Rumors of PS4 Restricting Used Games Send GameStop Stock TumblingS

GameStop's stock price closed lower by $1.30—a five percent loss overall—after word this morning that Sony had applied for a patent on technology that could restrict how used games are played on its next console.

Used games are, of course, a cornerstone of the GameStop customer experience, whether trading them in for store credit toward other purchases or buying older releases for less than full price. The news was enough for the gaming industry analyst Michael Pachter of Wedbush Securities to send a note to investors that, while acknowledging the patent filing, downplayed the idea Sony's next console would outright prohibit used or previously played games.

"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."

Moreover, "Sony would be materially hurt if its console blocked used games and competitor consoles from Microsoft and Nintendo did not," Pachter said. He maintained confidence in GameStop, rating it at "outperform" and setting a 12-month share price target of $33 for it. The stock currently sits at $24.36 a share; it opened the day at $25.44 and began falling at the time the Sony news spread.

Pachter says a "more rational view" is that the technology Sony has is meant to provide individual publishers with the means of blocking used games from the console, if they so choose. "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," he said. "We do not believe that either Sony or any publishers are currently foolhardy enough to take such a risk.

"The news has negatively impacted GameStop shares, and we think the reaction is overblown," he added. Four other analysts, including Arvind Bhatia of Sterne Agee, sounded similar notes in memos to investors.

Kotaku reached out to GameStop for a comment on the news but did not receive one as of publication time. In a call to investors last March, GameStop's CEO Paul Raines said "We think it's unlikely that there would be that next-gen console [that blocks used games] because the model simply hasn't been proven that works."

Almost a year ago, Microsoft was rumored to be considering similar anti-used game measures in its next console, codenamed Durango. Those whispers were enough to send GameStop's share price on a similar, if more gradual slide, losing $1.73 from its $25 price in a week. The stock did rebound, but didn't surpass a $25 share price again until November.

GameStop shares fall on Sony patent application [Yahoo! Finance]