Sony Could Be About to Completely Revolutionize the Video Game Industry

Sony's new cloud service is a challenge to retailers like GameStop, but could grow the PlayStation business significantly.

Jun 17, 2014 at 7:30PM

PlayStation Now, Sony's (NYSE:SNE) on-demand, cloud-gaming service, will get its public debut next month. Owners of Sony's latest video game console, the PlayStation 4, will soon be able to stream games over the Internet, directly to their TVs.

In practice, this gives Sony's console a degree of backward compatibility -- even though the PlayStation 4 cannot play older PlayStation titles natively, these games will be accessible through the PlayStation Now service. Its chief competitor, the Xbox One, cannot currently play Xbox 360 titles.

But it's bigger than that. Sony's management has championed PlayStation Now as the future of the brand -- and if it succeeds, it could have immense effects on the entire industry, weighing on dedicated retailers like GameStop (NYSE:GME).

Games as a service
When the open beta begins next month, investors will have a better sense of PlayStation Now's viability. Other companies, including OnLive and GameStop, have tried and mostly failed to popularize game streaming, leaving many skeptical. Sony is a massive entertainment and gaming conglomerate, with far more resources at its disposal, but there are still significant hurdles.

Specifically, lag. Video games are not like movies -- data must be sent both ways constantly, and a split-second delay can render a game unplayable. Certain kinds of games, particularly competitive fighters, are unlikely to succeed. In terms of response, some of these games are so demanding that they are difficult, if not impossible, to play on particular, high-end HDTV models (a millisecond delay in rendering the image on the screen can be the difference between winning and losing).

But most games are not so unforgiving. Those that have played with Sony's service have generally come away impressed. Polygon called the technology "striking" and described it as perfectly workable. IGN said it observed "zero lag or latency issues."

PlayStation Now's true potential
Giving PlayStation 4 owners the ability to access older titles is a welcome perk, but the true potential of PlayStation Now will likely unfold over several years. Sony has said that it plans to bring PlayStation Now to its handheld PlayStation Vita and old PlayStation 3 system, and eventually, its Bravia TVs, smartphones, and tablets.

The potential sea change in the industry is difficult to overstate. Video game consoles are expensive -- the PlayStation 4 and Microsoft's Xbox One currently retail for $399. Before a player can buy a single game they must pay an enormous upfront fee. Consequently, the market for video game consoles have largely been limited to countries with developed economies -- Japan, the United States and Western Europe. Even in the U.S., most households can only afford to purchase one console every few years.

But if Sony could remove that barrier, it would open up its games to a much wider audience. With an installed base of just over 80 million consoles, the most any particular PlayStation 3 title could sell is 80 million copies; with streaming, virtually anyone with compatible device and a reliable Internet connection is a potential customer.

Revolutionizing the distribution model
Of course, this also stands to demolish the traditional model of video game distribution built around physical plastic discs sold and resold at retailers. GameStop, a company largely dependent on the sale of new and used video games, is exposed to a shift in the industry.

Last quarter, about half of GameStop's revenue, and more than 70% of its profit, came from the sale of video game software. The growing popularity digital downloads has long been seen as a major threat to GameStop's brick-and-mortar business, but cloud-based streaming is far more dangerous.

When games are streamed, they are not physically owned -- instead of buying discs, gamers pay for bits of data. A third-party retailer like GameStop is simply unnecessary. Moreover, the resale of used games, a business that generates almost half of GameStop's earnings, would be impossible, as games would not be owned in the first place.

Bigger than the PlayStation 4
Last year's launch, and subsequent record sales, of the PlayStation 4 has been commonly seen as most significant driver of Sony's gaming business.

In reality, PlayStation Now could be several times more substantial. If it succeeds, Sony will revolutionize the video game industry by eliminating the need to have a powerful, dedicated console, and opening the hobby up to millions more potential players.

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. 


Sam Mattera is short shares of GameStop. The Motley Fool owns shares of GameStop. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers