Microsoft Gives In To Gamers On Xbox One Used Games, Connection Requirement

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Both Sony Sony and Microsoft Microsoft have announced new gaming consoles; Xbox One from Microsoft and PS4 from Sony.

Gamers have been complaining about two new requirements that Microsoft imposed on Xbox One.  First Microsoft required at least once a day Internet connection and second, it restricted the reselling of used games.

Microsoft was playing a game of chess with Sony.  Sony was smart to let Microsoft make the first move and alienate gamers.  Sony went on attack by imposing no restrictions on used games and not requiring an online connection to play games.  The result was that at last week’s E3 conference, PS4 won a lot of admiration and Xbox One received a lot of contempt.

In a big win for gamers, Microsoft has just announced that it is reversing the unpopular policies. Don Mattrick, president of Microsoft Interactive Entertainment Business, just wrote in a blog post:

“Today I am announcing the following changes to Xbox One and how you can play, share, lend, and resell your games exactly as you do today on Xbox 360. Here is what that means:

An Internet connection will not be required to play offline Xbox One games – After a one-time system set-up with a new Xbox One, you can play any disc based game without ever connecting online again. There is no 24 hour connection requirement and you can take your Xbox One anywhere you want and play your games, just like on Xbox 360. Trade-in, lend, resell, gift, and rent disc based games just like you do today – There will be no limitations to using and sharing games, it will work just as it does today on Xbox 360. In addition to buying a disc from a retailer, you can also download games from Xbox Live on day of release. If you choose to download your games, you will be able to play them offline just like you do today.”

In a further concession, there will be no regional restriction on games.  Gamers will be able to buy disks from retailers just like they do today or download them from Xbox live.

The stock market liked Microsoft’s concession.  There were significant upticks in Microsoft stock after the news in a very weak overall market tape after Bernanke’s press conference regarding QE taper.  Both Microsoft and Sony are big conglomerates and many factors affect their stock prices. Last week Sony stock significantly outperformed Microsoft stock partly due to the positive sentiment generated by an apparent win of PS4 over Xbox One in the popularity contest.

PS4 Pre-Order Launch Edition was sold out at Amazon.com.  This was an indication of the popularity of PS4.

The biggest losers from Microsoft giving in to gamers’ demands are game publishers such as Electronic Arts (EA) and Activision (ATVI).  The reason is that the gaming publishers do not get any portion of the revenue from the used games.  Electronic Arts is set for a quick trade from the short side on this news.

The biggest winner is GameStop GameStop. The used games market is huge.  GameStop, the self-proclaimed largest seller of used games, generated $572 million from used game sales in the quarter just reported.  The stock market likes the news for GameStop; the stock is up about 6.5% in after hour trading.  Going forward, from a trading perspective, GameStop has room to go much higher if a short squeeze were to occur. 35.8% of GameStop float has been sold short making it prone to short squeezes.

Both gamers and investors will be carefully watching round two of the battle between the consoles.  Sony won the first round but now Microsoft has neutralized the advantage gained by Sony in the first round.

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