Electronic Arts Understands This Is the Future of Video Gaming

EA stock - Electronic Arts Understands This Is the Future of Video Gaming

Source: King of Hearts via Wikimedia (Modified)

It was just a few days ago Microsoft (NASDAQ:MSFT) took the idea of renting rather than buying video games a step forward. Through its Game Pass service, gamers could simply pay a relatively low, recurring monthly fee for access to dozens of titles, a la Netflix.

With last month’s introduction of Xbox All Access, however, video gamers would now be able to secure a relatively expensive Xbox console by making modest monthly payments that also offered online access to a deep library of games.

Given the company’s challenges within the gaming industry, it was a brilliant way to make its hardware, and therefore its software, more affordable to a larger audience.

Don’t think for a minute that Microsoft is the only outfit in the gaming world offering subscription-based access to games, however. Sony (NYSE:SNE) offers a similar service. But, Electronic Arts (NASDAQ:EA) — which doesn’t make consoles — has dabbled with the idea as well.

Given the relatively quiet launch of Electronic Arts’ subscription-based service in July, though, one can’t help but wonder if it’s going to be the game publishers that end up taking control of this business model.

Electronic Arts Offers Subscriptions

It’s the new-era business model — subscriptions, rather than outright purchases.

Netflix (NASDAQ:NFLX) is the poster child for the idea, but consumers are also willing to pay a monthly fee to ensure they have constant access to the newest smartphone. Amazon.com (NASDAQ:AMZN), through Amazon Prime, collects recurring monthly revenue in exchange for a handful of perks. Subscriptions are the new norm.

But video games?

It’s not a new idea, actually. Microsoft launched Game Pass in the middle of last year, allowing gamers to plug into a large library of regularly rotating games for a small monthly fee rather than force them to pay a hefty upfront price for one title. Sony’s spin on the idea, called PlayStation Now, debuted in 2014.

The two organizations are in a clearly superior position to bring such a service to the market. That is, they make and own the consoles needed to make use of their respective services.

Consoles aren’t the only way to play video games, however. They’re just as playable on a computer. Indeed, last year, PC game sales were slightly greater than sales of all console games combined.

Enter Electronic Arts. More specifically, enter Electronic Arts’ Origin Access Premier, which for only $14.99 per month now offers subscription-based access to a huge library of PC-based video games developed by the company, expanding on a less robust Origin Access that sold for only $4.99 per month.

Frenemies

It’s a development that is simultaneously exciting and frustrating to EA stock owners.

Electronic Arts has a shot at “winning” the PC video game subscription market, as computers are largely agnostic when it comes to how they’re used. In fact, it would be relatively difficult for Sony to make a dent in that sliver of the market.

Microsoft allows some Xbox games to be played via Windows 10, but it appears utilization of the option has been modest. Meanwhile, rival game maker Activision Blizzard (NASDAQ:ATVI) hasn’t brought a similar service to the market — at least not yet.

Nevertheless, Electronic Arts is mostly missing from the console-centric subscription market.

That’s not from a lack of desire. Electronic Arts presented the idea of subscription-based access to a small number of titles through the PlayStation console back in 2014, but Sony shot down the idea, suggesting it didn’t offer enough value for the intended price. It’s not apt to be a coincidence that Sony was already building its PlayStation Now market at the time.

Microsoft was slightly more accommodating, adding an EA Access app to the Xbox’s options back in 2014. Access to an EA subscription service via the Xbox hasn’t evolved beyond that relatively limited offering, though.

It’s not clear if Microsoft or Electronic Arts has kept the possibility of an expanded EA service at bay. But, presumably to avoid “feeding the beast,” Microsoft has been the more disinterested partner. Perhaps it had been mulling Game Pass long before it launched last year.

If Electronic Arts proves it can help Microsoft sell more Xbox consoles, though (and ironically enough, sell more Game Pass subscriptions — consumers will pay for multiple services), the software giant may well eventually embrace the frenemy’s subscription-based service.

Bottom Line for EA Stock

It’s still the early innings of EA’s subscription-based venture. It’s unlikely even the company fully knows how well its PC game-rental offering will perform. And even if somehow the idea migrates over to the console world, it won’t happen in the immediate future.

Sony and Microsoft will do all they can to funnel gamers to their own subscription-based products before they share access to their customers with rival game publishers.

Still, in most regards, it’s a migration that seems inevitable, driven by consumers that are increasingly demanding device-agnostic access to the services they’re paying for on a month-to-month basis.

The upshot for current and prospective owners of EA stock is that Electronic Arts is thinking and acting proactively. It’ll be fully ready once the lines separating consoles and computers and console makers and game publishers are all fully blurred.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2018/09/electronic-arts-understands-this-is-the-future-of-video-gaming/.

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