Sony's PlayStation Now Service Is the Latest Attack on GameStop

After ending 2013 on a positive note with two successful console launches, the beginning of 2014 looks to remind GameStop of darker days. Is Sony's new game streaming service about to shake up the industry?

Jan 14, 2014 at 3:19PM

Sony's (NYSE:SNE) plans to debut a streaming gaming service have been in the works for a while now. The company's 2012 purchase of Internet gaming pioneer Gaikai saw it take a shortcut to its desired goals and acquire the resources of a company that had already established a cloud framework. But announcements at this year's CES expo show that Sony's vision for its streaming service is broader than most had anticipated. Not only will the service be available on PlayStation 3, PlayStation 4, and PS Vita, it will also be accessible on mobile platforms, tablets, and smart TVs as well.

The company's recently-unveiled PlayStation Now service has the potential to be huge and is one of the first signs that Sony is testing the waters outside of the traditional console gaming models. It's also the latest in a series of signs that are worrying for GameStop (NYSE:GME). Is the gaming retailer stuck promoting a product that is ultimately contributing to the company's inevitable decline?

Thanks for the launch parties, GameStop
The successful launches of the PlayStation 4 and Microsoft's (NASDAQ:MSFT) Xbox One gave reason for optimistic takes on GameStop's outlook. News that the PS4 sold 4.2 million units in 2013 shows that there is substantial enthusiasm for a new line of consoles. Microsoft's 3 million Xbox One consoles in 2013 is also nothing to sneeze at. GameStop is undoubtedly thrilled to be a major channel for the sale of these new consoles, but its livelihood is actually tied to the sale of software and its used game model. Now, console manufacturers like Sony and Microsoft and software publishers like Electronic Arts (NASDAQ:EA) and Activision Blizzard are diverting money away from GameStop.

Microsoft was this close to going rogue
For years, used game sales have been a hot-button issue in developer and publishing communities. Companies like Electronic Arts have cited lost revenue resulting from used games as a motivating factor for efforts to derive more income from online titles. The Xbox One's original product vision saw anti-used-game mechanisms implemented and online connectivity requirements that represented a serious threat to GameStop. Confronted with a swell of negative pushback from online communities and GameStop itself, Microsoft's reaction was almost to go entirely digital with the device and ditch physical media entirely. Mr. Softy wisely backed down, but the paramount success of its Xbox Live platform has demonstrated the green pastures that exist outside of traditional retail channels.

They used to be so good to each other
One of the few constants in the otherwise topsy-turvy gaming industry has been the relationship between console manufacturers and retailer outlets. Both need hardware to succeed so that software can be sold, and a mutually understood symbiotic relationship has guided past console cycles. Now, companies like Sony and Microsoft look to pull the rug out from underneath their convenient ally GameStop. The company's model for at least the next five years is closely tied to the success of these consoles. But for Sony and Microsoft, growth will largely be found in services and online sales that circumvent GameStop.

The modern quest for a quality stream
The quality of Sony's PlayStation Now streaming service is going to play a huge part in how adoption shakes out. One of the issues that may complicate the draw of streamed games is latency. Even assuming a perfect connection, games will be slightly less responsive. Connectivity and server issues have already proven to be issues with comparable online networks as well. If Sony gets the service right, PlayStation Now has the potential to be revolutionary.

Players will have the option to pay a comprehensive subscription fee that allows them to try many games, which makes it the closest thing to a Netflix-like model in modern video games. There will also be the option to rent individual games. The gaming industry is experimenting with new revenue models out of necessity. Microsoft is working on a cloud-based gaming service of its own, and the company will undoubtedly release more details early in the new year. That Sony's PlayStation Now service goes into beta testing this month is impressive; that a full release is planned for summer has to be irritating to GameStop. Its price fell 8.37% on the day of the news.

Now and later
The gaming industry still needs retail, but the relationship is changing. GameStop will be coming to the table with an increasingly weakened position, but the console manufacturers still have an interest in preserving a balance. With the PlayStation 4 posting impressive numbers and the upcoming expansion of the broader PlayStation ecosystem, the PlayStation Now service becomes one to watch as a sign of things to come.

Want great growth investments?
They said it couldn’t be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he’s ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen 6 picks for ultimate growth instantly, because he’s making this premium report free for you today. Click here now for access.

Keith Noonan has no position in any stocks mentioned. The Motley Fool owns shares of GameStop and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information