Wednesday, October 20, 2021

Why Reddit helped GameStop catch people on Reddit – and now it’s taking back control

When Reddit closed a deal to run GameStop’s Game Informer magazine, many on the Internet wanted to know why. Given the fact that Time Inc and Meredith Corp, the two publishers with the highest magazine circulations in the country, had been eager to do the same deal, some readers suspected a possible antitrust violation.

The relationship between Reddit and GameStop is critical to the retailer. Last year, GameStop paid $7.5m to Reddit’s revenue in exchange for it acquiring and selling regular content, including game reviews and videos, to its over 110 million active users.

“At time of purchase, I fully understood that GameStop wanted to use the purchase to, first, sell additional products and services to our community, but also to improve the overall experience we have for Game Informer readers,” Arjun Gadir, Reddit’s head of publisher relations, told BuzzFeed. “Before publication of the first issue, our staff ran and reviewed over 70 commercial pages of Game Informer.”

Seeming to sidestep the issue entirely, Reddit’s Gadir continued: “We were also pleased to work with GameStop, a publisher that does an outstanding job building communities around their products and represents the very best in publishers who we hope to build upon in the future.”

But some users on Reddit wanted to know what GameStop was expecting for the deal. With that, the conversation ran dark – until Reddit founder Alexis Ohanian emerged from nowhere to explain the terms. “I’m very glad GameStop was able to agree on a fair deal and we look forward to seeing what they can bring to Reddit,” Ohanian wrote. “Revenue sharing for reddit is always our top priority, and helps feed the generous culture that people adore here.”

Yet what happened after the first issue was published is even more important for the future of GameStop: by the second issue, two powerful men at two major Wall Street firms disagreed with what GameStop’s Chief Operating Officer and General Counsel had said in a Reddit AMA.

As shown by the latest issue of Game Informer, GameStop can’t stand the fact that people are leaking their secrets to each other on Reddit

According to the tech news site Thinkmodo, Goldman Sachs and its equity research team released their own report that took a “neutral” rating on GameStop shares, because it was worried that the inventory-clearing problems in game titles was going to affect profitability. The report said the more demand a game has the more likely it is to be broken, leading to the flooding of stores, though GameStop chief financial officer Rob Lloyd told Reddit it was a “not realistic” assumption.

The securities firm cited confidential information about GameStop’s sales of Xbox One and Sony’s PlayStation 4, which caused GameStop to take a $103m write-down on “extra value” on its inventory of video games. It also drew attention to a tip of someone talking about GameStop on Reddit on the message board and disseminated the message to high-level management.

GameStop cut Wall Street’s forecast for earnings in its third quarter by $0.14 cents to $2.76, but doubled its forecast for revenue at a time when revenues have been weakening significantly.

Wells Fargo analyst Colin Sebastian downgraded the stock. “Competition and an uncertain competitive environment continue to weigh on GameStop’s organic [revenue] growth,” he said in a note. He said he saw the “whilst storm clouds gathering” around GameStop.

The email GameStop sent to Reddit was not available online, but it said: “We are actively monitoring GameFAQs to protect Game Informer users, period.” “Our lifeblood is our users,” the email said. “We will not be following the crowd.”

GameInformer’s newspaper edition still reported on Reddit, but GameStop said it wanted to “learn from Reddit’s advice, strategy and innovation”, and described the discussion “informative”. GameInformer closed its social media accounts last year.

Latest article