GameStop Corp. (GME)

Investor Day 2011

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Apr 1, 2011

Ladies and gentlemen, please welcome Dan DiMatteo, Executive Chairman of GameStop. Hey, good afternoon and thank you so much for attending our first hopefully annual Investor Day. I know your time is very, very valuable. So I hope at the end of the day today on your way back home, it was worth your time and it was a good experience to get to understand GameStop better. I'd like to introduce some members of our senior management, those who have not met already who are here with us today. Of course, you've already met Paul Raines, our CEO, but I'll ask other people to stand up. Tony Bartel, our President, who you'll hear from today Rob Lloyd is our EVP and CFO. You'll hear from Rob also way in the back. Mike Mahler is our EVP of International also way in the back. And that's the senior team and the rest of our senior management team, I'll ask everybody to just stand up, I won't introduce their titles, but they're here today. Mike De Zura, Mark Summey, Mike Hogan, Troy Crawford, Sean Freeman, Mike Buskey, as you can see we like Mike's, David Wilson, Steve Nicks, and this is the guy not the girl, Peter Walker, Mike Hodges, Bruce Culp, Kevin Weymerskirch, Jeff Donaldson, Chris Petrovich, Bob McKenzie. I might add Bob has worked with me now for 24 years. I'm fortunate for Bob. And Bob Poussaint, okay. Somebody asked me this morning, I thought it was a very good question. What are the key takeaways they should have post this conference? And it was such a good question, I went back and decided what I would respond to and try and do it briefly. First, I would have a takeaway that we do have a strategic plan that is a work in process, ever evolving and it's a dynamic blueprint for the next several years with the goal of reaching our ROIC goals that Rob has and will continue to outline for you again today. Next, we have a dynamic portfolio of stores that can be right sized for the market no matter how big or how small the market is without any penalty. And Paul will spend some more time discussing this opportunity. And we can expand the GameStop brand into digital gaming and already doing so as you saw at the store with our ability to sell console DLC. And Tony will delve into this in a lot more detail. And lastly, I think it's important that when you hear of digital gaming, you do not automatically assume that it's cannibalistic of what we sell. As a matter of fact, most digital gaming is actually expanding the market. Social casual gaming done on Facebook is exposing a lot of people to games that otherwise may not have played and these players may migrate and most people believe up to more immersive games. Console DLC is clearly expanding the console game and games console game business and quite incidentally is not part of the NPD numbers. So when you look at the NPD numbers, there's a decline of 6% or 7% year over year. Just remember it's not including any console DLC that is probably filling that gap, if not more so. Casual browser games give players short bursts of gaming that they can do remotely we participate in that category with Kongregate. PC games have been moving to a digital distribution model and now we are dead serious about gaining share here with the acquisition of Impulse and Tony will expand more on that later. And gaming through the cloud has a future and our SPAN team has been charged with expanding the GameStop brand into this space. One could argue that mobile gaming is cannibalizing handheld games, but hopefully the new Nintendo DS will reverse this trend. So in summary, we have a strategic plan for the future that is working. I am deeply involved on a full time basis with the management team the development of tactics and strategies for the future and endorse all of the initiatives that you will hear at this conference. Thank you very much for your time. And with that, I'll turn it over to Paul. Thanks, Dan, and welcome back, everybody. I hope you had a good morning. Hopefully, you enjoyed the time at The Rock and at our store. I know that our associates were very proud and excited to see you there, and I hope that you found that time valuable. We would like to get started on my remarks, but before I do that, we probably want to check-in on that full game download we were working on. So can I get the status of that full game download up here and see where we stand? Okay, 57.8% complete. Okay. Well, as a consumer, you just keep waiting, and we'll see when that's ready. But seriously, I would like to point out, hopefully, you got to buy some DLC in our store or see Brad Schleiser, who demoed how we buy DLC and how we sell DLC to customers because many of our investors and analysts have asked why, what do you bring to this in terms of DLC? And I hope you saw the discoverability and the ease of purchase. Keep in mind that for those DLC downloads because they are smaller files, we feel those are better suited for our existing bandwidth infrastructure and are right in our wheelhouse in terms of what we can sell gaming consumers. As bandwidth change, as consumer adoption rates change, we'll be there to sell them any digital product at a rate that the consumer defines and that the consumer is comfortable with. I think I'm obliged to show you the Safe Harbor slides. I'll let you absorb that. But moving into the presentation, in the fall of 2010, we commissioned the Rivel Research Group to execute a study of the investment community regarding GameStop and our perception in the market. Revel conducted multiple interviews of both the sell side and buy side community and as you might imagine, we received a lot of feedback. Many of you in this room responded to that survey. One thing I've learned is that there are lots of strong opinions about our future and what our strategy should be. Investors told us they would like to see more communication from us and it is also clear to us that as you learn more about our unique business model, you become more comfortable investing in our shares. The survey gave us some great insight into what investors believe GameStop has and should communicate and what our priorities need to be for you to consider us for investment. And I want to share some of those with you. We were asked to continue focusing on returning value to shareholders. And in the last 15 months, we have executed $779,000,000 of share in debt buybacks and our Board recently approved a $500,000,000 share and debt buyback authorization. We were also told to focus on consistent performance that investors are looking for consistent performance from us and from GameStop and to communicate that. And we believe that with record sales of $9,470,000,000 in 20.10 and EPS growth of 17.8%, we certainly answered that call for the year 2010 and you'll hear more about our guidance for this year and the future years. Execute a digital strategy, that came through loud and clear in your survey. You need to see that GameStop has a digital strategy for the future. While we reported to you last week on our earnings call $290,000,000 of digital sales in 2010 at a 61% growth rate, we We communicated that we expect similar growth rates in those businesses this year. And today, you will see a multichannel strategy that includes the recent acquisitions we've made as well as a business model to implement those acquisitions. Investors told us to focus on the pre owned business that is important and it's vital to our future. Record sales in 2010 of $2,470,000,000 We believe that the business is strong. We also believe we can grow it faster. You will hear today from Mike Hogan our strategy and our approaches of marketing and investments to leverage those investments to accelerate the growth in the pre owned business. We've heard frequently to slow store growth. We know that it's a concern on investors' minds. And in the survey that came through loud and clear. You're concerned about overbuilding and our mission is to continue to do the things that GameStop does well that are very unique. We've announced flat U. S. Store growth and rational international growth. But what you're going to see today is that while we continue to have very profitable new stores, we also have great opportunities to consolidate our existing stores to drive profitability using the 8,000,000 PowerUp Rewards customers and the data and the customer data we've received from them on spend. Lastly, loyalty initiative was called out by investors as a priority and we believe that we have invested heavily in the PowerUp Rewards program, a lot of success. You will see that that program is interwoven in everything we do. It becomes the launch vehicle for new businesses as well as a real estate methodology as well as a tremendous engine for driving loyalty and launching a new market share. So you'll get more details on that today. We've built today's presentations around these priorities and our strategy is tied directly to them. We have spent 2 years executing a strategic plan we developed based on the consumer and we are aligned as a team on that plan. You will see today that your priorities as investors are reflected in our thinking and form a significant part of that GameStop blueprint Dan referenced for the future. Today is all about helping you understand GME as a great investment. You see on this slide that GameStop has evolved through several phases of growth since its founding by Dick Fontaine and Dan DiMatteo in 1996. The company has made bold leaps forward throughout its history. And we have been on a journey since late 2008 on developing a plan for a changing landscape. Change is in our DNA. And as a pure play retailer, the knowledge of consumers' behavior and spending habits is our lifeblood. Since we compete with the largest retailers in the world every day, we just can't be good at video gaming, we have to be best in class. Our strategy that we're going to share with you today positions GameStop for sustainable long term success as the multichannel destination for gaming. So the strategy we're going to cover with you today has 5 foundational components. The first of those is to maximize brick and mortar stores. We will continue to maximize our existing brick and mortar footprint. Our new store performance has been and continues to be among the strongest in retail. We can consolidate stores to drive even greater productivity where appropriate using our loyalty customer data and can create significant value in our real estate portfolio going forward. Our pre owned business provides unique differentiation and our buy trade model is both a profit generator and a new market share driver at the same time. You saw today at the refurbishment operations center the type of competitive moats we have built around that business and you will hear about our strategy to reposition that business today. At 8,000,000 customers and counting, our PowerUp Rewards program is building personal relationships with game consumers. Our ability to leverage that relationship has implications for our market share growth, marketing spend, publisher relations and even real estate. Our digital approach is built on growing adjacent digital opportunities where we have installed base and competitive advantage. Saw some of that this morning in the demo of SPON, you will see how we can jump into small businesses like DLC and scale them based on consumer demand. We can also leverage new technologies like SPON streaming service to build new services for existing customers. Lastly, but very important, capital allocation is at the core of our efforts. We have studied retail history and have learned from others who have gone through a growth trajectory similar to ours. We have articulated during the last year a commitment to return on invested capital and have demonstrated discipline returning 97% of free cash flow to shareholders. We've spent a lot of time in the past 2 years building a market model for gaming, both physical and digital, console and non console. That model includes research from 50 public sources, publisher and manufacturer interviews and our own consumer insight work. Development of this model took us about 500 man hours over the last year and we continue to refine it quarterly. As you know, there are a lot of moving parts in the gaming forecast world. But the result of all that market modeling is the conventional wisdom around the shrinking U. S. Console physical market as measured by NDP is not representative of our market opportunity. We see close to a $70,000,000,000 global market that is growing to over $86,000,000,000 by 2014. That larger market includes a physical business that we expect to show flat to low single digit growth and a digital business that will grow in the console, PC and mobile space with a double digit compound annual growth rate. As you think about the company GameStop is becoming, we have a much larger target much larger market that we are targeting and our traditional strength and consumer relationships will allow us to reach significant share in that market. The fast growing digital markets are fragmented and lack the type of customer acquisition and relationship engine that we possess. As we have looked at those emerging segments, we believe we can grow sustainably and we'll share more of that with you. Going on to the brick and mortar piece of the strategy. Our new stores historically have had very high return rates, yielding an IRR of 45% in year 1 and going to 90% in year 3. We renew approximately 20% of our leases every year, giving us great flexibility and the average lease term remaining today is just over 2.5 years. The total investments in our stores of build out plus unleveraged inventory is only $200,000 and our new store returns continue to exceed pro form a by healthy levels. Our current portfolio today of stores is the result of a series of acquisitions, including Funko Land, Rhino and Electronics Boutique Stores, among others. That dynamic creates opportunities for consolidation of older mall stores with newer strip stores that leverage fixed cost at the receiving store with higher volume. Our PowerUp Rewards program gives us unique insight into where customers are shopping and allows us to provide incentives for customers to migrate to a transfer store when their original store closes. We also use PowerUp Rewards as a launch vehicle and a powerful weapon to drive market share on new titles as well as pre owned titles. And on the international front, we are focused on driving performance in the larger, more meaningful markets, while rationalizing costs and store footprint as appropriate. Now I think all of you know how the United States looks, and you may be wondering why I would be showing you maps and a high level view of our strategy. The truth is we get a lot of questions around how we manage growth in new stores, and I want to share with you a little bit of a new technology we've introduced based on our loyalty roll up of PowerUp Rewards. So that is a map of the continental United States. But have you seen what over 8,000,000 PowerUp reward members look like on that map? This is a screenshot from the new technology that we have for our real estate team. The black dots represent PowerUp Rewards members in the United States. We didn't include