In this week's edition of "Game On," The Fly spoke with Wedbush Securities analyst Michael Pachter about the upcoming new consoles from Sony (SNE) and Microsoft (MSFT), new game prices, and Microsoft's planned takeover of Bethesda.
PRE-ORDERS: Online pre-orders for the Xbox Series X and PlayStation 5 went live recently, with consumers at nearly every online retailer experiencing issues with pre-ordering the consoles. Commenting on the reactions to the pre-order issues, Pachter said that he's not surprised by the issues and that he doesn't think many people "understand how pre-orders work." “Pre-orders are not intended to sell millions and millions of consoles," he said. "Pre-orders are an indication for the retailer for how many they should order for the big Christmas rush."
“In normal times, the console gets announced in June, pricing is in June, and pre-orders start in June," Pachter added. “Sony and Microsoft got cute, and they both decided they’re going to hold off and not tell anybody pricing. The only reason Microsoft [announced its price first] was due to a leak.”
The analyst noted that retailers were not prepared for the high demand, and that typically they "only commit to a certain number," but not "the whole supply." “You didn’t have that trickle from June to September," he said, noting that consumers are much more likely to buy these new consoles online anyway, as most people are in some form of shelter-in-place due to the COVID-19 pandemic. “Who’s going to go to GameStop (GME) to stand in line for a pre-order? Nobody! We can all do it online. So it’s the perfect storm of no E3, console manufacturers waiting on pricing from June until September, and pre-orders all hitting [at the same time]," Pachter said.
DISCLESS CONSOLES: Both Microsoft and Sony will be releasing cheaper, discless versions of their upcoming consoles, with the discless PS5 priced at $399.99 and the discless and lower-powered Xbox Series S priced at $299.99. When asked if offering two separate versions of the same console at launch will become the standard going forward, the Wedbush analyst said that there "probably aren't going to be any more" consoles, adding that while console manufacturers will make more money with discless versions, most people he knows who are "real gamers" will buy the more expensive box because they actually prefer discs.
“I think that the disc and discless versions are something that Microsoft started with the Xbox Series S, and I think Sony saw that and thought it was a good idea," he said. "I think that the console manufacturers will prefer that nobody buy a disc because they’d rather every game be bought through their stores.”
PS5 GAME PRICES: When Sony recently unveiled the pricing and availability of the PlayStation 5, it revealed that some PS5 games will cost $69.99 instead of $59.99, which is the standard price for most new current-generation titles. Pachter told The Fly that he does not anticipate Microsoft matching the $70 price point due to Smart Delivery, the Xbox Series X's new feature that automatically upgrades cross-generation games to their best possible technical performance at no additional cost. “Microsoft has already said they have something called Smart Delivery," the analyst said. "They’ve already said that all their first party games will have Smart Delivery. They’ve already said that if you buy an old-gen version of their next games that you will have Smart Delivery, in that when you get a new console [the games] will be upgraded for free. They’ve already said that. So the only way they could raise the price to $70 is if they charged $70 for Halo on old-gen consoles, and it doesn’t sound like they have any intention of doing that.”
Pachter added that Sony "confused" people as well with tiered pricing for upcoming Sony exclusives "Spider-Man: Miles Morales" and "Demon's Souls," and noted that Take-Two (TTWO) already tried to offer "NBA 2K21" at a higher price on next-gen consoles, which he said was "stupid and greedy." In addition, Pachter pointed out Activision's (ATVI) "dumb and confusing" pricing strategy for the new "Call of Duty," where the game will cost $60 for each generation but will cost $70 if you want the version of the game that can be played on both generations.
“I don’t know what’s going to happen," he added. "I think it’s a complete mess and that the messaging is stupid. Again, I don’t care if they raise prices, but I think the console manufacturers are the ones who have to do it, and that Sony and Microsoft need to get it together, and bring in the other publishers to get it together. But that’s what stuff like E3 is for, and we didn’t have that this year.”
BETHESDA: When asked if Microsoft's recently announced acquisition of Bethesda, which makes "Fallout," "Elder Scrolls," "Doom," and "Wolfenstein" games, will give it an advantage against Sony, Pachter said he thinks the move "catches them up" to the PS5 maker. "I don’t think that it gives them a leg up as much as [Sony’s first-party lineup]," he said. "Sony has more big titles, and Bethesda catches Microsoft up. I could say that prior to Bethesda, 'Halo,' 'Gears,' and 'Forza' were the three giant games Microsoft had. And Sony has twice as many, even three times as many [big games]. Now add 'Fallout,' 'Elder Scrolls,' 'Doom,' 'Dishonored,' 'Prey,' and 'Quake.' There’s a lot. So Bethesda was a big acquisition for them.”
The analyst added that the deal makes Xbox Game Pass, Microsoft's video game subscription service, "much more compelling," saying access to Bethesda's back catalogue of titles is "enough of a reason" for someone to sign up for the service.
M&A: When asked if he sees any other major publisher M&A anytime soon, Michael Pachter said he's not sure because he doesn't know "who's for sale." "I don’t think buying any of the Japanese publishers, with the exception of perhaps Square Enix, does much for any of them, because most of the Japanese guys have maybe one Western hit, and a bunch of Japanese hits," he said. “Domestically, there’s not much left to buy. Insomniac got sold, and Bethesda got sold. What’s left? Warner Bros. Interactive (T) is no longer for sale. Valve, I don’t think they’re for sale. So there’s really not a lot of publishers or big developers left.”
SWITCH: Reports are pointing to Nintendo (NTDOY) potentially releasing a higher-end version of its popular Switch console. When asked if there is much demand for a new Switch, Pachter said he doesn't really know what Nintendo will do, though he thinks a higher-end version of the system might mean a bigger screen and "not necessarily a better processor." "It’s possible [a new Switch would have] a better battery, bigger screen, longer battery life, brighter [screen]," the analyst said. "I don’t know why they would change the system architecture. That would require new games, and I’m not sure that they’re ready to do that. But I honestly don’t know.”
“If they put out a bigger screen at the same price point, I think that’ll do really well," Pachter added. "If they try to charge more, maybe $350, for a faster machine, I think it’ll do really poorly.”
"Game On" is The Fly's weekly recap of the stories powering up or beating down video game stocks.
Symbol now SONY
-0.17 (-0.22%)
Microsoft
-1.31 (-0.62%)
Nintendo
+ (+0.00%)
AT&T
-0.205 (-0.72%)
GameStop
+0.38 (+3.77%)
Tencent
+ (+0.00%)
Take-Two
-0.18 (-0.11%)
acquired by MSFT
-0.9 (-1.10%)
Electronic Arts
-1.17 (-0.89%)