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What Does the Internet's Uncertain Future Mean for the Gaming Industry?

By Keith Noonan - Mar 15, 2014 at 7:00AM

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The future of the Internet has never looked more uncertain. How will this instability effect Sony, Microsoft, and GameStop?

Source: playstation.com

The gaming industry has grown substantially in the last decade, and it looks to play a significant role in shaping the future of the Internet. While retailers like GameStop ( GME -5.05% ) have been dreading a digital-distribution future, Microsoft ( MSFT -1.97% ) and Sony ( SONY -0.12% ) are increasingly directing consumers to their online stores. A January appeals court decision dealt a massive blow to net neutrality, however, and that's just one of the year's big Internet happenings that will eventually trickle down to gaming. The potential megamerger between Comcast (NASDAQ: CMCSK) and Time Warner could also have major implications for the future of interactive entertainment. What do shifting power balances and the Internet's uncertain outlook mean for the future of the gaming industry?

Roadblocks to a digital-distribution future
Prior to the announcement of the potential megamerger, Comcast began rolling out data restriction cap trials in select major urban markets like Atlanta and Memphis. Users in the effected areas are subject to 300 gigabyte monthly usage limits and can be charged an additional $10 per each additional 50 GB used in the billing period. Should the company's merger with Time Warner Cable go through, it's likely that such data restrictions would become more commonplace and also have an impact on the gaming industry.

Launch titles for Sony's PlayStation 4 and Microsoft's Xbox One are already pushing up on 50 gigs. As titles for these systems become increasingly advanced, it's likely that such file sizes will become the norm. Although 300 GB is currently more than enough for the average household, the cap could quickly become an annoyance for the demographics at the forefront of digital-distribution advancements.

Source: xbox.com

One company that loves slow Internet
GameStop is one of the few companies in the gaming industry that benefits from America's lagging Internet infrastructure. A report from netindex.com has America ranked 33rd in the world when it comes to average download speed. The shoddy state of the country's broadband is part of what made Microsoft's initial vision of an always-connected Xbox One such an awful idea. It's also a good counterpoint to rumors that the company will ship a disc-less version of its console this year.

America's substandard Internet is also an obstacle for Sony's recently announced PlayStation Now streaming service. Anything that slows down the adoption of digital distribution is good news for GameStop. The used-games model is dependent upon physical media, and without it the retailer would crumble.

Playtime will soon be over
With software increasing in size and online gaming taking up more bandwidth than ever before, Microsoft and Sony are headed for some of the same cable-company hurdles that are faced by Google and Netflix. The online ecosystems that are central to the success of the PlayStation 4 and the Xbox One are competitive with the content stores provided by Comcast and Time Warner. The rise of streamed games and cloud computing will only increase the likelihood of tensions. An increase in the power held by ISPs won't only affect the gaming aspects of consoles; the shifting Internet power dynamics also mean big things for video streaming on Sony and Microsoft's respective platforms.

Comcast is already blocking its subscribers from accessing the recently released PlayStation 3 version of the HBO GO app. The company's comments indicate that it will need to be incentivized through partnerships before it will remove the restriction. Xbox 360 users who get their Internet from Comcast can currently access a version of HBO GO, however it was initially blocked upon release. This suggests that, somewhere along the lines, a deal was made allowing access on Microsoft's last-gen system and that similar arrangements will be necessary for the app to be available on new platforms. If gaming is to make the jump to full-on digital distribution and streaming services, these are the types of obstacles that Sony and Microsoft will be up against. 

Throwing GameStop a bone
The Internet's balance of power has arrived at a transformative moment. If companies like Comcast and Verizon start throttling game connection speeds or downloads, the big winner will be GameStop. While Netflix and YouTube have been at the forefront of net-neutrality disputes, the gaming industry looks to become increasingly involved in the debate. The uncertain dynamics make planning future hardware additionally challenging for companies like Sony and Microsoft. Meanwhile, any obstacles to a digital-distribution future are music to the ears of GameStop.

Source: gamestop.com 

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.

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Stocks Mentioned

Microsoft Corporation Stock Quote
Microsoft Corporation
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Sony Corporation Stock Quote
Sony Corporation
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GameStop Corp. Stock Quote
GameStop Corp.
GME
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