Puerto Rico and Hawaii, but believe me, they are well covered. The distribution of members matches our store footprint, although it looks like we may need to do some work in Montana or perhaps Idaho. The technology the team has developed takes our Power Up Rewards customer data and overlays it on a map with our existing store footprint and demographic data. From this data, we can see trade area distribution around the store, distances customers are traveling and even traffic patterns. When you drill down to a store level, you can even see how many customers in a neighborhood are shopping a distant mall store versus a closer strip store. I was recently disappointed to learn that I am the only PowerUp member on my cul de sac. But my kids have been tasked with fixing that deliverable going forward. When we look at tertiary markets that don't have GameStop stores, we can now see what percentage of the population are GameStop customers, what their annual spend is and even create a projection of what sales volume we would expect at a theoretical new location in that town. I think you'll agree that the integration of customer data from PowerUp Rewards with our real estate demographic is a very powerful tool and unique in retail. So, we want to give you a sense today of how we're using this new technology. Now historically, we're very cautious on this kind of thing for competitive reasons, but wanted to give you a good example. What you see here is a sectional map of Long Island, New York, around the town of Huntington. Anyone here lives in Huntington? Wow, okay. I thought we might get some. I didn't want to put Manhattan up there. It's too complicated for us. But the blue stars on this map are existing GameStop stores. And I put an arrow in there pointing at an old store that we had in a mall called Walt Whitman Mall right there in Huntington. Now that store was over 20 years old and it was part of the acquisition of EB Games by GameStop in 2007. That store was a high occupancy cost store that was flat comping and about average volume. The store had 681 PowerUp Rewards members, who you see in the screenshot represented as green dots. And I know that those green dots are a little light. I tried every way I could to change them, but I couldn't figure it out. I needed David Wilson and Peter Walker from Spon to help me figure that one out. The distribution pattern though, if you can see it, of the dots, gives you a sense of where the customers were that shopped that store and how their traffic patterns flowed. Now keep in mind, we've developed a fairly direct relationship with each and every one of those consumers. We host their game library online and we communicate with them regularly. We also know what kind of console they have at home, what types of games they play, and they may have likely participated in some of our consumer surveys. Now outside the mall in Huntington, there's a strip center and it has a GameStop store in it. That store opened in 2,008 with the intent of providing us flexibility in the renewal negotiation with that mall. Now that store is a positive comp store at average volume with above average store contribution. And the store has 993 PowerUp Rewards members, and they are represented by the purple dots, which I think you'll be able to see a little bit better. You see that the distribution has a lot of overlap with the prior mall store and is a little tighter, which indicates the Strip stores neighborhood penetration. So we closed the previous mall at Walt Whitman Mall. We closed that store in January and our transfer process is focused on communicating with the existing PowerUp members that we were closing one store, but providing them incentives to come shop us at that adjacent Strip store. We've been very successful at transferring those customers and you'll see today some examples of the types of marketing we do on that front. Perhaps you may have even received some of that marketing in your own PowerUp Rewards account. This pair of stores going to 1 is an example of a store consolidation that is becoming typical for us. Now let's move on to Kentucky, one of our more successful states. Anyone here from Kentucky? Got one. All right, great. What you see on the map is an area of Northern Kentucky near Louisville with blue stars again representing GameStop stores. But what we did in our technology for this one for this screenshot, we've chosen 2 stores, 1 in Lexington and 1 in Frankfort, Kentucky, and we've lit up their PowerUp members represented by the 2 different shades of green. And as you can see, these stores are drawing customers from significant distances. Don't know if you can tell the scale, but they're drawing customers from well over 15 to 20 miles in both cases. I would draw your attention to the top blue circle that represents a potential GameStop site that we're looking at in a strip center in the town of La Grange, Kentucky. So we drew that circle at 6 miles and inside the radius of inside the circle at a radius of 6 miles, there are 10 86 PowerUp Rewards members. 26% of those customers are currently shopping the nearest GameStop, which is 12 miles away. The rest of the customers are spread across a multitude of other stores. If you look now at the bottom circle, that site that circle is centered on a potential site in Lawrenceburg, Kentucky, And the 6 mile radius around that store includes 720 PowerUp Rewards members. Now if you drill down on the data, 21% of those members are driving 15 miles to our existing store in Frankfurt to the north and 7% of them are driving to all the way to Lexington over 25 miles away. Using this model, we can forecast what kind of volume we will generate at any potential location and can also make an estimate of incremental town or city. In most cases, these tertiary markets are served by big box competitors exclusively and our ability to gain share and build the customer base has historically been very successful. As you can see from the examples we showed you, we can create value through store consolidation. As we close the store, we leverage the fixed costs of the existing store to add more volume and expand share. The transfer process, which is difficult for many retailers, is aided by a unique data asset from PowerUp Rewards. We've had success in our transfer process during 20 10 at a record rate and we have found that a 40% to 60% sales transfer rate from a closing store can yield a 20% to 30% increase in profit contribution of the combined store base. We have also found that our market share can expand as we market our best customers with incremental offers to increase their frequency of shop with us. In the International business, you heard on our earnings call that we saw positive comps in the 4th quarter. We expect single digit sales and earnings growth in 2011 and the international team has worked to create a strong focus on performance in all of the markets we see the business evolving into 2 sets of markets. Maturing and high potential markets such as Canada, Australia, France, Italy and Germany, where we have significant operating profit and have the opportunity to leverage our market share leadership or penetrate new geographies. In underperforming markets where scale is smaller or performance is challenging, we will continue closing unprofitable stores and rationalizing costs through consolidation. The rollout of our U. S. Best practices is yielding benefits internationally. As we saw sales and margin increase in the pre owned business during 2010. Our strong inventory focus during 2010 had an impact with turns increasing 4.8% in 2010. And our efforts to integrate our merchandising efforts around the world resulted in the first ever exclusive global content opportunity as we demonstrated with the Halo Reach launch, where we had exclusive in game armor available at GameStop in 17 countries. We are increasingly a global partner for publishers as they plan their hot title releases and they see that as a significant benefit. On the digital front, we saw 100% plus e commerce growth in international markets as we launched websites in 5 countries. We are also pleased to announce that our customers in France can now shop in store for DLC, the first step in a global rollout of the unique technology GameStop developed for in store DLC sales. Mike Mahler, our Executive Vice President for International is with us today and will be joining us on the Q and A session later. You've heard us discuss the PowerUp Rewards program on various conference calls. Perhaps the unknown story on this program has been the velocity with which it has scaled. We launched 4 pilot markets on May 28 and only made the decision to roll the program nationally in August. Since that time, we have added over 8,000,000 members and continue to gain momentum. As we have discussed on our calls, we spent against this rollout in the Q3 and saw the benefits of that spend in the 4th quarter share growth and comp sales. Investors should understand that increasingly, we see the customer data asset that we have built through this program as the core of everything we do and that the value of that data can be leveraged to bring new services and products to customers and also to build out digital platforms. Our customers tell us they love the unique features and benefits of the program and you'll hear more about them later with Mike Hogan. Based on the success of the program, we believe we have a long way to go both in the United States and around the world in building the PowerUp membership. In our pre owned business, you'll hear today some details about our strategy for repositioning that business for sustained growth. The first step that we took early in this calendar year was to reorganize our executive team to provide greater focus for both digital console and pre owned initiatives. Mike Hogan, our longtime Chief Marketing Officer and developer of PowerUp Rewards, who's with us today, has been given the responsibility of the pre owned business. This move allows our senior merchandising leadership under the direction of longtime GameStop veteran, Bob McKenzie, who is also with us here today, to focus exclusively on new and digital DLC digital content properties with our publishers, allowing us to put our vast executive resources really to bear in a more intense way against key business units. We expect that the focus organizationally will drive significant changes in the way we invest in marketing and initiatives in our pre owned and new and DLC businesses. Our assortment in store does not reflect the differences that exist between market on platform mix and price point, and we have begun to remedy that with store specific pre owned assortment planning. We know that our pre owned business is an opening price point with a high value proposition, yet customer awareness is still low. We will invest in marketing to drive greater awareness and believe there is a lot of upside to those investments. Lastly and perhaps most important, the collective game libraries of our PowerUp Rewards members include over 90,000,000 games and we will continue to leverage that vast library in marketing. We announced close to a year ago that we set a long term target for increasing our return on invested capital. Our strategic thinking calls for us to look at investments, both brick and mortar and digital through the lens of ROIC and you'd have seen us execute on that. GameStop has bought back $579,000,000 of our shares in 15 months as well as $200,000,000 of debt. Our Board approved a $500,000,000 authorization on February 4 to be used for further share and debt buyback and we have $380,000,000 remaining in that authorization. Capital expenditures for 2011 will decline $30,000,000 or approximately 16% during 2011. This decline is reflective of our efforts to improve efficiency of capital deployment. Lastly, our free cash flow for 2011 is estimated at $430,000,000 up 10%. Our commitment to returning value to shareholders through a disciplined approach is serious and our actions during the last year demonstrate that. Rob Lloyd will share more details with you in his remarks. In concluding my remarks, I want to reinforce for you that the management team of GameStop that you met today saw in The Rockin' in the store, at breakfast and on stage today is aligned and serious about the future success of GameStop. We have spent a lot of time and resources developing a blueprint for success and although our category has had some negative sentiment in past, we believe there is significant top line growth for 2014. We also know that digital game businesses are emerging and GameStop is uniquely positioned to acquire customers and scale those businesses to real volume. Our customer relationships are stronger than ever and are exemplified by the dramatic growth we have seen in our PowerUp Rewards program. Operating earnings will grow over time and we expect to maintain the disciplined capital allocation targets we have set. Our targets are very clear and our strategy is well thought out and effective. I would like now to welcome Tony Bartel, our company President to the stage. Thanks, Paul. Good afternoon, everyone. It's been great to spend with many of you and get to know you better during the cocktail hour last night as well as the events of the morning and early afternoon. Today, we are very pleased to lay out our plan to lead in the digital gaming space. We have a very strong leadership position in the physical goods game market and we believe that we can leverage this strength to lead in the digital gaming world as well. Today, I'm going to share with you how we're going to do that. As mentioned earlier, we believe that there is a robust growing $80,000,000,000 games market, and we are excited to be participating in all segments of that market. We lead in the physical space, and I'm going to share with you today how we are going to lead in the digital market as well. We believe that our key opportunity to add value remains in the immersive game market. We believe that consumers want big, high fidelity games and they want them to be more mobile and accessible than ever. The good news is that we see a large multibillion dollar opportunity that is very complementary to our existing brick and mortar business, where we can help to lead the market so that we and our publishing partners can both see growth and make money. As you will hear today and as you've seen today, we are very focused on where we will lead in the digital space. And we have invested in these areas that are close in to our existing business. The good news is that these are multi $1,000,000,000 opportunities with strong growth exactly in the areas where we know how to make money. And finally, as we previously articulated, we will continue to grow for the next few years at a very strong growth rate, averaging 50% growth per year in our digital business to develop a very robust and relevant business. As Paul mentioned earlier, the digital business is already a very strong business with very strong growth potential. Regardless of what your assumptions are for the physical goods business, it is clear that the digital growth that we are planning on seeing over the next 4 years is very dramatic. We project that the digital games market will grow 15% per year over the next 4 years. And