Gamestop Inc. (GME) stock has seen a valuation plunge in recent months.  Strong earnings and consistent growth do not have everybody convinced.  It's due to the most idealized repeated story about the video game industry today.  In ten years, they say, half of all video games will be downloaded.

What?

Based on what, exactly?

The PC download business has been around for 10 years.  Technology for downloading on the PC has been fairly consistent in that time.  PC gamers represent the most hardcore of all gamers.  Almost all PC gamers are well aware of the option to buy games online through Valve's Steam, RealArcade and BigFishGames among others, for example.

Yet, after ten years the PC download business has only managed to capture 17% of PC video game unit sales in late 2008, according to NPD.  That means five out of six PC gamers still purchase a physical product when they pay for a video game.  The 17% number likely primarily consists of inexpensive game downloads, and we are talking about PC gaming, which includes the most hardcore segment in video games.  We are not talking about the average consumer.

They say it will be like the music business, that there will be a dramatic transition from physical to digital.

What?

Songs costs $1 and people enjoy taking their music with them everywhere they go on small devices.  That's nothing like most of the video game business.  Moreover, most downloaded music is pirated music, not paid for music.  In addition, it begs to be repeated - there's an astronomical difference between a $1 product and a $60 product.  For $60 products, the consumer wants a physical package and is in no way bogged down by it.  In fact, consumers oftentimes pay more to get extravagant collector edition packaged products that contain the exact same game.

The logic can go on but many minds are made up.  Apparently, people will, en masse, eventually just exhibit a dramatic change in behavior and prefer $60 digital products, rather than $60 retail products.

What?

Disclosure: long GME