Microsoft (NASDAQ:MSFT) isn't always bright, but it isn't stupid.

Realizing that consumer sentiment was turning against its Xbox One gaming console in favor of Sony's (NYSE:SONY) PlayStation 4, the software giant is scaling back on the publisher-friendly initiatives that are rubbing die-hard gamers the wrong way.

  • The requirement that an Xbox One connect with Microsoft's servers at least once every 24 hours is toast. After a one-time system setup that registers the console, online players can play any disc-based game without having to deal with Mr. Softy's authoritative ways.
  • Just as Sony received a rousing round of applause after announcing that gamers will be able to trade in, lend, resell, gift, and rent games on disc the way that they are currently able to on the PS3, Microsoft is backing away from the limitations that it was allowing publishers to take advantage of in order to curb profitless software exchanges.
  • Xbox One games will also be able to play on any Xbox One console no matter where that Xbox One may be. Regional restrictions have been zapped.

It's not as if Microsoft had much of a choice. Xbox 360 has been the best-selling console in this country for the past two years, but sentiment can turn quickly.

Just check out Nintendo (OTC:NTDOY). Nintendo's Wii was the early favorite with its low price point, family-friendly games, and bar-raising motion-based controller. Things haven't gone so well with the Wii U. Despite having a year's head start on the competition, Wii U has been a disappointment.

With Wii U's fate all but sealed, the attention will turn to Microsoft and Sony slugging it out this holiday shopping season.

Microsoft seemed to have the early momentum. Its Xbox 360 is the top dog in this country, and Microsoft has 46 million Xbox Live subscribers, and they are unlikely to abandon their online achievements and switch consoles between generations.

However, momentum turned during last week's E3 expo when Microsoft flew too close to the sun and Sony doused it with gasoline.

Microsoft's doing the right thing by backtracking, but the damage may already be done. Gamers may not feel that the retreat is genuine, fearing that Microsoft will reverse course once publishers get their say.

The hope for Microsoft and game developers at this point is that the early adopters buying consoles later this year flock to digital delivery. That solves the hand-me-down dilemma. However, by restoring the value of disc-based games with last night's moves, Microsoft is raising the perceived value of disc over digital. Microsoft may be offering new releases online the day they hit stores, but if a $60 game on disc can be flipped for $10 to $30 in a few months once the player has moved on, it will be hard to justify buying that as a bandwidth- and storage-slurping download at the same price.

The key here would be to make the same games available cheaper through direct distribution, something that developers wouldn't have a problem with if it means fewer secondhand sales and no inventory hassles or production costs.

For now, all that matters is that Microsoft realizes that it made a mistake and it's apologizing. It will have until the holidays to figure out how to make gamers care less about disc-based releases.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.