Analyst: Here’s Why Microsoft Changed Xbox Policies

The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

On Wednesday after the market close, Microsoft’s (NASDAQ:MSFT) Don Mattrick, President, Interactive Entertainment Business, provided an update on Xbox One that reversed certain policies announced in the last few weeks that were very unpopular with gamers. We have included the full text of the update from the Xbox website on page 3 of this note.

The gamer community lashed out against Microsoft’s Xbox One digital rights management (DRM) policies, disclosed at E3 and in the weeks prior, and at its $499 price point, $100 above the price point of Sony’s (NYSE:SNE) PlayStation 4, which has no restrictions on used gaming and does not require an Internet connection.

While the Xbox One includes a Kinect camera and microphone array bundled with each console, Microsoft did a poor job of explaining the value proposition that justified a $100 higher price tag. Sony was widely viewed as the victor of the first of the major console battles due to the combination of lower pricing and less onerous DRM policies, and was perceived as likely to pick up market share of nextgeneration console sales from its rival, assuming Microsoft did not announce a subsidized box. Today’s reversal by Microsoft should serve to make the playing field more level.

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The first major change announced by Microsoft on Wednesday is that an Internet connection will not be required to play Xbox One games offline. An Internet connection is required for the initial setup of the Xbox One console. Once that setup process is complete, however, gamers will be able to play disc-based games offline without needing an online connection again. Previously, Microsoft had announced that gamers would be able to play games offline for up to 24 hours, and that after the 24-hour period, offline gaming would not be possible until the gamer re-established a connection. Gamers will be able to play digitally downloaded games offline as well, although these games cannot be shared or resold (all unchanged from the current gen).