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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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