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Tuesday, February 9, 
1:15 pm

In videogame war, Sony needs content deals

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Sony Corp. (NYSE:SNE) last week unveiled its plan to build upon its online PlayStation Network, part of an effort to catch up with Microsoft Corp. (NASDAQ:MFST) in gaming and execute a broader turnaround strategy.

Microsoft's online network, XBOX Live (XBL), accessible through the XBOX 360 console, is the virtual go-to spot for gamers -- even if the division is barely profitable. XBOX users have also been able to get movies online from Netflix for a year, a capability Sony announced for PlayStation just last month.

Is Sony gaining ground? Financials are closely guarded, but other numbers look promising. Year over year hardware sales are up 70%, while online game downloads on the PSN have climbed 60%. Registered PSN users, Sony says, number 31 million, 11 million more than Microsoft's XBL.

But the bottom line is that Sony has sold 9 million PlayStation 3 units worldwide in the U.S. to Microsoft's 16 million XBOX 360 units. (Microsoft had a one-year head start, but PS3's average annual sales lags XBOX 360's by 1 million units per year). Games made for both platforms, particularly first-person shooters, sell fewer PlayStation versions than XBOX 360 versions, and XBL has more games that the gaming community wants to play -- and, more importantly, will pay to download -- than its sleeker counterpart. Also, only about 16% of PSN's registered users sign on daily.

So how can Sony get registered users to spend more time and money on PSN? Some industry experts think the company will have to strike several strategic deals with videogame publishers and/or developers that will give it exclusive rights to a title so it is available only to PSN users.

Straightforward acquisitions of game developers are one option, but these deals can be extremely expensive. So the deals will likely take other forms, such as Sony buying exclusive rights to just one game franchise instead of an entire studio, or doing  "windowed exclusives," which would give Sony exclusive rights for a period of time.

Deals can also take the form of royalty discounts. For each unit a publisher sells, it pays out a certain portion to the platform manufacturer. Sony could give the publisher a 25%-30% discount on royalty fees; with the money the publisher kept, it could develop an extra level or feature, for example special weapons exclusive to the PlayStation platform.

But even an exclusive, well-made game with a heavy emphasis on multiplayer is not a foolproof formula for success. Sony knows this all too well: its 2008 LittleBigPlanet, an exclusive game for Sony developed by Media Molecule, garnered high scores from video game reviewers but piled up on store shelves, selling only 800,000 units in the year following its release.

Apparently the game was too mellow. As one industry analyst told The Deal, "people want to shoot things, they want to be a hero. We're dealing with 'angsty' 14-year-olds here." LittleBigPlanet allowed players to do many things but shooting wasn't one of them.

With assets of $44 billion, including $9.3 billion in cash and cash equivalent, and $42 billion in liabilities, Sony is well-situated to strike deals. It just needs to choose the other players--preferably including some first-person-shoot maestros-- wisely. - Sara Behunek




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Comments
Comments
From: Pablo,

The Xbox 360 did come out before the PS3. Though the PS3 has also had a very high price point, too high, for most of it's history. Since they've brought the new slim model down to $300 it is selling very competitively.

http://www.youtube.com/watch?v=gyeemtS1jII


From: PS3Owner,

"But the bottom line is that Sony has sold 9 million PlayStation 3 units worldwide to Microsoft's 16 million XBOX 360 units, even though they were released around the same time."

Am I being thick or is this sentence just completely wrong on every level?!

The PS3 has sold approx 27 million units world wide and the Xbox360 has sold 34 million units.

The PS3 was launched a full 12 months later than the Xbox360 in the US and Japan and some 16 months later in Europe and other areas!

Despite a huge 16 month head start for the 360 sales are virtually neck and neck in Europe at around 10 million each. In Japan the PS3 has outsold the 360 4-fold despite launching a year later. It is the US that is the 360's main fighting ground with a 9 million unit advantage over the PS3 (which may be narrowed, but I'd be surprised if it's overturned).

Despite this though if you time-adjust the launches the PS3 has actually sold more units than the 360. This is even more significant when you factor in that the 360 launched as the first next-gen machine with no competition, a decent selection of games, and a relatively low price. This in constrast to the PS3 that was launched competing against an established 360, the new Wii, with an at the time unproven disc technology, high price, and relatively few launch games.

So actually it's not such the clear cut victory Microsoft would like to make out - in fact they must secretly be kicking themselves for not capitalising on their head start more. Do I expect the 360 to finish 3rd by the end of this generation? Yes I do, not that it matters this time as all consoles this gen have passed the point of being declared a failure (all consoles have sold more than both the Xbox and Gamecube did in their entire lifecycle).

In summary, if you're going to do articles on the 'console war' please get your facts right first...


From: Sara Behunek,

PS3Owner,

You are absolutely right. Those figures -- the 16 million and the 9 million -- refer for the U.S. market, and I have changed the original post to reflect my inaccuracy.

But that doesn’t change the fact that activity on the PS3 network is not nearly as robust as it is on XBOX Live. In fact, it makes it even more of a wonder.

The question is: why are major games, such as Modern Warfare, selling so much less PS3 units? Since the game was released in Nov. 2007, it has sold 5 million copies in the U.S. as of Oct. 31, compared to 2.1 million PS3 units. That means that the attachment rate for the game was one-third for XBOX users in the U.S., compared to one-quarter for PS3 users.

We can also look at a more recent example. Borderlands, launched in Oct., sold 417,602 XBOX 360 copies in U.S. that month and 112,666 PS3 copies.

I believe the reason for this is the following: Modern Warfare is known as a multiplayer game, and people are more likely to engage on XBOX Live for multiplayer. Only about 6-8 mo. ago were PSN users able to see what "friends" in their network were up to so they could join in. XBL has done this all along.

Sony is on the right track, but it needs to enrich PSN by offering exclusive games, particularly shooters, that emphasize multiplayer so that registrants actually log on regularly and spend time on the network.


From: Andrew A. Sailer,

You have an interesting view on this that differs from mine, each to his own I guess.


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