the largest growth segment is in the very close in space of console and handheld DLC and points cards. That is forecasted to grow at 24% per annum over the next 4 years. We already have a very large share of the PointsCard market and our launch last year into DLC will provide us with a great growth platform for years to come in this high growth category. I've talked with quite a few of you about this and you've asked a lot about our view of the digital universe. So now what I would like to do is take some time to share with you our model of that digital universe. As Paul mentioned, we've spoken to many different sources to understand where the digital category is today and more importantly, where it is going to go in the future. We categorize each digital channel by its relevancy to us as measured by its distance from our core business. Bubble represents the size today of each category and we also categorize it based on its segment growth as indicated by its CAGR over the next 4 years. The first category is closest in to our existing business and it consists of 4 segments: Digital Magazines, which are very small today, but are slated to go 3 to grow to $3,000,000,000 in 2014 the sale of DLC, which is about $1,000,000,000 business today slated to grow at 24% over the next 4 years e commerce around a $1,700,000,000 industry today slated to grow at 15% over the next 4 years. And finally, PC downloads, which is about a $700,000,000 business, again, all of these numbers are only in North America, slated to grow at 9% over the next 4 years. The next category as you move out from our core is that of online games. Online games is a $1,500,000,000 category and our market model suggests that that category is going to grow 10% per annum over the next 4 years. Then you have mobile that is a very fast growing segment. It's currently at $1,700,000,000 and it's slated to grow at 20% per annum over the next 4 years. And finally, you have the social business that we estimate is about $1,000,000,000 category today in North America and we see it growing at mid single digits for the next 4 years. The good news is that we have strategies against each of these categories. When you look at those strategies, we'll first start in those close in categories. We have Game Informer, over 5,000,000 subscriptions, is the 5th largest magazine in the U. S. And although these numbers are a little bit difficult to quantify, we believe that it is one of the largest, if not the largest, multichannel digital magazine in the nation as well. In DLC, I think you all experienced or at least most of you experienced in the store today the sell of DLC at retail, how we can aid discovery, how we can drive an effortless access to that DLC. In PC downloads, we announced yesterday and are going to talk more about our Impulse acquisition. So now we are in the PC download business in a much more meaningful way than what we have been in the past. In the online business, we acquired Kongregate last year. That is the leading portal of core gamers in browser based gaming, both monetized, both free to play and in an ad based model. We then evolved Kongregate into Kongregate Arcade to move into the mobile space, where we now have flash enabled. And finally, in the social space, we are a leading market share in many categories of Posa cards that are sold to support these social gains. And we're not going to talk a lot about social because we really believe that this is the area this is how we are going to attack that category over the next few years is to continue to sell Posa cards. Now what's most exciting to us is when you look at this close in category, what you see is a $4,000,000,000 category today that based on those growth rates that I'm giving you is going to move to a $10,000,000,000 category over the next 4 years. This is very close in and complementary to our existing business. So we know how to make money in this space, we know the consumers in this space and we know how to work with our publishing partners to make this a strong growth vehicle for GameStop's digital initiatives. A great example of a close in opportunity that we are optimizing is our DLC sales at retail. We have worked tirelessly with Microsoft and Sony to solve 2 customer issues, discoverability and access. Our systems are closely tied and integrated with both of their systems to provide a great customer experience that is as seamless as possible today. As you saw in the stores today, we have multiple ways of helping people to discover DLC. And the assisted sales process and the 500,000,000 visits that we see each year are a core part of that discoverability. The engine that our IT team has created to sell DLC in our stores and on our web has taken nearly 10 1,000 man hours to complete and it has the capability to distribute nearly any digital asset from nearly any source, far beyond just DLC for console games. We've also linked it into our PowerUp Rewards program, that we can now seamlessly deliver the top DLC or other digital assets to a digital locker for our PowerUp Rewards members so that they can get their DLC codes at the exact moment that they are live on either Xbox Live or PlayStation Network. And finally, we understand that one reason that people have purchased points is that some consumers either don't have credit cards or they're concerned to have them put on the web. So we now have a better alternative where we can where they can easily purchase the content that they want at the actual price with no breakage and with any form of currency that we accept, be that cash or credit or trade credit. Let me give you a great example of this. As many of you know, we recently had a very large launch of Black Ops First Strike, the map pack on Xbox Live. On that map pack, we actually attached digital content to 28% of the sales of Black Ops that we had during that 1st week. And to show you how powerful this additional currency is, 23% of the DLC that was purchased was purchased with trade credits. Now that's actually a higher percentage than our average of 17% that is typically funded with trade credits. So 17% of our overall business is funded with trade credits, 23% of the First Strike map pack. So you can see that that additional currency is one of the key reasons why people are coming to GameStop to access their DLC. Now that we've worked hard with our partners to gain the capability to digitally deliver DLC at the exact time it is live, we can now begin to work it into what we do best, execute the circle of life. You all received cards from Kyle and Joe today, I'm assuming you did, that showed the circle of life. And I think you saw how inbred the circle of life is into everything that we do in the stores. Executing the circle of life has driven our market share each year and we can now apply it to drive DLC as well. It starts with reservations, where we market the upcoming DLC in our stores and provide people with a compelling reason to purchase it. DLC launches are becoming extremely large and we will treat them like we do new product launches with GameStop exclusive content, trade incentives, artwork, trailers and PowerUp Rewards promotions. At launch, we'll either digitally distribute the content to your PowerUp Rewards digital locker if you pre ordered with us or we'll help you discover the content either in our store or online. As you saw today, there are numerous ways for us to aid in discovery, such as prompts at our POS, our cash registers, in our game guide stations and on our website as well as talking with our excellent associates. Finally, we allow people to use trade credit to purchase DLC and they're tied into our PowerUp Rewards program. Let me dimensionalize the size of the opportunity just in this one category for you. Based on our market model, now these are global numbers, I showed you North America earlier, these are global numbers. We estimate that in 2014, DLC will be a $6,300,000,000 category. So if we were able to just get 20% of that, which would be the lowest market share of anything that we sell today, but let's just say we only got 20% of the DLC market globally. That would be a $1,300,000,000 retail opportunity. Now let's say that we got our market share like we do on points cards today, which is 35%. So if we're able to have the same market share in DLC that we do on points cards today, that would be a $2,200,000,000 opportunity, again, only in DLC. And finally, we think that we have such a powerful system of discovery and access. Let's say we were able to leverage that and we were able to get 50 percent of the market. 50% of the market represents over a $3,000,000,000 retail category for GameStop just in DLC alone. We continue to work with our publishing partners to make this process even more friction free for the consumer. And we are excited about the growth that we already see in this category and definitely the growth that we will see in this category as we move forward. Next, I would like to discuss our movement into the PC download business. We see this as a large business with a good growth rate and one that we have admittedly not pursued as aggressively as we should have until today. This is a $700,000,000 business in North America on the way to $1,500,000,000 business in the U. S. Alone and we see it growing to a $3,100,000,000 business globally. We do a great job of creating the market for console games and PC games. And up to this point, we have not done a good job of translating that to digital distribution of PC games. All of that is about to change. Not only is this market experiencing growth, but it is a large market where we can take significant share. So today, I am very proud to announce our pending acquisition of Impulse. As I mentioned earlier, we are committed to getting the leadership and the technology to lead our efforts in the digital space and we have done both. Many of you have had the chance to meet Steve Nicks or at least some of you have and I hope most of you will be able to before the day is done. He came to us about 6 weeks ago from ZeniMax and id Software. Steve has rich experience not only in the development of games, but also in the creation and usage of digital delivery platforms. So with Steve's assistance and with Kres Petrovich leading us from our Digital Ventures Group, we found a company that has great technology that we can leverage. Impulse has 2 key components that are both very consumer friendly. 1st, it has a great download engine that has all of the necessary components such as a strong DRM, server authentication and auto update features. You can actually try this part of the service out today to go by going to impulsedriven.com as we currently sell over 1100 titles online today. 2nd, it has an evolving software development kit that provides great tools and analytics to aid developers. It has very strong community features such as leaderboards, chat and cloud storage. It also accommodates multiplayer and allows for maximum mobility through its account management features, allowing people to play from multiple devices, but only one at a time. Our first priority is to integrate Impulse with gamestop.com to enhance our current experience. We know that that experience is not optimized today and so we are going to move Impulse to bring a better consumer experience to gamestop.com. Then, like everything that we do, we will integrate it with PowerUp Rewards to reward our PC download customers for their purchases. The next step will be to leverage our publisher relationships to dramatically expand our available game library. And we will work our go big process that has led to significant market share gains in our frontline sales with exciting exclusive content, give customers a reason to come to GameStop and download your PC digital games. Finally, with the input of our publishing partners leveraging our strong relationships with them, we will drive our Reactor adoption to provide a rich gaming experience for our customers who want to download their PC games. We are very excited about the results that Steve is going to achieve with this latest acquisition. Next, I would like to discuss our e commerce roadmap. We announced during our earnings call that gamestop.com more than doubled for the full year and grew at 120% during the Q4. We are committed to retaining our position as the fastest growing website in the video game industry and we have a strong roadmap to ensure that we maintain our leadership position. The first thing that we need to do is make sure that given our rate of growth, we are proactively investing in our infrastructure to ensure that we are prepared to handle the continued increase in volume that we anticipate in 2011. We are also optimizing the site for mobile access and we will roll out a new mobile site in Q2 of this year. Our new e commerce team is led by Sean Freeman, and I'm sure most of you have to upgrade the product pages and the checkout process. And this has resulted in increased and increasing conversions. Finally, gamestop.com will benefit greatly from the digital initiatives that we are implementing as they are integrated into the site. As you can see, we have literally 1,000,000,000 of dollars and 1,000,000,000 of dollars of growth in these close in segments. It's digital revenue that is very complementary to our current business And we have plans in place, leaders in place and technology in place to capture these opportunities today and lead them in the future. Another growth area is that of online gaming. And we purchased Kongregate last year to begin to grow in this area. As expected, we are seeing strong traffic growth as we leverage our stores and our websites to drive customers to this site. We recently integrated PowerUp Rewards on the site to allow Kong users to access the rich benefits of our rewards program. This complements the already rich achievement system that Congregate has. We continue to monetize through both advertising revenue and through creds, our currency for microtransactions. In fact, our microtransaction revenue more than doubled in Q4 as we increased the number of microtransaction driven gains by more than threefold during the quarter. Our 13,000,000 users closely resemble our core user demographic And as mentioned on the earnings call, we are generating and delivered curated traffic as Kong customers that come from GameStop monetize at 12 times the rate of other customers. In 2011, you will see continued upgrades to Congregate. 