Microsoft Corporation (MSFT) Backtracks on Xbox One DRM: Will It Matter?

Page 1 of 2

In a stunning reversal, Microsoft Corporation (NASDAQ:MSFT)‘s Interactive Entertainment president Don Mattrick yesterday announced two key changes to Mr. Softy’s plans for the next-generation Xbox One gaming console.

Go ahead, unplug

First, after a one-time setup process is complete, an Internet connection will no longer be required to play Xbox One games offline. Now, Mattrick says, “you can take your Xbox One anywhere you want and play your games, just like on Xbox 360.”

Microsoft Corporation (MSFT)

When Microsoft Corporation (NASDAQ:MSFT) initially unveiled its new console, frustrated gamers were told their flexibility would be hampered as the device would need to be connected to the Internet at least once every 24 hours for validation purposes.

In fact, in an interview filmed just before Microsoft Corporation (NASDAQ:MSFT)’s E3 2013 press briefing last week, Mattrick responded to gamers’ criticisms by bluntly stating, “Fortunately, we have a product for people who aren’t able to get some form of connectivity; it’s called the Xbox 360. If you have zero access to the Internet, that is an offline device.”

Share to your heart’s content

Second, Mattrick also stated, “There will be no limitations to using and sharing games. It will work just as it does today on Xbox 360.” In other words, you’ll still be able to “trade-in, lend, resell, gift, and rent disc-based games just like you do today.”

That’s a big change from Microsoft Corporation (NASDAQ:MSFT)’s previous assertion dictating gamers would be only able to share their games with up to 10 people through a “family” sharing plan, enabling any of those 10 people to access the shared games digitally through their own Xbox live consoles. What’s more, while Microsoft was planning to allow people to gift games to friends, they said each game could only be gifted once, and could only be done for people on your friends list for more than 30 days.

That was a smidge too complicated for many gamers’ tastes. On the flip side, however, this also means Xbox One will now require disc-based games to remain in the tray during gameplay, and gamers won’t be allowed an avenue for sharing downloaded titles as Microsoft Corporation (NASDAQ:MSFT) had originally planned.

Who wins?

So who gains the most from these decisions?

First, it should come as no surprise that shares of used-game specialist GameStop Corp. (NYSE:GME) climbed more than 6% during Thursday trading. After all, GameStop Corp. (NYSE:GME) has struggled the past few years, thanks largely to the rise of mobile and cloud-based gaming devices. As a result, GameStop investors have eagerly awaited a fresh revenue stream from next-gen gaming consoles.

Needless to say, then, Microsoft’s original plans had the retailer worried. While Microsoft’s change of heart certainly doesn’t assure physical media will stick around indefinitely, the move definitely grants GameStop a temporary reprieve.

Of course, Microsoft is also hoping it will be able to win back gamers’ affections. And, to be sure, Microsoft’s attempt to please gamers is understandable — if gamers were already annoyed at what they perceived as unpalatable restrictions on content, they were appalled when they learned the console would cost a whopping $499.

Those frustrations boiled over after Sony Corporation (ADR) (NYSE:SNE) stepped out last week with its Playstation 4 and undercut the Xbox One’s price by a full $100. Even worse, Sony Corporation (ADR) (NYSE:SNE) confirmed during the conference its new console would not only fully support used games, but also would not require online check-ins. In Microsoft’s defense, however,  the Xbox One will come with an integrated new Kinect motion sensor, which typically costs more than $100 itself in addition to the current Xbox 360 platform. The $399 Playstation 4, for its part, will not include Sony’s respective “Playstation Eye” accessory.

Page 1 of 2