Sony's Outlook on Gaming Gets Cloudy (Finally!) with Gaikai Buy

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Sony Cloud systemSony (SNE) isn't about to concede that the console and dedicated handheld gaming platforms are dead, but it's willing to bet on a new horse.

The Japanese giant is acquiring California-based Gaikai in a $380 million deal that will move it closer to the cloud.

Gaikai provides a platform that lets gamers play its partners' video games on any browser or Web-connected device. As an open-cloud platform, Gaikai serves up the games so players neither need to download them nor install them -- and they certainly don't need to physically bring home a copy.

In other words, a hot new console game may potentially be able to play on someone's smartphone, tablet, and even smart television. The only limitation, really, is the quality of the broadband connection on the player's end.

You've Come a Long Way, Gamer

The past few years have been brutal for the video game industry. Hardware and software sales have fallen sharply over the past three years. Some marquee titles continue to do well. Activision Blizzard (ATVI) manages to break sales records with every installment of its Call of Duty franchise.

However, gaming companies are largely trading near their lows because the occasional hit with die-hard gamers doesn't make up for missing out on a mainstream audience that has moved on from consoles -- and especially portables.

One can't compare the rich gaming experience of Uncharted 3 to Angry Birds on an Apple (AAPL) iPhone or CityVille on Facebook (FB), but easy access to free or nearly free apps and social networking games has eaten away at the masses who would at least play traditional video games casually.

Sony has been feeling the pain, and especially so since its own PS3 has been losing ground to Microsoft's (MSFT) Xbox 360. Its market share is a shrinking pie slice within a shrinking pie.



Hopping on the streaming bandwagon makes sense from a strategic standpoint. Gamers are moving to games that are device-agnostic. Someone can begin a game of Zynga's (ZNGA) Words With Friends on a smartphone, then play later rounds on Facebook or a tablet.

The problem here comes in the monetization. Video game companies that once sold $200 systems and $60 video games will have to adapt to a model that nickels-and-dimes gamers through ads on casual or social games. Die-hard gamers will be willing to pay monthly subscriptions for high-end gaming platforms. But the sum of those profits may not be enough to match what the conventional gaming companies were making during the industry's heyday.

The game of gaming is changing, and it's happening right before our eyes.


Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Facebook, Microsoft, and Apple. The Fool owns shares of and has written calls on Activision Blizzard, and has sold shares of Sony short. Motley Fool newsletter services have recommended buying shares of Apple, Activision Blizzard, and Microsoft. Motley Fool newsletter services have also recommended creating bull call spread positions in Microsoft and Apple, as well as creating a synthetic long position in Activision Blizzard.


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