Do Sony And Microsoft's New 1TB Game Consoles Fortell the End of Physical Games?

By Markets Fool.com

BothSony andMicrosoft plan to offer new versions of their top-tier gaming consoles with oneterabyteof on-board storage.

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The 1 TB Xbox One. Photo: Microsoft.

Microsoft has already put its 1TB Xbox One on sale at $399, which formerly was the list price for its stock 500GB model. That version, which has been discounted to $349 since the 2014 holiday season, will now be permanently sold at that price.

Meanwhile, Sony's 1TB PlayStation 4 will launch in mid-July in Europe, with a release in the United States following, according to a blog post. The company has not announced pricing or a specific date and instead directed people to "check with your local retailer."

More on-board storage may be what consumers want, but it's also what the companies want because it allows them to sell more games directly -- cutting out third-party retailers. The new consoles are necessary because storage has become more important as more game titles are sold digitally, without the traditional disc.

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Microsoft said it made the move because "since Xbox One launched, one of the most frequent requests from fans is to add more storage to their consoles." Sony did not offer a similar explanation, but it can be assumed that its fans want the same thing.

What is happening in the console industry?
For most of the history of consoles, buying a new game meant purchasing a cartridge or a disc. On-board storage was used for saving progress and other secondary tasks. That has begun to shift as more games -- even top titles -- are being offered to consumers as downloads. That means the actual game lives on the console's hard drive, not on a disc at all, requiring more storage space.

Sony's 1TB PS4. Photo: Sony.

While in 2014 only 20% of game sales were via digital download, that number is expected to rise in the coming years. "By 2018, about 50% of console game sales will be sold via digital downloads, according to a forecast by market researchfirmEEDAR," reports VentureBeat.

What's happening in the gaming world is not unlike what has already occurred in the music and DVD business. As sales move from physical to digital products it should eliminate the need for physical retailers. There are very few record stores anymore, and DVD sales have been continually diminishing. Even the book industry has moved more toward digital -- one of its two major chains, Borders, went bankrupt, while survivorBarnes & Noble has devoted more space to toys and other non-book items.

Moving to a digital future seems inevitable for gaming, and these two new consoles with enhanced storage capacity will simply push that agenda forward.

It will be a slow and bumpy transition
Microsoft and Sony want to move to digital sales because it cuts out a middleman. That, in theory, allows the console makers to charge less for games while their partners actually make more. Without the physical cost of distribution and the retailers taking a cut, the entire picture looks better for consumers, game publishers, and -- of course -- Microsoft and Sony.

Gamers actually still prefer buying physical copies of titles, according to "The Democracy Of Downloading," a report fromMarketCast. That was, or might still be, true for books and perhaps even music, but eventually the lower prices and added convenience offered by digital may erode any personalpreference for physical discs.

Of course, if physical copies of games get eliminated, then gamers lose the ability to trade or sell used titles. That may also be a factor in why they cling to what is fast becoming an outdated format.

Still, one of the main barriers to digitaldownloadsbecoming the norm has been storage. These new consoles begin to solve that problem. That's very bad news for retailers and moves us closer to the end of physical video game sales.

It's no longer a question of if. It's a matter of when.

The article Do Sony And Microsoft's New 1TB Game Consoles Fortell the End of Physical Games? originally appeared on Fool.com.

Daniel Kline owns shares of Microsoft. He has never downloaded a game on his Xbox One. The Motley Fool owns shares of Barnes & Noble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.