1st, we will soon be integrated with Facebook Connect as well as be developing a congregate friend feed. We will also soon be launching a recommendation engine to improve game discovery, especially game discovery of those virtual goods driven games. Also, we are developing in house monetization expertise to work closely with our development partners in order to optimize monetization of virtual goods. We are also launching a business development function to identify and acquire the top producing virtual currency based games. Finally, we launched an Android app earlier in the quarter and we have seen literally hundreds of thousands of people who have downloaded this app. You will see us continue to evolve this app to other platforms as well as to other monetization methods in the months to come. Speaking of mobile, we have a very clear vision on how we want to lead in the mobile space. Today's market is highly fragmented and many developers that we talk to are struggling with the low price dilemma. Some have been able to rise above the $0.99 fray, but many are still looking for a better solution. We believe that we can provide 1. We believe that immersive games, which we are very familiar with, provide a great opportunity to monetize in the mobile arena and we are committed to making this happen. This market reminds us a lot of where we were with DLC 18 months ago. A lot of great content and growth potential, but with a lot of people struggling to discover and monetize the content. Our first step will be to bring more immersive games to Kongregate Arcade, where we will evolve our gaming offerings to more virtual goods based games in the mobile space. Then with the acquisition of SPAN that we announced yesterday, we will soon have the capability to bring true high def gaming to Internet connected PCs and tablets. 3rd, we will leverage our partnerships with the publishers to develop immersive games at a premium price point to the upcoming tablets. We are working closely with the OEMs as well as the component manufacturers and we believe that this fall's wave of tablets will be powerful enough to handle immersive native games. Finally, we will apply our buy sell trade model to tablets, selling a curated offering in our stores and taking advantage of the replacement cycle that will occur for many years to come. A key part of achieving our strategy of taking immersive gaming anytime, anywhere and on any device was to acquire a streaming game company. As we looked at the landscape, we chose SPON for 3 key reasons that clearly differentiate us from the rest of the competitors in this space. 1st, like everything else that we do, we are linking with this with PowerUp Rewards, so that people will be able to not only experience their gains in a nearly limitless fashion, but also enjoy the rich benefits of our PowerUp Rewards program. 2nd, we are implementing SPON with a clear business model that is very pro publisher. Our plan is to go to market in a way that is closely linked to the sale of physical games. So it drives profitability for both us and the publishers. By offering a subscription service to PowerUp Rewards members with the ability to play their GameStop purchase games on any Internet connected device, we enhance their gaming experience. Also, we will be offering a try before you buy service that allows our customers to easily experience gaming that will lead to greater product sales. Finally, the most exciting part of SPAN is that we have patented technology that David shared with you earlier this morning called console virtualization. Console virtualization allows us to stream any games that will run on a current gen console today with no porting required and no incremental investment on the part of the publisher. So we can literally offer thousands of games with no incremental publisher effort as compared to the small ported offerings of other competitors in this space. SPAN has great technology and great leaders as you saw today. And we will be bringing that technology to production with a targeted national launch in 2012. This year, you will see 2 private beta events. The first will validate our server model in a limited geographical setting. The second beta will prove our technology and our 2 consumer offerings in private beta with our PowerUp Rewards members. Finally, we are planning to roll this out nationally in 2012 with these two business models, a subscription service for PowerUp Rewards members and a try before you buy model. Clearly, we are excited about the consumer benefits this brings, the clearly monetizable models that we've chosen and the partnerships with the publishers that we are going to drive through this exciting program. As for the final point of executing our buy sell trade strategy on tablets, we believe that our retail and e commerce footprint provides an excellent platform for us corroborate the tablet as an immersive gaming device. As I said earlier, we are working with OEMs and component manufacturers to develop a gaming device that easily links with a controller for the ultimate and immersive gameplay on the go. We are also excited to work with our publishing partners to offer immersive games at a premium price point that can be downloaded to the next wave of tablets through our impulse download engine. Then as tablets continue to evolve, we will use our buy sell trade process to enable early adopters to afford the new technology and allow the value shopper to experience the richness of immersive gameplay on a tablet. In closing, the sum of all these actions places us in a great leadership position in the digital space as we now have in the physical space. Part of that growth will come from the acceleration of the digital market itself, But most of that growth will come from us emerging as a leader in several of the categories that are very close to our core. Over the next 4 years, we project that we will continue a rapid growth pace, averaging 50% growth per year in the digital space as our initiatives are introduced and are executed. By leveraging our relationships with our customers, our relationships with our publishers, power of rewards, our outstanding associates and our growing digital expertise and leadership, we are excited and confident about the digital road that lies ahead. Now it's my privilege to turn it over to Mike Hogan, who will update you on our pre owned business and shed some light on our powerful PowerUp Rewards program. Thank you. Thanks, Tony. I'd like to cover 2 topics briefly. First is, I want to give you an update on our pre owned business. And the second is, I'd like to give you an overview of PowerUp Rewards and the performance of that program to date. So you all know that pre owned is one of our most important businesses. In fact, in 2010, pre owned was 26% of our company sales globally and it was 45% of our total global profit. As you can see here, in 2,009, the pre owned business performed extremely well. As you can see, it grew 18% versus total company at 3%. In 2010, however, pre owned still grew, but at a much lower rate. In fact, it grew slightly less than our total business. Now, we are however, in spite of this, extremely optimistic about the growth potential for pre owned and here's a couple of reasons why we're so optimistic about the potential. Number 1, consumers really love pre owned and pre owned buyers give GameStop a much bigger share of their total business and I'll show you some data on that a little bit. Number 2, awareness and penetration of pre owned are relatively low. We have numerous means to grow both. This is not a mature category. This is a category with relatively low awareness, relatively low penetration and we can grow both. Number 3, we continue to run very successful promotions with strong publisher support and I'll show you a couple of examples of that as well. And finally, PowerUp Rewards is a new tool that's just become available to us and it's going to enable us to unlock many of these most compelling opportunities and I'll show you examples of that as well. So, we know consumers like pre owned games and they help create differentiation and preference for GameStop. Now the information I'm going to show you here in the next couple of page, this is some consumer research. This was done with GameStop shoppers and what we did is we compared the attitudes and the behaviors of people who have bought only new games at GameStop with people who have bought both new and pre owned games to see where they were different. On the left, what we're looking at is purchase intent. So this is basically the percentage of people saying, yes, I am extremely or very likely to shop GameStop in the future. Now, we get a 63% among people who bought only new products, which by the way is a very, very strong number compared to most retailers. But you can see that among people who bought both new and pre owned, it shoots all the way up to 92%. So very, very strong increase in purchase interest among people who have bought pre owned as well as new. On the right, we're looking at net promoter and net promoter essentially is the percent of consumers who would actively recommend GameStop to a friend. In this case, we get a 50% score with people who bought new only. And once again, what you find is that would put us already in the company of some pretty elite brands for the 50 net promoter. But once again, you can see when we talk to people who bought both new and used, that shoots all the way up to 86%. So it definitely increases customer satisfaction as well. Now the prior page then looked at consumer attitudes. Here what we're looking at is actual consumer behaviors. On the left is transactions. And what you can see here is that the people who buy both new and pre owned on average shop GameStop a lot more often, in fact, 70% more, 1.7 transactions for every one transaction of a person who buys only new. And you can see on the right here, they shopped GameStop 1.7x more, but they actually purchased 2x more. So, the total dollar spend is double. So the net of all this is we have very clear consumer evidence that consumers are who are engaged in both our new and our pre owned businesses are more favorable towards GameStop and this translated into more frequent purchasing and a lot more in total spend. So we know that the consumers who use our pre program really like it and buy more from us, But there are actually a lot of consumers who aren't familiar with their program. In fact, the majority of game buying consumers are not familiar with the program. What this shows is that only 37% of game buyers say that they're very familiar with GameStop's trade in program. That means we still have to get the word out to 63% of the game buying audience. So we did some testing on that. What we did is we took a large sample of consumers who fell into that group, that 63% who were not familiar with our trade program and we exposed them to a message about it. Think of it kind of like a little print ad we gave them, okay? So when those consumers did see that, 61% of them said that they found that to be extremely or very attractive and that they would definitely consider shopping GameStop as a result. So now we know also that most of the people who don't know about our trade program would like it if they did know about it. Net of all this is that today, less than half of our current customer base buys pre owned games from us, so big upside there and less than 20% of our customer base currently trades game with us. This represents a huge opportunity to increase the number of consumers who participate in these programs. It's literally millions of game buyers who could and would participate in these programs if they knew about them. And one thing we can do is we can do a better job with our value communication. One example is our trade values. Now, if you look at our base values on trade, if you will, our list values, they're actually considerably below what the average consumer gets. Now why is that? Well, first of all, a large percentage of our trades are done with consumers who are PowerUp Pro members and they get an automatic 10% bonus on their trade value. In addition, we run a lot of periodic promotions. The net of all this is that the average consumer gets 20% above the trade value. So for example, if the base trade value on a game in a store is $20 the average consumer is actually getting $24 This is why a lot of our competitors like to compare their trade values against our base trade values. Now, we also don't necessarily show the value on the sales side as well as we could. For example, PowerUp Pro members in addition to getting a 10% bonus on their trade in, they also get a 10% discount when they buy pre owned games. But we don't necessarily show that very well in the store. So one of the things we're doing is working to better communicate the value that we already offer. Here's an example of something that we're starting to put in store. You should have seen this in the Southlake store today. I think it had just been rolled out there last week. Now everybody here goes to the grocery store, right? And you all see the tag that says, here's the regular price, but if you remember or you have card, right, you get the special promotional price. This is essentially the same idea. What we're doing is we're illustrating the additional value that our Pro members get every day and you can see on a $54.99 gain that's very, very significant. I mentioned earlier that we do a lot of successful promotion with strong publisher support. On the left here, you see an ad. This is currently running right now. It's highlighting the new Nintendo 3DS. And what we're highlighting is our trading values. Now the product costs $2.49 but by trading in your old DS, depending upon what type of DS it is, you can get as much as $100 off of the price when you buy it at GameStop. Now we've worked hand in hand with Nintendo for months to put this together and they are supporting this and actually helping to fund the marketing program on this. On the right is another example. In this case, it's Warner and Mortal Kombat. Now we call these power trade promotions because what they do obviously is they give consumers an added value when they trade in towards a new title or a new piece of hardware and we do these almost every month in our stores. Okay. Now this page is going to take a little bit of explanation, but this is an example of how PowerUp Rewards is unlocking the growth potential for us, particularly in our pre owned business. Now we have what we call the circle of life and Tony showed this on a slide a few minutes ago. Consumers essentially do 4 things, right? They buy new games, they make reservations, they buy pre owned games and they trade in games for credit toward new games. These four things together comprise what we call the circle of life and so there's 4 elements to it. Now, we strongly suspected that people who were more deeply involved in the circle of life would buy more from us and ultimately be more profitable. But now with PowerUp Rewards, we can actually measure exactly how profitable each individual consumer is and we can reach out directly to that consumer to attempt to influence their behavior. So what we did is we went through and we calculated looking at purchase frequency and and dollars and margin of all different each different product category, and we calculated the average or excuse me, the annual value of a group of consumers. This chart represents an analysis with over 5,000,000 consumers, so a large piece of our PowerUp Rewards base. And then what we found is that consumers who do only one of these four elements in the circle of life, in this case only purchase new games, no pre owned, no reservations, no trades. They have an annual profitability of X dollars, okay? And then what we found is that when people do 2 of the 4, their annual profitability to GameStop actually doubles. And in fact, when they have 3, it doubles yet again to 4x. And when they have all 4, you guessed it, it doubles again. So this means that consumers who are engaged in all four pieces of the circle of life are worth 8x the profit of a consumer who does only 1. Now, it's interesting to know this as a fact, but what's really, really interesting is knowing exactly who each one of these people is, knowing of Rewards, so that we can influence them to move to that next step. Here's one simple example of how we might attempt to capture some of those opportunities. Okay, let's say I have a consumer who is a heavy spender, they've spent some threshold amount of dollars with us over the past, say, 6 months, but they've never traded in again. I can create a custom offer just for that consumer, something that I could never afford to do on a broad national basis, something like get a free game when you trade 1 in. Now, this offer is extremely hard to resist if you're the consumer, but what I know is that if they trade the first game in, it's very likely that they will be happy with the program and that they will continue trading therefore their profitability will increase. 