Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Forget a moat, its time for Gamestop to sell the castle.

|Includes: ATVI, GME, Microsoft Corporation (MSFT)

GameStop (NYSE:GME) needs a moat... In fact, Gamestop should go ahead and sell the entire castle. The videogame industry is moving in a new direction, and this company is positioned perfectly to be left in the dust. GameStop does not produce games, but rather serves as a third party distributor from physical retail locations. This company will face extreme pressure on revenue and margins from the first-party producers of the games which they sell.

Where will the money go?

Sales of video games are increasingly being made directly from developer to consumer. As developers realize that a third party distributor increases costs without increasing value, storefronts will become obsolete. The massive release of Starcraft 2 for Mac and PC will be available at Blizzard Entertainment's (NASDAQ:ATVI) website "" as well as at Gamestop locations.

Microsoft (NASDAQ:MSFT) now offers patches to its XBOX 360 console directly over the internet, without new hardware or third-party assistance. Supporters of Gamestop argue that each new generation of console will result in massive revenues, but remote patching has ensured that new consoles will be necessary with diminishing frequency. The used game market makes up half of GameStop's revenue, but digital downloads of new games eliminate the need for a physical game. This scenario is similar to the mp3, which eliminated the physical entity component of music.

To remain competitive, Gamestop must eliminate the overhead costs associated with storefront selling and move sales entirely over to their website. The cost reductions associated with this move would allow a few years of relevance, and increase margins.

Disclosure: This author does not own any of the stocks mentioned in this article.