The Gainers and Losers After E3 2013

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

E3 2013 is now over. It was a three-day event teeming with leading gaming companies, console manufacturers, industry analysts, developers and other visitors, who were all there to witness amazing new technologies and never-before-seen products. The buzz around the rivalry between Sony’s (NYSE: SNE) PS4 and Microsoft’s (NASDAQ: MSFT) Xbox One could be seen before the expo. Both these consoles were officially showcased during the show, with implications for the industry and investors.

A brief recap of the event

In this article, I have focused on the highlight of the expo: the launch of new consoles. Microsoft kick-started the expo with its press conference on releasing Xbox One, details about which were unveiled in May. As reporters from the venue put it, Microsoft just focused on new game titles, which included new versions of legendary games like Halo, Battlefield etc. Since most of the hardware and other details were announced by Microsoft in May, its press conference was all about games. It launched approximately 15 new titles, out of which eight were brand new intellectual properties.

The Xbox One was being talked of more as a home entertainment system (customers can also watch TV) rather than a pure gaming console. However, it has all the ingredients of an A-class gaming console like superb game titles, cool graphics and amazing controls. The gamers got disappointed  when Microsoft announced that the Xbox One would release across the globe in November for $499.

After Microsoft, it was Sony’s turn to launch its new console, PS4, ending the long wait of ardent Sony supporters. The audience gave complete attention during the conference as it launched the new system (only the controller was revealed earlier) along with breathtaking new game titles. Gamers were pleasantly surprised when Sony announced its policy of no restrictions on used games, no requirement of online check-in for playing disc games and better backward compatibility with older consoles. The biggest reason to rejoice came when it announced the launch price of PS4, $399.

Sony Vs Microsoft: Who ruled E3?

A line from this Forbes article read, “Sony didn’t just capitalize on Microsoft’s mistakes over the past few weeks. They picked up the ball Microsoft dropped, tossed it in the air, then smacked it out of the park.” Sony did implement smart strategies regarding its policies and pricing that elated the audience at E3.

Microsoft’s much awaited reversals

One of Sony’s policy announcements regarding the absence of restrictions on playing used games was received with a cheerful applause. Even Microsoft clarified its stand on used games as it announced that there would be no fee charged on trading and resale of eligible Xbox games. Microsoft has been on a reversal spree after it took note of gamers’ disappointment around some of its policies. It has removed the requirement of an online check-in if a user wants to play a disc game. As with Xbox 360, the users can now take their Xbox One console anywhere and play games with the removal of the online check-in restriction.

As this article reports, Xbox One is seeing a rebound in pre-order numbers as a result of these positive changes. Microsoft has done the right thing by fixing policy issues placing it at par with Sony’s PS4. The phrase “Better late than never” is very apt for Xbox One, which is regaining the lost confidence of gamers and analysts.

Xbox One is priced a bit too high

Sony smashed the ball out of the park when it announced the availability of PS4 at just $399, $100 less than Xbox. This move really pleased gamers as well as analysts. Microsoft priced the system so high because of its positioning as a home entertainment system. However, with this move Microsoft has narrowed down its markets to just hard core gamers because part-timers would favor a cheaper pure gaming console. Thus, PS4’s pricing strategy has definitely taken away a considerable chunk of market share from Microsoft, and if it manages to engage and retain users with new software and games, Xbox One could be in a risky position.

Industry analysts have suggested that Microsoft can offer alternative pricing options for Xbox One, once it properly assesses the target audience for the product. As this report states, PS4 outnumbered Xbox One in terms of pre-orders from major online retailers in the country. While it is not a definitive metric for forecasting future sales, it indicates that gamers are more inclined towards PS4 after the expo.

Gain for GameStop

Investors in GameStop (NYSE: GME) were uncertain about the stock after ambiguity surrounded Microsoft’s stand on used games. As I mentioned in my last article, a major chunk of GameStop’s revenue comes from buying used games and selling those at a mark-up. As a result, its “used games” business was under a threat if Microsoft actually started to charge a fee for playing used games. However, the company can heave a sigh of relief with the announcements from Sony and Microsoft on not charging a single cent on trade and resale of used games.

Shares of GameStop surged after major conferences at E3 2013, indicating a revival of confidence in the stock. The intense console war, launch of new game titles and no restrictions on used games have all come as a boon to the leading retailer. In my opinion, GameStop is going to move up quite aggressively in a short time period and stabilize thereafter.

Who leads the race?

Microsoft’s recent changes to the policies around used games and online presence have hugely altered the situation of this console war. While PS4’s "launch edition" units were sold out by June 13 on Amazon because of its outstanding E3 conference, Xbox One has now grabbed the No 1 spot on Amazon’s list of best-selling video game products in the UK after the fixes. I believe the actual battle has just started with both of the manufacturers on the same page. As such, it is extremely difficult to point out a winner accurately until we have more data on sales numbers.

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Mihir Mehta has no position in any stocks mentioned. The Motley Fool owns shares of GameStop 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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