2nd example, let's say I have a heavy spender who's never bought a pre owned game. I can create a custom offer for that consumer as well. Maybe it's $20 off your first pre owned game. Again, I could never afford this to do this broadly to all consumers, but if I targeted just those people who fell into that group, once again, it's a very hard offer to resist. And our history and experience shows that once consumers try that, they'll like it, they'll come back again and their profitability will increase. So kind of a quick overview of the opportunity in pre owned and some of the tools that we're using to capture it. In summary, our 2011 priorities, number 1, enhanced merchandising focus, really romancing the product in store and doing a great job of communicating it. Number 2, driving consumer awareness of our value proposition. This includes things like in store highlighting the value, but it also includes making that other 63% of game buyers who aren't aware of our trade program aware of it. Number 3, leveraging PowerUp Rewards. It's an amazingly powerful tool and we've really just begun to tap the power of that program. Number 4, new product offerings and Tony alluded to some of this a few minutes ago. We'll be testing a number of other products in our stores like tablet PCs, like Ipods and other items that may make sense for our buy sell trade value our buy sell trade model. I want to shift gears now and give you an overview of our loyalty program PowerUp Rewards. So as Paul mentioned, we completed national rollout after a successful test in the summer to 4,500 plus stores basically by the end of October or about 5 months ago. To date, we have over 8,000,000 members signed up, 65% of those people are Pro members to pay tier. That means that 65% of my membership paid $15 to join the program. And nearly 50% of all transactions at GameStop are now attached to a PowerUp member. So you can see we're very quickly getting to that threshold in terms of as a percent of our business what PowerUp represents. As you can see, our membership has continued to build consistently month by month. Now, I want to give you a little bit of detail about how PowerUp has impacted our business. And I'm going to start here looking at December, because December is typically kind of a lower share time of year for GameStop with a whole lot of competitive dealing going on. Number 1, we signed up 1,400,000 people just in the month of December. Number 2, the average PowerUp Rewards member in December spent $65 more per person than the average non member did during the same time period. They also shopped GameStop on average twice during the month of December. That's 2 purchases, not just 2 visits. And PowerUp Rewards helped us withstand some pretty heavy competitive dealing because our members bought more full revenue product at full price and they also bought a higher mix of higher margin product from us. Net of all this is GameStop in a traditionally weaker time of year actually gained 2 share points, 2 full share points in the month of December. Now, I know that a lot of loyalty programs like to talk about their total membership and that's great. But as you know, this often includes a lot of people who may be signed up a year, 2 years, 3 years ago and maybe haven't even been back in a store since. So active membership, engaged membership is important. Now we're extremely happy with our total membership numbers to date, but we're also very proud of how engaged our members are. And here are some examples of that. We know that our members shop more often. In fact, the average member has purchased more than 4 times since joining the program and on average, average member has been in the program a little over 100 days. We know that they spend more. In fact, the average PowerUp member spends more than 3x the dollar spend of the average non member. We know that they engage with this more. And one of the features I think you saw this morning at the store on the kiosk is the game library. Consumers can go to the website, they can load their games in, they can get recommendations and so on. We have millions of people engaging with that. In fact, we now have over 90,000,000 games that are now trackable in our game libraries. We know that these people visit us online more and this is a very important part of this multi channel experience we're creating. In fact, we're getting over 2,500,000 daily page views just on the power of rewards.com website. And they prefer our program to others. This consumer research that we did back in December showed that 70 3% of the people who were members of both our program and our competitors' program preferred PowerUp Awards. So, I mentioned a little bit earlier that I think we're just scratching the surface. We're just beginning to tap into the potential of PowerUp Rewards. It enables us to surgically target consumers based upon hundreds of different possible opportunities. Here is just a few examples. So if you start from the top left and go across, we can group people by genre preference. We can group them by platform ownership or by franchises they like, say, Halo players or Call of Duty players or Mario players or whatever, and we can give them relevant offers that appeal to their specific preferences. So they will only see things that we already know they like. We can separate our highest spenders if we want and we can give them special rewards, special offers. We can generate custom trade in offers for each individual consumer based upon the exact games they have in their library. So if we need more of a certain game and trade, we know who has it, we can appeal directly to that consumer with a high value offer. We can identify people who own a specific title we can identify people who own a specific title and we can offer them downloadable content for that exact title when it comes out. Most people can't keep track of calendar because there's hundreds and hundreds of these items out there, so knowing exactly what you have and exactly when it comes out. We can leverage Power Up Rewards to help launch some of our new digital businesses like a Kongregate or like a Spawn because we know there's a heavy overlap in terms of consumers who like GameStop and consumers who like Kongregate or consumers who like GameStop and consumers who would like SPAWN. And sorry, I'm working. Thank you. And we know that it plays a critical role in our store transfer program as well and Paul showed you a couple of slides on that earlier. So these are just some of the many opportunities that we're beginning to tap into. And here's one more example of how far rewards moving the needle. So this is something we did in December. Now back in December, we identified about 350 1,000 PowerUp Rewards members who had unused credits from prior trade. So they come into the store at some point in the past, they got a positive credit for trade, but didn't spend it right away and they kept it balanced in their account. All of these people we looked at the trade credits were more than 12 months old. So the people had them for a year, but they hadn't used them at all. So what we did is we e mailed them a custom message with their name, their exact trade balance on it and a selection of new games that they could purchase that were specifically recommended for them based upon what we knew about their preference and their purchase history. Now I'm sure you all know that a typical coupon offer, even a very rich one, would do well to get, say, 5 percent redemption. In this particular case, within 4 weeks, more than 60% of these consumers had come to a GameStop store, spent their trade credit and purchased new games. In fact, in total, this had drove over $20,000,000 in incremental sales. I also mentioned that PowerUp Rewards is very attractive to publishers. Now, there's a lot of reasons for that. Here's one example of one reason. If we can identify the exact consumers who purchase or who are going to purchase any given title. Now for most titles, believe it or not, as little as 1% of the total GameStop customer base typically represents between 25% 50% of all the units that that publisher will sell at GameStop on that title. Of course, the magic is not in the 1%, it's in knowing which 1% it is, Because if you can identify that on every given game, it might be 1% of consumers, but it's a different 1% of consumers and it's the ability to identify that exact list for any given title. What this allows us to do is again to surgically market to exactly the right people with no waste. It also represents a huge growth opportunity because even increasing that 1% by a small fraction represents huge proportionate growth in the total title. Here's a couple of examples of programs that we've done throughout the fall partnering with publishers around titles. The first one, we took a title and we offered double points for reservation and pickup. And in this particular case, our sales grew double digit. This is measured versus the prior version of that title, which launched the year before. Our share actually grew by 10 full share points and the reservation pickup, which was a specific incentive there, actually grew by 20 percentage points versus our average. 2nd example, we offered bonus points to consumers to come to a midnight launch event. So they came to a midnight event and picked up their game at that time. In this case, you can see once again we grew by 2 share points versus the prior version of that title and the pickup rate, the midnight pickup rate ran 15 points above the average. And then finally, we did another promotion where we offered points on trades for people who came in and brought in trades toward a specific title. And in this case, once again, our PowerUp members index 12 points higher than non members. So in each of these cases, we were able to demonstrate to ourselves and to our publisher partners that we're able to significantly move the needle by targeting PowerUp members. So the early results on that are very encouraging. We obviously plan to do a lot more of this in 2011. So as I said, we're just scratching the surface. Some of the ways we're going to continue to use PowerUp Rewards, store transfer and store new location. Paul showed you a little bit of that earlier. Targeted marketing of downloadable content based upon people's purchase history because we know what they have. Local events is an interesting one. For example, an iPhone app that allows customers to check-in at this midnight event or tournament and earn points for it. Launching our digital businesses like Kongregate or SPAWN or Impulse and much deeper segmentation. So for example, looking at recency and frequency and monetary value, there's lots and lots of opportunities that we have that we just even haven't had the time to get to yet. So priorities for 20 11, number 1, continued growth. Remember, as happy as we are with the numbers, we've only been national for less than 6 months. Number 2, deeper interaction. Our goal with PowerUp Rewards is not really to have the program be about the points. It's to create a highly differentiated experience for our members, something that's way beyond what you can ever get with points. For example, given early access to sales, let's say I'm planning a sale on the calendar anyway, why wouldn't I open it up a day or 2 early to my PowerUp Rewards members as a benefit? For example, engagement, giving them points for coming to a midnight event, coming to a tournament, what have you. And our members have even asked us already for achievements for PowerUp Rewards, something similar to what you would see on Xbox or other gaming platforms. Continued multi channel expansion, we recently went live with Kongregate and you can expect to see more of that. As Tony said, everything we're doing is going to be integrated into PowerUp Rewards. And then finally, deeper integration with publishers. You can expect to see PowerUp Rewards deeply integrated into the majority of our Up Rewards deeply integrated into the majority of our title promotions in 2011. Thanks very much. And now I'd like to turn it over to Rob Lloyd, our Chief Financial Officer. Thank you, afternoon. I hope it's been a productive day so far. I think the good news is we're a little bit ahead of schedule. So what I'm going to do is take the extra time to walk you through the exhibit list of the 10 ks. We can cover everything in there in detail. So what you've heard today clearly indicates we're in a digital world. And as evidence of that, Arvind sent me an e mail telling me that there's too much information going through these slides too fast. And can we get it can each of you get the presentation on a memory stick or get it sent to you? I sent a text to Matt who confirmed that, yes, each of you is going to get a stick with the presentation on there, so you don't need to worry about how quickly you're taking notes. I'm going to start by just doing a brief review of 2010. Most of this information was contained in our earnings release last week and discussed on our conference call, but I want to highlight a couple of points. Revenues of just under $9,500,000,000 set a new record for GameStop and were up 4.3% from 2,009. Operating earnings were very strong with 4% growth over 2,009 and our heavy investments in Power of Rewards, e commerce and digital kept us just shy of our record levels from 2,008. Even with the heavy investments, we equaled our 2,009 operating margins. Our cash flow from operations came in just under the $600,000,000 level that we guided to during 2010. The slight decrease from 2,009 resulted from the increase in inventory year over year to make sure that we had in stock positions in hardware and key titles. Capital expenditures of $202,000,000 included investments in our strategic initiatives and infrastructure and were less than our original guidance for 2010. Our free cash flow totaled $389,000,000 and has totaled over $1,500,000,000 in the last 4 years combined. As we mentioned on the call last week, our digital receipts grew 61% to 290,000,000 dollars Notice that I used the word digital receipts there. This figure represents what customers paid us for digital products. What we need to note is that some of our digital products such as DLC and point of sale activated cards yield GameStop a commission and we record that commission as revenue with 100% gross