news\ Jan 4, 2013 at 2:00 pm

GameStop stock tumbles amid fears of PS4 used-games patent


Sony's recently unearthed patent -- which was discovered to have the ability to tag and block used games from being played -- has led to rumors that the next PlayStation console could restrict used games from being played. If true, it would be a crippling blow to electronic retailer GameStop. The fear that the PS4 (or even the PS4) would not allow used games to be played has spread fear among investors, leading to a drop in the retailer's stock.

GameStop's stock price dropped by $1.30 -- a five percent loss overall -- after news of the patent went public. Used games are, for the most part, the primary reason for GameStop's success. Whether it's trading games in for store credit toward another purchase or buying older releases for less than full price, used games are the cornerstone of GameStop's business model. The fact that a console could bar playing used games is obviously not good.

Not all are taking the bait, however. Gaming industry analyst Michael Pachter of Wedbush Securities sent a note to investors, downplaying the idea that the PS4 would prohibit used or previously played games. He claimed Sony would be "materially hurt if its console blocked used games and competitor consoles from Microsoft and Nintendo did not."

"Sony benefits little from a unilateral decision to block games," he wrote. "The company's first party software sales represent less than 10 percent of overall sales on its consoles, and it is unlikely that blocking used games would result in a lift of more than 10 percent in new game sales. That means that Sony's sales would rise only marginally if the PS4 blocked used games."

Instead, Pacther's "more rational view" is that the technology is designed to provide individual publishers with a  means of blocking used games from being played. The patent did mention replacing online codes with this type of technology. Pachter explained, "Should a publisher be reckless enough to risk the wrath of its customers, Sony's ID matching technology would allow that publisher to create terms of use that are similar to a software license, rather than to a disc sale."

"We do not believe that either Sony or any publishers are currently foolhardy enough to take such a risk," he added. I don't know, Pacther. I could see EA, which already forces users to buy a separate code to play its sports titles online (if pre-owned), implementing this feature.

For GameStop though, I agree with Pachter in that the reaction is "overblown." As it stands now, GameStop's stock currently sits at $24.79, slightly above where it closed yesterday.

[Yahoo Finance]

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