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GameStop sees digital sales exploding

Video game retailer is expecting a huge increase in digital sales over the next several years, according to analyst Michael Pachter.

Video game retailer GameStop expects its sales of digital games to skyrocket, according to Wedbush analyst Michael Pachter.

Citing information he gathered from GameStop's Investor Day on Friday, the analyst said the company expects to "grow its [digital] sales at a 50 percent compound annual growth rate" over the next several years. During the fiscal year ended January 31, GameStop generated $300 million in digital games revenue. The company expects that figure to grow to $1.5 billion in just four years, Pachter said today in a note to investors. GameStop expects the majority of its digital growth to come via "casual, social, and mobile game sales, along with point-of-sale activation cards."

GameStop logo

GameStop's growth in the digital space is integral to the company's survival. Although physical disc sales still account for the majority of game sales, research firm NPD Group said last month that digital content now accounts for about 40 percent of industry-wide revenue each month.

That acknowledgement followed a report from NPD in September that revealed digital sales of PC games outstripped disc sales of PC games during the first six months of 2010 by 3 million units.

But it's not just PCs. Strauss Zelnick, CEO of game developer Take-Two Interactive--which is heavily invested in console gaming--said in an interview with Bloomberg last year that digital sales accounted for "less than 15 percent" of his company's revenue. But Zelnick added that he expects the figure to grow to 40 percent in a few years.

GameStop still generates the majority of its revenue from physical sales, but as recent evidence has shown, digital content is very much the future of the gaming business. And luckily for the company, GameStop's management apparently has accepted that.

But it hasn't always been so keen to jump on the digital bandwagon. Last summer, Shawn Freeman, the company's digital business manager told IGN in an interview that although digital sales are growing quite rapidly, traditional physical media isn't going anywhere.

"We still see a lot of growth on that side, and will require, I still think, physical delivery for quite a while as that technology continues to outstrip advances in bandwidth in storage," Freeman said.