margin. For example, a $20 Poza card sold to a customer may yield a 4% commission under accounting rules that $4 is our revenue. We've spoken in terms of what digital gaming market are viewed, what consumers are paying for them, and we believe this will enable you to get a sense of the share that we're getting of the digital market. We also clarified how we classify our digital business, console digital and PC digital. Console digital grew 44% and includes DLC sold in our stores and on our website, digital currency which includes points and subscription cards for Xbox Live, PlayStation Network and WiiWare and digital currency can be in the form of DLC, Posa cards or inventory cards. Remember that back in 2,009, we already have leading market share on Xbox Live Points cards sold at retail. PC Digital digital grew 114% and includes revenues from congregate.com, PC digital downloads from our e commerce site digital currency in subscription or POSA card form for online gaming sites like World of Warcraft, Zynga and Perfect World and includes other cards like iTunes and Facebook. We have leading market share on many of these. PC Digital also includes revenues from ads placed on our digital sites. In the future, as mobile becomes a more significant component of our digital business, we'll add a category for that as well. So this may be the most exciting slide you see today. I wanted to spend just a couple of minutes telling you about the various governance and executive compensation changes we made at the end of the year. These changes were the result of months of work by our senior team, our HR team, expert consultants and our Board. While there may have been some confusion surrounding the reasons for these changes, all of these changes were made solely for GameStop to be more shareholder friendly. Our top 5 executives now have 50% of our long term incentive aside to performance measures and now have at least 50% of our overall compensation based on performance. We eliminated single trigger change in control provisions and automatic renewal provisions from our employment contract. Both of these changes should be viewed favorably by ISS. Our new 2011 incentive plan, which comes up for vote in June, incorporates other ISS favored practices such as requiring a shareholder approval to free price options and mandating minimum vesting periods. Our directors will now be elected by majority vote rather than the plurality vote of the past. We instituted clawback hedge anti hedging and stock ownership policies for senior management. Our top 5 executives are now required to hold between 3x and 5x their annual salaries in GameStop stock depending upon title. These changes helped reduce our risk level in the ISS grid to low in the Board structure and executive compensation areas. My request of you is to remember these shareholder friendly changes when you vote our proxy in June. Next, I'll briefly recap guidance for 2011. As we stated in the press release, we see revenues increasing 6% to 8% for both the Q1 and the full year. We expect comps to increase 4% to 6% for the Q1 and 3.5% to 5.5% for the full year, in part due to the continued strength of Connect and the launch of 3DS. EPS is expected to be between $0.53 $0.55 per share for Q1 and range from $2.82 to $2.92 for the full year. I'll take this opportunity to remind you that we're investing approximately $0.12 per share $26,000,000 in our strategic initiatives in 2011, including Impulse and SPON. You'll see in a moment how these investments will pay off in the future. We can increase free cash flow by 10% over the $389,000,000 we achieved in 2010 through our planned 16% reduction in CapEx in 2011. The planned CapEx of $170,000,000 includes continued investments in PowerUp Rewards, e commerce and digital, like Spawn and Impulse. We will spend 20% less on stores than we did in 2,009. Next, I'll discuss what we think the future looks like and what our multi channel efforts can mean to GameStop's financial future. All of what you've seen and heard today can be accomplished within the framework of the disciplined capital allocation about which we've been speaking for the past 8 months. As you know, our target for ROIC is 17% by 20 14, and we can achieve that through earnings growth, debt retirement and stock buyback. I know Paul said it earlier, but I want to remind you of the $579,000,000 in stock we bought back in the last 15 months and the $200,000,000 in debt we retired last October. In 2010, we returned 97% of our free cash flow to investors through the $380,000,000 we did in stock buybacks in 2010. That figure doesn't include debt buybacks. Our peers returned 78% of free cash flow and bought back 5% of their market cap. We've now bought back almost 18% of our outstanding shares. What you can expect from us in the future is more of the same disciplined capital deployment as we focus on growing our earnings and driving shareholder returns. We can drive earnings per share in the next 4 years by continuing to grow the PowerUp Rewards program, which will add to our leading market share. We will focus on our store closing process and transferring sales to and profits in nearby stores, which coupled with PowerUp Rewards and market share growth will lead to increases in same store sales. We can also drive EPS by making continued progress on multi channel strategies and growing digital revenues and finally, by continuing to return excess cash to shareholders. By making continued progress on multi channel strategies, we believe we can grow our digital revenues to 1,500,000,000 dollars as Tony shared with you earlier. You'll recall that Tony shared with you the projected breakdown of the $1,500,000,000 between console digital, PC digital and mobile. Project the console digital to grow between $300,000,000 $400,000,000 PC digital to grow to $900,000,000 to $1,000,000,000 and mobile to be $200,000,000 to $300,000,000 As you can see from this slide, the growth is expected to be steady between now and a CAGR of 50% over the 4 years. The lowest projected growth rate year over year is in excess of 35%. And lastly, the roadmap for our financials. We plan to grow revenues at a 6% plus CAGR to over $12,000,000,000 by 2014. We project that operating earnings can grow to between $825,000,000 $865,000,000 also at a 6% CAGR. We can grow net earnings at a slightly higher rate by eliminating our debt. We project that cash flow from operations can potentially exceed $750,000,000 in 2014. Most importantly, free cash flow can approach $600,000,000 in 2014 with a growth at a CAGR of over 10% as we grow earnings and control our capital expenditures. We project that free cash flow over the next 4 years can total $2,000,000,000 33 percent more than the $1,500,000,000 in the last 4 years. Achieving this growth in the next 4 years will demonstrate that the investments we made in 2010 and will continue to make in 2011 have a very strong payoff in earnings and in shareholder returns. In summary, as we've shown you today, GameStop has a strong growing future and is a compelling investment today. Thank you for your time today. We'll start the Q and A session as soon as the rest of the team joins me on stage. In the meantime, let's take one last look at how that full game download is going. 77.7%. I think we started it a little bit before 8 this morning. We could probably turn off full name download. I think you got the message. What we'll do, we'll go to about 230 and then potentially, we can get you guys on the buses and so forth a little faster. So we'll do some Q and A. I think everyone knows Mike Mahler has joined us, our EVP of International Business. So maybe we'll get started. Arvind? Thanks for the investor today. First question, The 2014 sales numbers of $12,000,000,000 plus and the $1,500,000,000 in digital. Just want to understand that better. You said that's the digital receipt. How much of that is actually going to go through the top line? And also just what are the implicit margins assumed for digital? Are you guys going to be going to disclose that to get to the operating income levels that you guys are talking about? So just around that, if you could build it up a little bit? Thanks. Rob, you want to take that? Sure. I think we're not inclined to disclose what we think the actual GAAP revenue would be into that $1,500,000,000 at this point because there's a lot of moving parts within that. I think what you can think about in terms of your model is that the overall margin on digital will be new software like. Okay. Arvind took it easy on us with only 2 usually on the conference call. It's 3 to 4. Thank you, Arvind, for that. Yes, sir. Can you talk about net store closures a little bit or what's embedded in the guidance numbers? I mean, when you look out 5 years, are you talking about dozens of store closures, 100 on a net basis? How do you dozens of store closures, 100 on a net basis? How do you look at that? Yes. Let me start that off and then I'll let Rob talk about maybe the model. The point on store closures is not that we see a tremendous need to close a ton of stores. Indeed, if you look at our comp numbers at Holiday, they're pretty strong and our real estate performance continues to be consistent with previous years on new stores. What is interesting though is that as the consumer migrates to more digital businesses, we have an opportunity to bring those sales into less stores if there is an overlap. And I think the challenge in the past was what that overlap, how you effective you could be with a transfer if you're closing them all and move into a strip that's adjacent. Today with PowerUp, we're finding that we're far more effective than we've ever been. So that presents opportunities. I don't think we will be we're going out there looking at a model that says what the store closures would be. I think the net zero footage for 2011 is a pretty good target. As far as future years, Rob, anything you want to add to that? Yes. I think what's built into that model is kind of a mix between this the 200 store closures and what we're doing in 2011 and the it's been about 100 to 140 a year that we've closed before that. Our focus on the store closing process as part of how we can use PowerUp is evolving. And so there's not a lot of emphasis on that yet built into the model. Yes, sir. I wonder if you could talk a little bit about margin on the business side. It sounds like you're going to be leaning on the Circle of Life and the trade ins as an incentive to increase the whole business. So number 1, I'm wondering if any of the recent margin erosion is a result of some of those benefit programs, the 10% or the 20% benefits for members and whether over the long haul is that basically the piggy bank you're going to be hitting in order to build the other segments of the business? Maybe we'll let Rob talk about rate and Mike can talk about the future strategy. I would say that as we disclosed on our call, we had a little more promotional holiday this year around rate. We saw improvements on rate internationally. But I would say that the future of the program is that we're treating all of the businesses as a portfolio. So you got a digital business and increasingly they're intertwined. That circle of life implies also there's going to be some digital activity going on. So I'm not sure you can jump to the conclusion that used will be used that way. But Rob and Mike, I don't know if you want to add anything to that in terms of what the strategy is? Yes. I think what you can expect from the used margin in 2011 is that it will return to the more normal rate that was reflected before Q4. So we were promotional in Q4 as we've talked about. I think it will go back more to normal. And then I think Mike can talk a little bit about what we're going to do with some of these programs. Sure. The only thing I would add to that is it would be a mistake to conclude that we're going to grow our pre owned business through incremental promotions. We're not looking to get more promotional than we are. In fact, I think one of the things you can see in the slides is that we think it's a huge base of untapped opportunity out there. There are a lot of consumers that we could bring into these programs that we haven't yet as opposed to just looking at heavier and heavier promotion against the existing base. Yes, Anthony. At this point, we're pretty far along in the current generation of video games, the current cycle. I mean, is there any visibility in terms of when we get the, I guess, PlayStation 4, Wii 2, Xbox 720? And is that built into your long term to 2014 guidance at this point? The only thing I will say and then probably Tony or Rob can give you a little bit of what we're assuming. But certainly, we don't hear a lot about next generation consoles. The odd rumor is out there. I think what we hear a lot from publishers is current consoles have tremendous capacity that is still underutilized. In fact, we're engaged right now with Sony on developing an educational program for our associates and consumers to teach them how great the PS3 is and how much more it can do. As far as other pieces, Tony? Yes. I'm not hearing anything out there that is saying that when the timing of those are going to hit and we're currently not prepared to articulate where we put that in our margin or I'm sorry, in our market model. But I will say that what we've seen is this is very unique and that we've kind of had a, I guess, a console and a half, if you will, with the move and the connect. It's really breathe life into the console like we haven't seen in previous generations of consoles. And so when you look at the Move technology and see how untapped that is today by the existing games, you see that there's a lot of potential ahead, same thing with Connect. So I think as people begin to really leverage power of these new technologies, you're going to see continued console growth as well. Not opposed to a new console, by the way. We'll go on record with that. Colin? Great. A couple of questions on the digital initiatives. The first one, maybe a clarification on the tablet device on the go. Is that something you're working directly with OEMs for a GameStop branded device? Or is this broadly speaking, you'll sell tablet gaming devices in your stores? And then secondly, perhaps on televisions, rapid increase in Internet connected TVs, do you see the potential for an app store there branded by Kongregate or GameStop to be integrated in your digital offerings? Thanks. Yes. Tony, why don't you start and I'll add anything. Sure. In terms of the tablets, we're looking at both of those options. There's obviously a lot of people that are making tablets these days. We're really spending a lot of time with the component manufacturers to understand where technology is coming. And so if we feel like we can get great components that will be a phenomenal gaming device and we can do that without building the tablet ourselves and we're more than happy to go that direction and we'll attach a controller to it via Bluetooth and we'll go on. If however, we feel like we can do a better job of creating a tablet, then we'll go ahead and do that as well. So right now, we're working down both paths and we'll see what the best tablet is and so we're open to both of those. TVs? Yes. In terms