Ruth Saldanha: Last month we released a video game observer in which we noted that dependence on local hardware and single game purchases stands in stark contrast to the all you can consume stream from the cloud model that is taking over non-interactive media like video and music. Could this change, is it likely that gaming will head in the way of Netflix? Morningstar analyst and author of the report Neil Macker is with us from Chicago today to discuss this.
Neil, thank you so much for being here today.
Neil Macker: Thank you for having me.
Saldanha: Going ahead, what do you see as being the primary medium of video gaming?
Macker: Yeah, I think as we move forward, we expect the premium medium to stay where it is now, which is local hardware. Whether that's a console, a gaming PC, or a mobile device in your hand. We expect gamers to continue to use these local platforms that have all the compute and graphics processing power in the device themselves, as opposed to streaming from the cloud directly as we see with platforms like Netflix or Hulu on the video consumption side of the business.
Saldanha: Do you not see gamer streaming more from the cloud going ahead?
Macker: We expect some of it, but we expect it to be on the margin. One of the big pieces that should be coming out that'll give us little more data about this as Google Stadia, which will be launching in November. However, given that that model is a complete console replacement, we're not sure that that many people are willing to make the leap. The next step along this line will be when Microsoft and Sony both move to streaming from the cloud, but letting you use the games you've already purchased on the Xbox, or a PlayStation platform themselves. So, we expect people to do that, but more when they're out of the home. When you're in the home, we expect you to continue to use that console or gaming PC, which has considerably more power and does not suffer from latency or a need for a broadband connection.
Saldanha: Are existing gaming companies trying to evolve to be more like streaming services.
Macker: We don't necessarily see that the gaming publishers like an Activision or EA or Ubisoft or Take-Two will do so. We are seeing a little bit of the movement on the subscription side, especially from EA and Ubisoft who both have products out there. But the cloud streaming side, we see that more likely to happen on the larger companies like Microsoft or Sony, Google's already in this market, Apple's sort of looking around as well. We expect Amazon may jump into the space as well. But for the publishers that we saw, we don't think they have the infrastructure or the capital really to compete with these larger players.
Saldanha: So, what is your top video game pick and why?
Macker: Yes, our topic right now is Activision Blizzard, we have a fair value estimate of $66 on it. We think the company has the best collection of not only IP, but some of the diversification of revenue streams between PC and console and mobile between the four publishers that we cover. Additionally, 2019 has been a little bit of a transition year for the company, the stock has been beaten up a little bit, but investors with a longer term view we think Activision will make some announcements about new games on the PC side at BlizzCon in November and then moving forward beyond that. The company still has great IP like Diablo, World of Warcraft, Overwatch, Call of Duty. And then on the mobile side Candy Crush, which would help the company as we're sort of going through these any transitions in the platform model, let's say in the next five to 10 years.
Saldanha: Thank you so much for joining us today Neil.
Macker: Thank you.
Saldanha: For Morningstar, I'm Ruth Saldanha.
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