How Much Damage Will Microsoft’s New Gaming Console Do to the Industry?

Lots of fan-boys around the world are probably teetering in their chairs as many expect 2013 to be the year Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE) launch the new generation of gaming consoles. However, Microsoft may be making a move that turns off some gamers and could even hurt another industry.

As more and more media goes digital, the fight to manage copyrights and file sharing has been fiercely waged worldwide, especially in the film and music industries. The issue hasn’t gone unnoticed by the gaming industry either, and now Microsoft is rumored to be severely limiting how customers use the games they purchase.

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A source with some first-hand knowledge of the next Microsoft gaming console suggested that the new system will only allow new copies of games to be played on the console, meaning second-hand and borrowed games would be unplayable.

The logic behind such a decision is quite simple — it would prevent people from selling games they had finished for cheaper prices that undercut new copies, and then could effectively boost new game sales by forcing gamers to buy new copies of games already popular among friends. But, the actual effects of this practice could be much more widespread and damaging…

Though forcing gamers to use only new copies of games would allow Microsoft and game developers to boost sales, it could hurt game stores. For example, GameStop (NYSE:GME) stores always feature a wide variety of games, with a good number of those being discounted, used copies. If Microsoft locks used games out of its consoles, it could effectively be crushing GameStop’s used-game sales in the future.

Reselling isn’t the only area that would be affected by a block on used-games. Rental copies of games are essentially resold again and again. RedBox (NASDAQ:CSTR) and GameFly both offer game rental services that could be devastated by Microsoft’s potential block. RedBox would still have movie rentals and other consoles to fall back on, but GameFly would surely lose a significant portion of its revenue. However, it wouldn’t be farfetched for Microsoft, game developers, and rental companies to work out some arrangement to continue business normally. Netflix (NASDAQ:NFLX), having given up on game rental services, would go unaffected by Microsoft’s decision.

One more point of trouble is that Microsoft could upset gamers. As more Digital Rights Management technologies are implemented and more laws enacted that limit the way people can use, exchange, resell, lend, and give away the things they purchase, many consumers are growing angry over their seeming inability to really own what they buy. That sort of anger could drive sales away from Microsoft and perhaps towards Sony, if Sony doesn’t implement a similar feature.

While Microsoft blocking used-games is still unconfirmed, it’s clear that the decision could hold industry-wide implications and stands to affect the wallets of just about everyone involved — except those few gamers who never buy or sell used games and never rent.

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