of TVs, I see basically if you take out tablets and you put in Internet enabled TVs in there, it really works very much the same. I mean, what we see with TVs, what you're not going to see, Spon do, you're not going to see us come out with a mini console, if you will, because we really think that Internet enabled TVs are going to become very powerful indefinitely within the next 12 months. And that decoding process and whole process that David walked us through earlier this morning, that there's enough power in the TVs that we see coming down the pike on the Internet enabled TVs that will allow us to execute this strategy. Not sure what the storage devices will be on those machines or on those TVs, But definitely from a congregate standpoint and a streaming standpoint, both of those will work very, very well in an Internet enabled TV environment as well. And one thing about tablets, I hope it doesn't get missed is if you watched if you could see Peter back there when he was throwing those grenades today, part of the technology SPAN brings us is emulation of controllers. So they had an Xbox controller plugged into a PC. I've seen them play with PS3 controllers, play Xbox games. You could have put a private label GameStop controller. Their software emulates the environment for that controller. So part of this tablet exercise is also how does GameStop ramp up a private label controller that you could be using on an airplane with a tablet to play an immersive game? Because the controller, if you've played a lot of games on tablets, it's difficult to play some action games with the lack of a controller. So that controller is a big piece of their technology that I think they would argue shouldn't be overlooked. Yes. Tony? Thanks, guys. Thanks for having us here today. Could you talk a little bit about the content coming for the streaming business? Will this come from all the publishers? Do you have any preliminary feedback from them? Or is there any pushback? Are they all planning on participating? And maybe the timing of the releases relative to the console side of the product? And then, you talked a little bit about some proprietary content coming. Would that be via your publishing partners? Or is that something you plan to do internally at some point in time? Wow, you asked that's a lot. I'll let Tony answer that. But first thing I would say is, Tony and I had calls with publishers and manufacturers yesterday. And generally, I would say that everyone was well received in terms of the opportunity for us to get involved and make that pie bigger. I think beyond that is going to be tough for us to find at this point, Tony, fair to say? Yes. We're obviously, we just announced this yesterday. We have not had a lot of those conversations. We've got some slated for a West Coast swing in later April. So we'll be bringing this proposition forward. Remember that the streaming technology will not go national until 2012. So there's quite a bit of time between now and then that you're really going to we're going to be perfecting the technology as well as working out all of those relationships. But I will say this, we have been very careful and in the way that you would expect us to be as a good retail partner with the publishers, we've been very careful to develop a model that monetizes for us, monetizes for them and is pro publisher. And so it's really going to be focused on making us money and making them money and providing a great consumer experience. And in terms of proprietary content, I think I talked about are you referencing where I talked about DLC having unique content with DLC? Yes, it's going to be very much what I'm referencing is like our go big campaigns. What you see is, for instance, in Mortal Kombat, it's the scorpion skin that you have or we've talked about other pieces. They make specific content for us in those go big promotions. So as we begin to execute our go big marketing model on DLC launches and begin to treat these like what they are, many game launches, you are going to see some of the DLC, not all of the DLC, but the larger pieces have a reason to come to GameStop to pick up that DLC. So that's what I'm referencing. And don't miss the I mean, if I look back on the history of DLC, we talk a lot internally about this whole immersive piece with Swan, feeling a lot like the early days of DLC 2 years ago. And Bob McKenzie is here in the audience, our CFO of Merchandising and our CIO, Jeff Donaldson, and Tony and I, I'll bet, what, Bob, 50 meetings on the West Coast before we got someone to even talk about DLC 2 years ago. And so never don't underestimate our power of building a market. We can take a small idea and we can scale it. And what happens is I think when publishers see the relationships we have with game consumers and our ability to bring an idea to market, and I don't know if we covered it today. Maybe Dan, do you want to talk about the origins of DLC and came from storage? No, but I think I might just add that the Spon guys have been around now for over 6 years and they've had a lot of conversations with the publishers about being able to swing console games without them having to do any modification to those games to other devices. And that's why when Paul and Tony talked to a couple of publishers yesterday about the event, they were very familiar with SPON, very familiar with Peter and these guys and what they're trying to do and therefore very receptive to us looking together to build a model that we can both profit on. Yes, David shared with you the history of that HD 720. Remember, they were merch marketing that product into publishers and studios to use it as a testing vehicle when they're developing games, they would be swinging games back and forth. So those relationships exist. And I think that it's early as Tony says, but we have a lot of confidence in our ability to build business models around those emerging gaming categories. Yes, Michael? Yes. I'll get us started and maybe Rob will talk a little bit about our assumptions. The market model I put up there for gaming showed you pretty significant growth on the digital side, but on the physical global market, we showed low single digit growth, which is what our model shows us. And that's based on these emerging motion controlled devices as well as share gains from us based on what we're seeing with PowerUp. So we have some confidence around that. I think the big message for us in our market modeling is that, no, the physical business is not going to go away overnight. It's got very healthy installed base and pretty significant opportunities to grow, lower percentage growth, but certainly that is a large business that's going to continue to expand. And Rob, I don't know anything else you want to say about assumptions you've made on physical growth? Yes. I think within the market model, we expect that the physical side of things is going to be flat to slightly down over the course of the next 4 years. And that's a significantly different story than is assumed in many places out there that the decline is going to be much more dramatic than that. Within our stores, we expect that we're going to pick up market share along the way through PowerUp Rewards and the kinds of things that we can do in store to drive digital as well. So all in all, it comes to that 6% CAGR that you saw on the revenue chart. Yes. Dan said something earlier that's important that the digital businesses are not are perceived as cannibalistic, but not necessarily really are. And I think what's lost often is in the fervor to talk about the digital. The reason we're talking about digital businesses is because consumers are telling us they would like that value added. We've got these 8,000,000 PowerUp members, several million of whom are large spenders in gaming and we survey them frequently and they tell us, hey, we'd love to have some value added services. We'd love to be able to stream. We'd love to download PC or phones, etcetera. We're trying to add services to those consumers, but on their chronology. And I think that's where we're different. We're focused on the consumer chronology to digital, not build a technology and hope they come. We want a business model. We're founded that way. Our origins are retail, but build a business based on the consumer. And the consumer is going to decide when digital and when physical and how they migrate. Indeed, we're seeing hybrid behavior from a lot of consumers. So I don't think that will change. Of the $2,000,000,000 you forecast in cumulative free cash flow over the next 4 years, how much are you assuming is going to be used for share repurchase? Just trying to back into your 17% ROIC target, how much of that is through growth in the actual business versus reduction in capital base? Yes. I don't know that I want to get into exactly what the breakdown is between earnings and share buybacks that will help the ROIC grow to the 17%, but clearly both are a key component. So we understand that growth alone in earnings will not get us there. There has to be a return of cash to shareholders involved in that as well. Two questions. You talked about 2 beta for streaming and 2012 launch. At what point do you have to have the agreements in place with the publishers in that scheme of thing? And when can you talk about it is the first question? And the second question is, can you elaborate on the buy sell trade model for tablets? Will this be just 1 or 2 tablets? Is this going to be a more generic or broad concept? What are you thinking there? Sure. I'll take those questions. We haven't set a timeline, again, recent acquisition and we're talking with all the publishers. But I would anticipate that later this year, probably around Q3, we would definitely want to have a lot of those negotiations worked out and conversations worked out with the publishing community. And again, like was stated earlier, this is not an unknown device to several of our publishers who use it today in their development cycles. As to and your second question again had to do with? Biociltrate. Sell trade. Buy sell trade. Yes. We are going to have a curated offering definitely of buy sell trades because obviously with the footprint of our stores, you're not going to be able offer the full cadre of all of the tablets that are coming out. So we'll have a very curated offering of tablets in our stores. In terms of the acceptance of the rest for currency, that's something that we'll look at what marketplaces we have and what we can manage. Obviously, we'd like to go as broad as we can and we'll probably only be limited by kind of the selection that we can offer. But clearly with our e commerce business that is growing very, very quickly, we have an unlimited amount of space in our e commerce site. So most likely what you'll see is a very broad buyback plan and a very curated offering in the stores. Yes. The point on buy sell trade to keep in mind and one of the reasons we wanted you to go to the refurb operation center today for a lot of competitors, implementing a buy sell trade around the new technology can be fairly complex, a lot of moving parts. You have to price it right, you have to do warranty coverage, then you have to liquidate all that inventory, then you have to figure out how to stay ahead of it. What you saw today at the Rock is that those kinds of things are not that difficult for us. We're in the business of absorbing new technology, reverse engineering it, breaking it down and finding a way to repair it and distribute it either in our stores or through 3rd channels. So I think when Tony talks about building that curated offering, consider that at the same time, we have a team back in that manufacturing facility, which is what it is. It's a high-tech manufacturing facility who can and Bruce Culp, our Senior VP of Refurbishment and Supply Chain will probably kill me for saying it, but I have a lot of confidence that team can reverse engineer a lot more products than what you saw there today. So we bring that advantage to this. It gives us a lot of confidence. Back to the original the first part of your question about the publishers and needing their permission in order to launch a service. I don't think that's going to be a problem and it may not even be necessary at the get go. Because however, if we do use it as a try before you buy model, then what we're doing is actually enhancing the sales of console games. And also if we allow our PowerUp Rewards members to use it to sling games to tablets and to Internet enabled devices, So games that they already own, that will be viewed as the publisher as an enhancement to the sale of box product. So we don't have to look at this. I'd like Netflix has to look at gaining permission to get content. Now, if we take it to yet a different model, which would be potentially a subscription of video games backlist, etcetera. Yes, we would need deep relationships and commitments and agreements with the publishers to do something like that. But at the get go, it most likely will either not need them or will be very, very easy to get. Yes, sir. I just want to I also have 2 questions. One, regarding the streaming. Is it your intention to allow that service to be available only for consumers who bought the title at GameStop or regardless of where they bought it, which you can have pluses and minuses both ways. The second question, unrelated is, as your e commerce business grows, especially with the circle of life maybe driving a lot more e commerce sales, does that do anything to the economics of the store base you open up for the brick and mortar stores in an adverse way? Yes. Maybe, Tony, you want to talk about the because that's important point you made on the power up, but it's a very key point for our strategy. You wanted me to address the The customers streaming only to customers who are power up. Yes, absolutely. In terms of the model as we have it today, it would be a GameStop purchase by a PowerUp Rewards member. We may evolve that to the entire catalog that they have. But as it currently is slated today, it would be driving that purchase at the store and then we would have that available for streaming to the customer. Now, we may evolve that because again, it's still very pro publisher if they have purchased a game. Part of the problem is we are not we may not be able to verify that they've actually purchased a game that they put into their library if they haven't purchased it from us. So we'd have to deal with that issue. But right now, the way that it's slated is, if they buy it from GameStop, very pro publisher. Do you want to add anything to that? Yes. Let me add one on that. And the other thing is, is there's we talked about this at our lunch table. There's plenty of market with PowerUp members. I mean, don't perceive that somehow we're limiting. I mean, remember, these are 8,000,000 of the heaviest game spenders on the planet. There's plenty of market there. And candidly, if someone wants to participate in a service that we offer and they're not a PowerUp member, we can make them a PowerUp member pretty quick. So the e com question? Yes. In terms of the e commerce question, I mean, we actually see very positive economic response in store. 