How Xbox One, PS4 Could Change the Entire Landscape of the Gaming Industry

Joe Goldman  |

Both Microsoft (MSFT) and Sony (SNE) are set to release new versions of their flagship video game consoles later this year and will unquestionably send shockwaves throughout the entire $78 billion video game industry. However, some confusion still surrounds the potential gaming policies and restrictions that will be implemented in the Xbox One and PlayStation 4.

Most of the debate is surrounding DRM, or digital rights management. Industry insiders previously speculated that Microsoft and Sony would digitally ban the transfer of used games between consoles. Used game transfers inhibit the sales of new titles and game publishers are growing frustrated with their inability to profit them. With new consoles set for release, Microsoft and Sony finally have the opportunity to do something about this.

CNET shed some light on the Xbox One situation this past Sunday. The console “can enable you to trade in your games at participating retailers.” However, if gamers want to share discs or sell a game to a friend, the two people must be Xbox Live friends for at least 30 days. Gaming insiders also believe that publishers like Electronic Arts (EA) and Activision Blizzard (ATVI) may be able to opt out of this policy and ban game transfers altogether.

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In other words, Microsoft’s DRM policy still remains frustratingly convoluted. However, used game sellers seem confident about the future.

GameStop (GME), the leader in used game sales, believes that the Xbox used game market is here to stay. President Tony Bartel told Forbes that, “we will continue to work with Microsoft and publishers to maintain a seamless transfer pre-owned games, and enable a smooth transition to this exciting new generation of consoles.” Bartel also thinks GameStop could facilitate the transfer of Xbox One’s digital titles through GameStop DLC kiosks or its PowerUp Rewards program.

Meanwhile, Sony announced on Monday that it would not impose any restrictions on used games. Sony naturally aims to maximize its share of the gaming market and the PS4’s lenient DRM policy is an excellent tactic to attract larger demographic of gamers. The news also assured that GameStop would remain relevant in the gaming industry for years to come. In response, GameStop shares spiked 7.80 percent on Tuesday to $37.72.

In terms of new games, Microsoft and Sony will allow gamers to purchase a physical disc or download the digital copy on the day of release. Many users will opt for the latter to avoid the inconvenience and physical depreciation of owning disc. As a result, new game sellers like GameStop, Best Buy (BBY), and Amazon (AMZN) could some market share to Microsoft and Sony.

While Microsoft’s DRM policies still remain somewhat unclear, we do know for certain that both consoles will serve as complete home entertainment systems. Gamers are expecting fully capable Internet browsers, cable/satellite TV integration, revolutionary video chat, voice commands, and Blu-Ray on both consoles, among many other features.

The Xbox One’s imminent release is also sparking talk that Microsoft could spin off its gaming business. Despite the Xbox 360’s raging popularity, its profit margins are slim, sometimes even negative. The Xbox One gives Microsoft a “cool” factor, but a break-up makes financial sense for shareholders. With expectations and excitement mounting for its new console, now could be a good time.

So which one will be more successful? Based on sales, gamers marginally preferred the Xbox 360 to the PS3. However, Sony could steal some market share from Microsoft because of its lenient DRM policy and cheaper price; the Xbox One will cost $499 while the PS4 will cost $399.

Microsoft shares are currently trading just a few percentage points south of multi-year highs at $34.84. Meanwhile, Sony shares reacted positively to PS4 pricing and DRM policy news, rising 0.94 percent on Tuesday. Shares currently trade at $20.30, up 58 percent over the last twelve months.

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