Commentary: Sony wakes up

By Paul Jackson, with Jaap Favier

Sony Computer Entertainment made two key announcements this week about the future of the PlayStation family: Sony is aggressively targeting a global November release for the PS3 and is updating PlayStation Portable features.

While the company isn't out of the woods yet, this is the first sign that Sony is watching what its competitors are doing and responding accordingly. If it can live up to these promises, Sony's success will guarantee its continued dominance in home consoles and will significantly increase its market share in the portable console space.

PS3 delays--not as long as expected
At a quickly convened event in Tokyo, Sony Computer Entertainment President Ken Kutaragi made the two announcements that will shape Sony's PlayStation products for the next two to three years:

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• The PS3 will come to market at least one year behind Microsoft's Xbox 360. Kutaragi announced that Sony will release the new console in early November in the three key global regions of Japan, North America and Europe. He attributed this delay--from the original spring 2006 date publicized at E3 2005--to the late finalization of the Blu-ray specification. The delay isn't a surprise given the lack of information, development kits and playable demos that we would normally have expected by now if the console were to make it to shops before the summer. However, recent industry speculation pegged the PS3 release for late 2006 in Japan and potentially slipping to 2007 in North America and Europe. Thankfully, Sony's plans are more aggressive than this.

• The PlayStation Portable will become a true network appliance. In addition to announcing a price reduction on the PSP to $199 that kicks in March 22, Sony also announced that it will support video VoIP (voice over Internet Protocol) phone calls by October--utilizing an EyeToy-like add-on camera and, presumably, Sony's Instant Video Everywhere technology. Sony also announced support for a future GPS module and RSS feeds. This means that the PSP moves from being a so-so Web browsing device to a full-fledged network appliance.

• Sony's online strategy is starting to emerge. Microsoft has made much of the success of downloadable games on Xbox Live Marketplace, and Nintendo's strategy for the Revolution centers on downloadable back-catalog games. But Sony had been silent on its plans for digital distribution of content--until now. Now, not only will the PSP support the downloading of more casual Flash-based games, but it will also play downloaded PSOne titles via an emulator. While business model and game storage questions remain, this represents a step in the right direction for Sony--and leaves us eagerly awaiting details of the online services it will offer for the PS3.

Sony remains in the driver's seat--for now
After a period of damaging uncertainty, Sony has reclaimed the initiative with these announcements. As a result:

• Sony will likely retain the console crown. Microsoft will get the next-generation console market to itself for longer than it initially planned, but not as long as it may have hoped for. If the European and North American releases of the PS3 had slipped to 2007, Microsoft stood a chance at beating Sony in North America. In addition, reducing the price and increasing the gaming and communications capabilities of the PSP will boost sales and answer critics who point to poor sales of Universal Media Disc (UMD) movies as an indicator of the failure of the device's nongame functions. (UMD is the optical media format used by the PSP.)

• Blu-ray slips in its contest with HD DVD. In October, we tentatively declared Blu-ray the likely winner of the next-generation DVD standards war. But with the delay of the Blu-ray standard and the resultant delay of the PlayStation 3, this victory is likely to take even longer. Additionally, HD DVD drives will now ship in Toshiba laptops long before Blu-ray players hit the market, and at a significantly lower price, meaning HD DVD may yet triumph. Compromise between the two camps remains the best solution for consumers, but still seems unlikely.

• Digital distribution will hit the mainstream. This time last year, the digital distribution of game software seemed a distant dream: Retailers had a strong hold on consumers' wallets, content producers were paranoid about piracy, and platform owners were reluctant to support network services. But now we have seen the successful digital distribution of PC games like "World of Warcraft" and the launch of casual download services, such as GameTap and Xbox 360 Live Marketplace, that have sold thousands of copies of games. We've also witnessed digital distribution announcements from both Sony and Nintendo. Thus, this year will be the one in which digital distribution starts to become a viable business model for the video game industry.

© 2005, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.