1 of the largest growth areas is for people purchasing online and then picking up in store. And what we see is our associates, as you saw today, are phenomenal suggest to sell. So they'll go to the web, they will purchase online and 2 things. 1, it allows for very easy utilization of Circle of Life because then when they go to the store, they could take in their trades and we don't have this complexity of people trying to get trade currency and sending things over the web and so forth. So it's a great way that actually accentuates the economics of the store. 2nd, our sales associates are really good and what we see is we go in, we see them go in, the associates upsell them significantly once they get to the store. The one of the interesting things about hold online, pickup in store and some of these multichannel initiatives, remember that because we have a small store, our footprint is a very neighborhood footprint, very small trade area. If you remember that map from Long Island, it's a tight little trade area. Our competitors are dealing with 10, 15, 25 mile trade areas. So the pickup in store business for us has tremendous potential because we're near everybody's home. We have a store somewhere near. And if our team can link up on the online and physical nature, it's a really highly productive event. So yes, sir. Quick question for David. What do you expect to happen to inventory levels here in the next quarter and for the year? And I just also wanted to confirm, is used games going to grow this year? First on the inventory levels, we did have higher inventory levels at the end of the year than we had the year before. We had a number of out of stock positions on hardware the end of 2009, it was very difficult to keep many of the systems in stock. And so coming into 2011, we were much better able to make sure that we were in stock on those systems and able to meet our customers' expectations in terms of coming in and being able to buy something. And I think that showed in the results for the Q4. On a go forward basis, obviously, we're focused to make sure that we've got inventory right sized. And I think our merchandising guys that are here in the room can tell you that some days they don't want to walk by my office because I'm harassing them to make sure that we've got the right amount of inventory. Your other question was? I'm not prepared to answer that at this moment. Pre owned growth. Yes. We've got revenues targeted to grow between 6% 8% for the year. I think that you can expect that if you widen that range a little bit, you'll get the results of where we expect each of the 4 categories that we report publicly. Yes, sir. I think in the past, Paul, you implied that your gross margins on digital DLC sales are a bit below what you earn on new software sales. It seems to me that the value you add to publishers is actually higher for digital DLC. Obviously, the margins for the publishers are higher. Would you expect over time for your gross margins on that segment be higher than what you earn in the new software sales? I think and I'll let Tony answer this for Rob. I think what we said is that margins are software like. And as far as what we add and don't add, etcetera, it's a moving landscape. We've been dedicated to growing that business and we want to get to launching it and bring it into the circle of life. That's why you're seeing the dramatic growth we're seeing in it because it's now becoming part of that buy sell trade ecosystem. But as far as what we expect in the future, I don't really have anything I want to comment on what could happen. I don't know if you guys have anything you want to add on that? Yes. The only thing that I would add, 2 things. 1, remember, we don't have any inventory carrying costs on that, obviously. So it's very profitable from that standpoint. But as we add value in this space, I mean, we it was a hard it was a long, hard effort to get DLC into our stores. Now what I think is happening is the tables are turning. People are going, oh my god, this is a fast growing market as we've gotten in and driven discovery. So I think what you're going to see is as we show that we add value in here, I do believe that our margins will strengthen. But like Paul said, we do expect that we'll have software like margins in our digital category overall. The digital business is interesting. It's a lot of moving parts. We find even our content providers don't fully understand what their costs are. And for example, if you look at new titles, it used to be we used to say that when you talk to EA or Activision, when a title launches, the development group would disband. Today, they're staying together building more and more content. And indeed, at launch, you already know that there's some DLC coming. That's been a fundamental change for publishers. And I think that has to work its way through the system to understand where the model can finally land. Yes, Kristen? Thanks. You did a really good job talking about how points of contact in the circle of life increased profitability, right? Have you set any incentives or targets for your store associates to encourage that at a faster rate than what you already do through good in store execution? Maybe I'll let you make a comment about that. I'll let Mike maybe. He's really the guru on the circle of life points. But Mike Dezura, our Senior VP of Stores has been with you today. And I would say that we do a tremendous job of encouraging use of the Circle of Life and historically have from the founding of the company. We measure lots of things, use penetration, trades by store, we do contests, all kinds of things. Looking at the profitability impact holistically is kind of a new thing that Power Boards has brought us. Mike, do you want to say anything about what kind of metrics you're going to use? Yes, sure. I'd say a couple of things. One is we look at kind of as kind of incentives with tools. And one of the things that Mike and I spend a lot of time about working on is have we given the associates the tools that they need to do that, because sometimes even more important than having incentive in place is having people have the tools that they know. So as you see PowerUp Rewards, for example, coming into the store and being on the kiosk, so we're doing a lot of education of folks in the store and helping them to understand the tools that they have and how they can use these and then supporting them terms of store manager bonuses and so on, where they're specifically measured and and so on, where they're specifically measured and bonused on things like percent of overall membership, pro membership, owned penetration, all those types of things. And we have time for a couple more and then we can operate. Just a follow-up on Rob's comment on unused margins getting back to sort of historic or last year's levels. With all the things that are going on, it seems people are playing games longer. And there's the risk, of course, that there's less or fewer trade ins as they play games longer, Internet capable TVs playing other people in other countries. Do you foresee any risks to use margins, which is lower availability of product as people play the game longer and the fact that you may have to get more aggressive on pricing with used or more aggressive on promotions to drive used inventory because it seems to me that's a risk? Yes. You want to start that one off or Mike or Rob or Mike? Yes, sure. I'll say a couple of things on that. One thing is, like any business, right, if you have products, you got to continue to innovate to grow and there may be some decay in your core business. But what I think from our perspective, we're not looking at pre owned as a mature business. We're looking at it as there's a lot of opportunity in it. So, I look at the 63% of the people out there that don't even know about the program yet and I look at the only 20% have traded with us and less than 50% buy pre owned. So, there's a huge amount that we can gain through awareness and penetration and growing this. The other thing that we're finding though is even within the people who are already doing it with PowerUp Rewards and the ability that we have to direct market to people, it's not even a question of do you know about the program, it's do you did you remember that you have this game in your library and it's worth its value right now. So we're not looking at having to increase trade prices or throw on additional incentives. We've got so much to gain just through targeted communication towards consumers because we found what we can do and we're already starting to do that with PowerUp where we communicate to a very small group of people and we get literally within 24 hours measurable impact in our total trades or our total pre owned sales from that. So we think there's a lot of opportunity there. Yes. Can you talk some more about the power of reward in terms of the profitability side of the equation? We talked a lot about how it can be good for market share and how it can grow sales. But what about on the profit side? I know there's a $15 fee, but you do give a magazine, you're giving discounts. What how does that work itself out? You want to take that, Rob? Sure. Well, you start with the $15 membership that you just mentioned and the fact that, does come with a magazine. What our challenge is and as Tony talked about earlier is driving that magazine digital and obviously that increases the profit formula with inside just the magazine itself considerably because you don't have the print and production costs. Overall, the program is additive to gross margin dollars. It does have an impact on the rate because we're in heavy growth mode with upfront costs associated with signing up new members. We expect that to level off as time goes by, the program matures and that membership sort of matures in later years. Yes. One thing I would just point out, if you Mike and the team, we've studied a lot of loyalty programs. And if you look at what some of the leadership people, Tesco, Kroger, some of the casinos, what they do, what's really unusual about ours is that we do have that magazine subscription in the middle of it. So we're a loyalty program with a magazine that part of it is migrating to digital. And on top of that, we have a paid and an unpaid membership and we have online engagement with you. So it has a lot of differences from what you the typical economics you would see with a local program. Two questions. First on the streaming side, I think you've effectively made the case that this is certainly a positive for the publishers. But to a degree, when you think about the console makers, you are deemphasizing to a certain degree the importance of the console. Have you talked to the console makers and gotten their thoughts if that affected potentially your relationships with them in other parts of your business? And then second question, in store DLC, you obviously worked pretty hard to get that business up and going. What's the nature of your first mover advantage there on the in store DLC? Have you effectively lowered the barrier of entry for other entrants or have you actually raised it? Thanks. Why don't you start with the console, Danny? Sure. On the console side, let me start with the DLC first in terms of 1st mover advantage. In terms of 1st mover advantage, we had to make a significant investment. As we talked about 10000 hours to create a system and we have to have associates who are good at selling that. And so the assisted sale process along with that investment in technology we've made and the fact that we are totally integrated within both Xbox Live and Sony PlayStation Network has been a huge effort on that. So there is going to be a first mover advantage that's going to last for a while until we get new technology in there. In terms of the associates suggest itself and the fact that you're dealing with people who are actually playing that technology is not a first mover advantage. That's just a sustainable competitive advantage. As to talking with Sony and Microsoft about this, because that's really the digital consoles that we've had, like Paul said, we had conversations with them. We've been talking with them along the way. It has not impacted our relationship negatively whatsoever at this point. Now that we've disclosed it, now we need to go talk with them. As you know that this is console virtualization, so it's a huge opportunity for them to sell more consoles to us. It also is driven like you articulated in a Pro Publisher way. So it We are going out with a model that says, if you buy this game from GameStop to play on your console, we want handset gameplay through this streaming exercise. So I think it's a lot like DLC. At first, when we went and talked to Microsoft and Sony, because we would have said the exact same thing, They looked at us and there was a few no's along the way. But as we persisted and as we shared with them the incrementality and the impact that it would have on the overall game business, they very much formed up to the idea where they literally turn the corner and begin to integrate our system into theirs. I see this in a lot the same way where we will begin to talk with them. And right now, they're doing the right thing as any great partner would. They're asking questions. And we fully expect that and they're not negative on it. They're just asking all the questions you would expect them to ask. It's our job now to go and answer those questions and do it in a way like Dan talked about. This is Pro Publisher and we've been very, very, as you said, very persuasive in articulating that today. And one more thing on in store DLC, don't forget, we bring $1,000,000,000 of trade credits to that business. So people ask a lot, why are you different? Why wouldn't I buy it on Xbox Live? Remember, there's $1,000,000,000 of trade credits. We're subsidizing the consumer to the tune of $1,100,000,000 and 70% of that goes right into new product. We saw with Black Ops DLC, a lot of it was paid for within store credit. So that's another big differentiator and barrier that we've got. I think that wraps up our remarks. In closing, I just want to show you our strategy slide one more time, if we can pull that up. That is our strategy. We're here to maximize brick and mortar stores. We showed you how we're going to do that with PowerUp and consolidation, but at the same time driving share of those stores. We're going reposition the pre owned business. I think you should have a pretty healthy level of comfort around our ability and Mike's team's ability to reposition that business. Digital Growth, I Digital Growth, I think Tony gave you a tremendous sense of what markets we see as adjacent that we can play in and that we should gain share based on what we've done in our core in these new technologies. And lastly, I think Rob filled you in. We are disciplined around capital allocation. I think we've demonstrated that and expect us to remain so. Thank you very much for your support of GameStop. Thank you to the GameStop members who are here. It's our first ever Investor Day, so we had a lot of butterflies, but hopefully the time was well worth your efforts. Matt, any housekeeping on the buses and so forth? Bus A is American. Bus B is everybody else. Buses are departing from out front at 3 Thank you very much.

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