Is This the Future of Tablet Gaming?

Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

When it comes to video games, many people expect the best graphics from systems such as the Sony PlayStation 3 and the Microsoft (NASDAQ: MSFT) Xbox 360. Along with this, these same people are well aware that the new Xbox One is going to offer quite a bit in terms of graphics and other features; learn more here.

But, did you know that Apple (NASDAQ: AAPL) could potentially find itself in a position to benefit from the gaming market in the near future?

EA insights

For more on this, we are going to take a closer look at a recent interview with Electronic Arts' (NASDAQ: EA) EA Labels president Frank Gibeau. IGN recently sat down with the man in charge of the diverse game development company, who has also claimed that 100% digital game delivery is all but a guarantee in the intermediate future.

During the interview, he discussed how his company is approaching mobile development. Taking things one step further, he also discussed how tablet games, such as those that would be played on a Microsoft Surface or an Apple iPad, will evolve in the years to come.

Here is a quote from Gibeau about the future of tablet gaming:

“In the near future, the next wave of tablets and phones will have nearly Xbox 360 or PS3 capabilities in terms of graphics. Some of our engine technology that used to be console-specific now can, with modifications, be able to power games on tablets and on phones in the near future. We’re just getting ready for that.”

As you can see, he discusses both tablets and smartphones as eventually being able to match the top gaming consoles in terms of graphics, or at least the ability to be one development cycle behind. While this may not be something many people believe is possible, companies such as EA are looking to make sure it happens sooner rather than later, and Madden, FIFA, and NBA Live are three EA Sports franchises worth watching in this case.

As Gibeau noted, EA is currently getting ready for what the future has to hold. Of course, there is nothing simple about making this adjustment. In order for games on Microsoft or Apple tablets and smartphones to attract users, changes would have to be made. He added the following:

“You have to redesign the game. You can’t just bring it over and have a virtual D-pad on the tablet. It doesn’t work. You have to re-architect it around touch, voice, camera. Our teams are having a lot of fun with that, reimagining an experience on a tablet using the same graphics and assets in some ways, but completely remixing the meal. Same ingredients, completely different meal. That’s kind of the way we think about it.”

If Gibeau knows what he is talking about, and we assume he does, it will be interesting to see if Microsoft or Apple, among other companies, are able to take advantage, but from an investing standpoint, this trio offers an interesting opportunity.

Is one tablet a better choice then the other in the gaming space?

Clearly, the future of mobile gaming -- specifically high-graphical experiences on tablets -- is a theme that means more to developers like EA than to device-makers like Apple or Microsoft. Tablets aren’t really thought of as a gaming device, per se, as much as they offer other utilities, like easy-to-use Internet browsing and video capabilities.

Surprisingly, the most gamer-friendly tablet of two—the Apple iPad or the Microsoft Surface—might be the latter. According to popular gaming website g4tv, “The reason iOS games “don’t work” […] is because there are no tactical controls on the iPhone, iPad, and iPod Touch.”

In essence, this makes sense; Jobs & Co. never imagined the iPad, in particular, as a gaming-specific device, despite the fact that there are literally thousands of options available on the Apple app store. The fact that Apple holds more than 80% of the tablet market’s total traffic is a testament to the fact that consumers’ No. 1 priority is web browsing.

If we could imagine a world in which tablet gaming was taken more seriously—perhaps if a developer like EA strengthens the space—Microsoft might just have a leg up, for a few reasons.

First and foremost, Microsoft’s Surface allows for a fully functional Xbox 360 controller to be used with the device, and we’d expect even more connectivity options when the Xbox One comes around. Moreover, g4tv (linked above), for one, expects Microsoft’s much-anticipated SmartGlass to play a major role in attaching its tablets to gaming experiences.

What should investors do?

Shares of the EA, which had experienced quite a few secular headwinds in 2011 and 2012, are up more than 64% in 2013 thus far, and they still sport a modest value of 17 times year-ahead EPS.

Apple and Microsoft, on the other hand, sport earnings multiples in the 9 to 11 range, but its EA that has a surprisingly optimistic growth forecast from the Street. The sell-side expects EA to generate EPS growth of 15%-16% a year through 2017, which is much more along the lines of Apple’s expectations (20.1%) than those bestowed on Mr. Softy (8.7%).

In short, EA may provide an underrated momentum play heading into 2014, with two intermediate-term catalysts -- digital distribution and tablet gaming -- to boost shares even higher. We’ll be watching closely; check out the 10 most stunning examples of next-gen gaming graphics.

Final thoughts

With that being said, it’s quite possible that this emerging theme, and the possibility of 100% digital delivery in the future, is driving EA and Microsoft bulls’ optimism. With over four-fifths of all tablet traffic, it’s clear that Apple has the upper hand at the moment, but that could all change if gaming can become the thing to do with a touch screen. 

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This article is written by Chris Bibey and edited by Jake Mann. Insider Monkey's Editor-in-Chief is Meena Krishnamsetty. Meena has long positions in Apple and Microsoft. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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