NEW YORK ( TheStreet) – With an entire generation of gamers weaned on digitally distributed games across mobile devices, PCs and consoles, the days of purchasing discs loaded with games could be limited.
Sony's ( SNE) PlayStation 4, Microsoft's ( MSFT) Xbox One and Nintendo's ( NTDOY) Wii U offers players the choice of downloading new releases, or purchasing the disc online or in a retail store. Recently, Nintendo went as far as allowing players to pre-purchase games via online or through their mobile devices to have them ready to play on the day that the game is launched.
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"Many popular titles are now seeing digital sales account for approximately 25% of their total unit sales," said Sartori Bernbeck, an EEDAR video game analyst. And the potential impact from digital sales can be substantial.
Across game consoles and PCs, players are expected this year to spend about $9 billion globally on digital versions of complete games and add-ons, said Lewis Ward, a video game analyst with research firm IDC.
And that figure does not even take into account revenue generated from online game subscriptions. Microsoft, which has over 80 million Xbox 360 consoles out in the market worldwide and over 7 million Xbox One consoles in circulation, sells its Xbox Live Gold subscription for $60 a year. That translates into a potential market of $5.2 billion in annual revenue for Xbox Live Gold subscriptions.
Sony, meanwhile, has 80 million PlayStation 3 consoles and over 12 million PlayStation 4 devices in homes. Sony charges $50 a year for its PlayStation Plus to access its games online. For Sony, its subscription service has a potential market of $4.6 billion for its PS3 and PS4 consoles.
Additionally, Sony has been expanding its streaming game service offerings, launching PlayStation Now across PS4, PS3, Sony Bravia TVs and the new Sony micro-console, PlayStation TV. This game service runs off streaming technology designed by Gaikai, which Sony acquired in 2012 for $380 million.
"Microsoft and Sony platforms continue to drive digital adoption forward at a stronger rate than Nintendo," EEDAR's Bernbeck said, referring to the digital delivery of games like Xbox Live Gold or the PlayStation Network and PlayStation Plus. Nintendo does not offer an online subscription service to access and stream its games.
Not only are game console makers like Sony, Microsoft and Nintendo benefiting from consumers' shift to the digital distribution of games via downloads or streaming, but so are some of the game developers and studios like Electronic Arts (EA) .
Electronic Arts’ digital games service, Origin, has been growing considerably since launching in June 2011, said IDC's Ward. Origin allows consumers to play select online games from Electornic Arts for free or buy digital versions via PC or mobile devices. Origin has over 50 million users, while its arch rival Valve's Steam service for PC games has over 75 million users.
"EA’s Origin focuses primarily on EA titles and has competition from other strong storefronts on the PC, such as Steam. As consumers continue to adopt the digital distribution ecosystem, all of these digital storefronts will continue to grow," Ward said.
EA is beta testing another new digital service, EA Access, which is currently only available on Xbox One and costs $30 per year. With EA Access, gamers can play limited free downloadable games and purchase any EA game for play after downloading it to the console hard drive.
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At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates SONY CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate SONY CORP (SNE) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in stock price during the past year and increase in net income. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, poor profit margins and feeble growth in the company's earnings per share."
You can view the full analysis from the report here: SNE Ratings Report