnbc.com

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.