Will DRM Make It Tougher for XBox One? - Analyst Blog

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The battle lines have been drawn. With Microsoft Corporation ( MSFT ) pricing the Xbox One at $499, gamers know exactly what separates it from the PlayStation 4. Sony Corporation ( SNE ) is expected to retail its PS4 at $399, significantly lower than its rival's offering.

Even though this does not include its Eye camera module, which will retail at $59, this is still a big gap for many gaming aficionados. With no new offerings coming up, Nintendo Co. Ltd . ( NTDOY ) is clearly out of the running and this seems to be very much a two-horse race.

At first glance, there is little else that separates the two. Both use Advanced Micro Devices, Inc.' s ( AMD ) x86 octa-core processor and have similar-sized hard drives as well as a blu-ray drive. PS4 may have a slight edge here since it uses GDDR5 RAM which promises better graphics. On the other hand, the Kinect controller comes pre-packaged with the Xbox One.

So price seems to be the only major issue. There are others like backward compatibility with older games, but this seems to be the Achilles heel of the system.

But the Xbox One is positioning itself as a one stop shop for all your entertainment needs. There is a major focus on entertainment other than gaming and the system will support live TV and act as a set top box. By bundling the Kinect with the system itself, it is clear that Microsoft is intent on wooing the whole family, not the just the serious gamer.

The major issue seems to be the fact that the Xbox One requires you to log into Xbox LIVE every 24 hours in order to continue playing a game. This mandatory requirement to connect with Microsoft's online multiplayer gaming and digital media delivery service is already being viewed as a restrictive one. The first issue is for a relatively small audience, who have no access to the internet, or have limited data plans.

However, Microsoft assumes that if you can afford a system like the Xbox One, you would not suffer from such constraints. But the issue of being chained down by Digital Rights Management (DRM) is more prickly. Consumers may view this requirement as providing too much control to game developers. While earlier owning a game simply meant owning an optical disc, this is no longer the case.

Now, such a disc only serves as a one-time activation key. The ownership of the game is now determined by your LIVE account, which exists on the cloud. This means publishers now have control over how games are resold, even swapped between gamers. This is because the retail model of the Xbox One has changed from one based on physical ownership to virtual control.

The case for Microsoft now looks like one of poor communication. And this despite the fact that Microsoft positions this feature as one which comes with benefits. Benefits which, much like a cloud-based games library like Steam, allows library management and convenience of storage. Moreover, you would not need to worry about physical damage to your disc.

 In fact, Phil Spencer, Vice President of Microsoft Studios, has compounded the situation this week. Speaking to destructoid.com, Spencer said consumers who do not have any Internet connectivity should opt for the Xbox 360. Don Mattrick, President of Interactive Entertainment at Microsoft, has also made a similar statement.

This seems to be very similar to the perceived arrogance of Ken Kutaragi, former Chairman and chief executive officer of Sony Computer Entertainment during the launch of the PS3. Commenting on concerns about pricing, Kutaragi had said it was Sony's job to make devices and consumers would have to decide whether they could afford.

Needless to say, such a statement had its repercussions. Microsoft has much to learn from the incident, since the key issue for the company now seems to be communicating with their audience. And getting across the right message. It's still early days for the console wars and that could make a big difference to the fortunes of the Xbox One.



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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AMD , MSFT , NTDOY , SNE

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