Microsoft (MSFT) Eases DRM Barrier for Disc Games on Xbox

Microsoft MSFT recently rolled out an Xbox Series X update that allows users to play many more Xbox One games offline without a mandatory digital rights management (DRM) check. The 2208 update released earlier this month does not force users to do an online compatibility check to play a game from an Xbox One disc.

DRM refers to online checks on platforms such as iOS, Android, Windows and Xbox to ensure that the user actually owns the license for the content being accessed. With zero DRM, publishers would potentially lose millions of dollars in scenarios where users share content illegally, which could result in a less sustainable gaming industry.

Xbox One and Xbox Series X|S DRM has been criticized for its aggressiveness, essentially preventing users from playing many single-player games in offline situations, such as power or Internet outages.

The change, which isn’t listed as a feature of the 2208 update on Microsoft’s site, was confirmed by Xbox engineering lead Eden Marie who tweeted that the check was removed because it wasn’t necessary in the vast majority of cases when playing a cross-generation game on the Series X.

Users will now be able to install the Xbox One version of a game straight from the Xbox One or cross-generation disc and can start playing it. Internet will be required to download any updates or enhancement packs for the Series X.

Microsoft Corporation Price and Consensus

Microsoft Corporation Price and Consensus

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Dull Consumer Spending on Video Games Dampens Prospects

Microsoft has been working on making it easier to launch and play games on Xbox overall. It recently began testing badges on the console’s home screen that make it clear at a glance whether a game is currently playable.

For first-quarter fiscal 2023, Microsoft expects gaming revenues to decline in low- to mid-single digits due to declines in first-party gaming content on Xbox consoles.

As for games that might be coming to Xbox Game Pass, ads for titles such as Elden Ring, Soul Hackers, and GTA V have been spotted on the Xbox storefront. All these titles also appear to have been recently made xCloud compatible.

The numbers reflect a broader contraction in consumer spending on video games. Americans spent $12.4 billion on video gaming in the second quarter, according to market research firm NPD, down 13% year over year.

In the three months ended June, Microsoft, Sony SONY and Nintendo NTDOY each posted disappointing results in their respective gaming businesses. In the last reported quarter, Microsoft’s gaming revenues decreased 7% (down 5% at cc) due to a decrease in Xbox content and services and Xbox hardware.

Nintendo saw a 15% slide in operating profit in the April-June period. The company behind the Super Mario franchise claimed that the weak performance due to the global semiconductor shortage affected the production and sales of Switch consoles. Nintendo sold 3.43 million units of its portable Switch console in the quarter, down 23% year over year, while software sales declined 8.6% to 41.4 million units.

Sony sold 2.4 million PlayStation 5 consoles in the quarter, slightly higher than the 2.3 million units sold in the same period a year ago.

Microsoft has hit back at Sony’s recent claim that the company’s upcoming acquisition of Activision Blizzard ATVI is anti-competitive and that the Call of Duty franchise influences users' console choices and lacks a proper rival.

While the U.S. Federal Trade Commission continues to investigate the deal in private, foreign regulatory bodies, like Brazil's and New Zealand's, publish filings for public consumption.

Microsoft’s strategy of not distributing Activision Blizzard games on rival consoles would only be profitable for this Zacks Rank #3 (Hold) company if the games attract a high number of players to the Xbox ecosystem, resulting in revenues to compensate for losses from not selling these titles on rival consoles. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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