Will the Fortnite “Cross-Play” Issue Derail Sony Corp (ADR) Stock?
Fortnite always carried the potential for runaway success. Thanks to its playful, color-saturated graphics that are appropriate for all audiences, but with gameplay reminiscent of war titles from Activision Blizzard, Inc. (NASDAQ:ATVI) and Electronic Arts Inc. (NASDAQ:EA), Fortnite covers all bases. However, that success has consequences for established companies who don’t play ball.
Case in point is Sony Corp (ADR) (NYSE:SNE). In a strange and anachronistic move, Sony imposed “cross-play” restrictions on its PlayStation 4 console. Essentially, this restriction prevents gamers who had first played Fortnite on a PS4 from accessing their same Fornite accounts in Nintendo Ltd’s (ADR) (OTCMKTS:NTDOY) Switch platform.
Non-video gaming investors might state, what’s the big deal? Sony offers the same access to play the game as any other platform. Unfortunately, it’s not that simple. Fortnite commands serious attention from both gamers and the consumer-tech industry. The cross-play might explain why SNE stock dipped 1.4% for the Thursday session.
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Furthermore, Fortnite creator Epic Games has achieved a rarity within this disposable and fickle industry: rabid and sustained engagement. End-users don’t just enjoy the title, but rather, they’re diving in with in-game purchases for character outfits and enhanced attributes.
Consider that several critics label cryptocurrencies as vapor. But what about in-game purchases? Epic Games doesn’t pretend that their addictive title has economic utility beyond the confines of its digitalized fantasy world. Yet here we are.
Sony, though, is currently holding to its guns. They released an explanation, which states in part:
“We’re always open to hearing what the PlayStation community is interested in to enhance their gaming experience. With more than 80 million monthly active users on PlayStation Network, we’ve built a huge community of gamers who can play together on Fortnite and all online titles.”
They’ll recant, and here’s why:
Sony Needs to Rid Itself of Old Thinking
The bottom line for Sony, and by logical deduction, SNE stock, is income potential. After enjoying a strong recovery where shares gained 141% in the trailing five years, the company can’t afford myopic decisions. It’s what the PlayStation community wants, and ultimately, it’s what shareholders want as well.
But before I get into the details, I think it’s instructive to understand why the Sony brass would cause such a ruckus. Last month, I wrote extensively about the company, and its optimism for the future. Overall, I’m bullish on the organization for which I worked, but it has challenges.
One of the critical barriers is whether or not Sony can move away from poor decisions. Unfortunately, Sony has a history of pushing “proprietary thinking.” It tried to take over the videotape market with the Betamax format. The Japanese firm also had a stake in the Blu-ray versus HD DVD war.
When I worked in their digital imaging department, Sony cameras were only compatible with the proprietary “Memory Stick” brand of flash-memory cards. But eventually, SNE lost this format battle as well. The lesson is that management must realize the Sony brand doesn’t currently command the leverage to create proprietary products.
I had hoped that execs would have learned this lesson by now, but apparently, I was wrong. But at least now, you know why they erred on Fortnite compatibility.
But the better news is that they must recant. According to the most recent count, 125 million people play Fortnite. Earlier this year, 3.4 million played the game concurrently. For the month of April, Fortnite delivered $296 million in revenue. This represented a whopping 32.7% increase from the $223 million generated in March.
In other words, tick off Fortnite gamers at your own risk.
Fortnite Controversy Will Have a Limited Impact on SNE stock
For those of you who are worried about the Fortnite controversy negatively impacting SNE stock, I suggest relaxing. This addictive game may be the flavor of the year, but Sony is on a much longer-term recovery.
For starters, I’m not selling my stake in SNE stock. Why would I? With the harsh lessons they’ve learned over the past decade or so, they’re revamped for success. I’m not going to quit when things are just getting interesting for the company.
Broadly speaking, I also argue that things are getting interesting for Japan. With reaffirmed political stability, Japanese stocks present smart speculative opportunities.
Finally, the cross-play issue should be a relatively easy fix. Yes, management will have to lose a little face to correct things. Welcome to the Sony recovery story; clearly, it’s a work in progress. However, they’ve made too much progress to let a small issue overcome them.
As of this writing, Josh Enomoto was long SNE.
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