MSFT Microsoft Corporation

By Sarah E. Needleman 

Microsoft Corp. is planning to sell an Xbox videogame machine that doesn't use discs or cartridges, a first for a major console maker and a move that brings the industry a step closer to an all-digital, streaming future.

The new device, due May 7, will have the same hardware specs as the lower-tier Xbox One S model -- Microsoft sells a higher-end Xbox One X -- minus the slot for physical media. It will come with a terabyte of storage for downloading games and cost $249, about the price of a discounted Xbox One S model over the holiday season.

Fewer people are buying games at stores, putting the media on the same path as movies and music. Downloads are a boon for publishers, yielding fatter margins since they sidestep packaging and shipping, and giving retailers a cut of the profits. Electronic Arts Inc. said 47% of console-game unit sales in 2018 were downloads, up from 37% a year earlier.

Downloads are seen as a stop along the way until people can just pick up a controller and start playing any game instantly. Google in March introduced a Netflix-like service called Stadia that aims to let people stream games from web browsers, phones and other devices -- no download required. Microsoft plans public testings of its own game-streaming initiative later this year.

"This transition to digital gaming is going to happen," said Piper Jaffray analyst Mike Olson. "It's just a matter of when, not if." He predicts nearly all videogames will be sold in digital form by 2022.

Downloads and streaming have dealt a severe blow to retailers such as GameStop Corp., which have subsisted on sales of used games.

Gamers have been slow to completely do away with the discs and cartridges they have used for decades, in large part because full-game downloads can take hours and eat up a lot of storage space. Some games top up at 50 gigabytes or more. Microsoft said the new Xbox One S All-Digital Edition will have enough space to house eight to 10 games at a time. Other games people own will be stored in the cloud.

"This isn't for everybody," said Jeff Gattis, who manages marketing for platforms and devices. Microsoft is looking to appeal to people who grew up with digital media and don't want to pay for parts they don't need.

Microsoft is selling the all-digital console for $50 less than the Xbox One S today, and is pre-loading it with three older games, including "Sea of Thieves." The company declined to say whether it would still make a console in the future that includes a slot for physical media.

Analysts say a new console -- even if just a tweaked version of existing hardware -- gives Microsoft a chance to generate buzz and lure gamers to its subscription services for playing games online and accessing a robust portfolio of mostly older games.

David Hansen, an avid gamer and live-streamer in Vista, Calif., hasn't bought a physical copy of a game in about five years. He said discs can get scratched or lost, and downloaded games are more convenient to play.

"You can switch from one game to the next without getting off your couch, " the 21-year-old said. "It's easier."

Microsoft stopped disclosing Xbox One sales in 2015. It is widely believed to significantly trail Sony Corp.'s PlayStation 4, which has sold more than 94 million units since 2013.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

(END) Dow Jones Newswires

April 16, 2019 17:24 ET (21:24 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.