Could Video Game Consoles Become Obsolete?

A potential partnership between Comcast and Electronic Arts to offer video games through your television could permanently disrupt the gaming industry.

May 12, 2014 at 11:30AM

A rumored partnership between Electronic Arts (NASDAQ:EA) and Comcast (NASDAQ:CMCSA) is only in the beginning stages. If it's true, it has the potential to revolutionize the video game industry. That's because as the war for your living room rages on, the fight is increasingly turning digital. Even though Microsoft (NASDAQ:MSFT) only recently released its new Xbox One console, video game publishers are eagerly looking for new ways to entice gamers.

By utilizing the cloud, Comcast and Electronic Arts may have found a way to bypass hardware altogether. While this is not likely to happen in the near-term, their partnership nevertheless represents a first step in that direction.

Out with the old, in with the new?
Comcast may soon allow customers to purchase Electronic Arts games via their televisions. This would be made possible by Comcast's X1 cable box, which is connected to the cloud. Reportedly, both companies have conducted two years of testing and are now very close to formally announcing an agreement.

Comcast's X1 cable box is a video operating system that offers apps and a user-friendly interface. Customers have the ability to utilize the service through voice control, and the X1 box has several Internet applications. This is Comcast's best effort to combat any potential customer exodus to Internet streaming services such as the Fire TV of Amazon, Netflix, or the Apple TV. As the cost of cable packages continues to rise and consumers slowly adopt a 'cord-cutting' mentality, Comcast needs a new way to keep subscribers happy.

The deal could be a potential goldmine for Electronic Arts, too. It's got a slew of highly popular titles, including very successful sports franchises such as FIFA soccer and Madden football. Electronic Arts releases new titles of those games on a yearly basis and could now easily deliver them directly to Comcast's 22 million subscribers in the United States.

This potential partnership expands on the idea of customers opting for online gaming opportunities over traditional hardware. In some sense, it's a defensive move on the part of Comcast. For years, the cable industry and the video game industry were entirely separate entities. That's no longer the case, as Microsoft has made major investments into expanding its offerings beyond just video games.

Microsoft purchased Skype for $8.5 billion in 2011. It's made great strides toward making the Xbox a one-stop shop in the living room for all media and entertainment needs, not just video games. In addition, Microsoft recently announced that it would release its own original television programming. Its Entertainment Studios has 12 projects in the works which will include comedy shows as well as a series based on the hit video game Halo.

Microsoft is finally reaping the benefits of its massive investments in its hardware business. Its devices and consumer segment posted 13% growth in revenue to nearly $12 billion just in the most recent quarter. The company sold 7.4 million Xbox consoles, and Microsoft holds 48 million subscribers worldwide through the Xbox. It's clear that Microsoft is intent on leveraging its massive subscriber network to create new revenue streams and that includes all forms of media, not just video games. This is a necessary move on Microsoft's part, since a way to deliver video games through television would endanger the Xbox.

The Foolish bottom line
Comcast and Electronic Arts are reportedly about to team up to provide EA's video games through the X1 cable box. As the war for the living room rages on, companies from cable providers to console makers are now treading into each other's territories. Comcast is preparing to offer video games as a means of side-stepping hardware, and Microsoft is preparing to launch original television programming to prove that it's possible to do a lot more than gaming on the Xbox.

For Comcast and Electronic Arts, any potential deal would be a win for both sides. EA would be served a lifeline in the event that hardware and physical video games go the way of the buggy whip, and Comcast has an extra incentive to offer its subscribers so they keep paying their cable bills instead of opting for a cheaper streaming service.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

 

Bob Ciura owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, Microsoft, and Netflix. 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.

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