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Microsoft's E3 Briefing Highlights The Company's Ongoing Evolution

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Microsoft (NASDAQ: MSFT) kicked off the 2014 Electronic Entertainment Expo with a press event that focused on only one thing: new video games.

This might sound like a no-brainer considering that E3 is a show for the game industry, but Microsoft initially promoted its new console, Xbox One, as an all-in-one entertainment device. The console was also expected to come with a number of restrictions on game renting, sharing and selling.

These elements did not impress consumers, especially those who were most interested in buying a new game console.

As previously reported on Benzinga, Microsoft listened to consumers, reversed its controversial policies and shifted its focus to interactive content.

Microsoft's changes did not stop there. Last month, the company announced that it would begin selling Xbox One without Kinect at the reduced price of $399.

"The lower price should mean that XB1 and PS4 split the market going forward, and overall, the market probably grows by 10 percent or more from current run rates," Wedbush analyst Michael Pachter told Benzinga after the price adjustment was announced.

Related Link: GameStop Hardware Sales up 81% On Xbox One And PS4

Reflecting the newfound gaming focus, Microsoft used its annual E3 press conference to announce a cornucopia of new games, including Halo: The Master Chief Collection (a remastered compilation of the previous games), the third chapter in the Crackdown series and a new Phantom Dust. These games will only appear on Xbox One, but Microsoft stressed exclusive elements (such as downloadable content) for other games that will also appear on PlayStation 4.

In previous years, Microsoft tried to impress consumers with new hardware concepts that were either gimmicky or simply not yet ready for primetime. Kinect, for example, was a big part of the Xbox One reveal in 2013. This year, consumers could barely tell that the device exists.

Instead of boosting Kinect's popularity with new games, most developers are building software without Kinect in mind. At least one game will lose Kinect support before it arrives in stores. Bungie, the creator of the Halo franchise, recently announced that Destiny will no longer support Kinect.

This could be the reason why Microsoft chose not to talk about virtual reality, despite a Wall Street Journal report indicating that the company is working on a VR headset. Microsoft may have feared that VR may be viewed as another unnecessary gimmick.

"Anything is possible within Microsoft, but I haven't heard anything to lead me to believe that there's something in that respect," Bernstein analyst Mark Moerdler told Benzinga shortly before Microsoft's E3 presentation.

That doesn't mean that Microsoft isn't working on a VR project. But that isn't what consumers said they want. They simply want tons of games. This year, Microsoft listened.

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.

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Oct 2014Credit SuisseMaintainsOutperform
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Posted-In: comments Mark Moerdler Michael PachterAnalyst Color News Events Analyst Ratings Tech Best of Benzinga

 

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