March 7, 2002 4:55 PM PST

Holes found in Sony's online game plan

Sony's plans to bring online access to its PlayStation 2 console met with skepticism Thursday, with analysts saying the company still needs to work on the business plan for online gaming.

Sony Computer Entertainment of America (SCEA) executives announced that a PS2 network adapter, with an Ethernet port for broadband Internet and a modem for dial-up access, will go on sale in August, along with games from Sony and third-party publishers that support online play.

The network adapter will work with any ISP (Internet service provider), and Sony's installation CD will include software for automatically setting up customers of popular online services such as America Online and EarthLink, SCEA President Kaz Hirai said in a conference call.

"We're not interested in becoming an ISP," he said. "We're not interested in becoming a closed, gated environment."

For now, Sony anticipates online console games will work the same way most PC games do: Consumers buy a disc with both an offline version of the game and a version that can be played for free online.

The question, said Gartner analyst P.J. McNealy, is what's in it for software publishers who will have to bear significant research and development costs and ongoing expenses for maintaining servers and other network infrastructure?

SCEA Vice President Andrew House said that instead of charging separate fees for online play, software publishers will bear the expense as a competitive necessity.

"We don't see tremendous potential for revenue or a pay-for-play model out of the gate," he said. "We see this as another opportunity to develop better and more competitive products."

McNealy said such an argument is unlikely to sway publishers who haven't already invested in PC-based online gaming. "The cost of R&D (research and development) for these new platforms is getting expensive anyways," he said. "To add online to that is going to be a tough sell."

One of the ironies is that Sony has already figured out how to make online gaming pay. Sony Online Entertainment's PC role-playing game "EverQuest" has more than 400,000 subscribers who pay $10 a month to access the game. Yet the company has announced no plans to work on PlayStation 2 games.

The uncertain business model for online PS2 games comes after a lengthy delay in the arrival of the network adapter, which Sony originally promised to deliver last November, along with an add-on hard drive for the PlayStation 2. Hirai said Thursday that the company has not yet set a date for making the hard drive available.

Also up in the air are previously announced plans to equip the PlayStation 2 with its own version of the Netscape Web browser and other Internet goodies. "Right now, I don't see that to be a large entertainment option--for people to browse the Internet on their television sets," Hirai said.

Hirai added that the company will reveal plans for delivering online music and movies via the console by early next year. "We're looking to become a mass-market broadband platform in the home," he said.

The overall impression, said IDC analyst Schelley Olhava, is that Sony is still working out its online strategy, even as it faces competitive pressure from Microsoft, which has said it will debut an online service for its Xbox game console this summer or fall.

"I think Sony is trying to figure out the market, just like everybody else," Olhava said.

While Microsoft hasn't laid out many specifics for its forthcoming online service, the company is certain that it will be broadband only, using the console's built-in Ethernet adapter and hard drive. Olhava said the Xbox's built-in online support give it an advantage, as peripherals for game consoles are historically weak sellers.

"Gamers traditionally go out and buy memory cards and maybe an extra controller, and that's about it," she said. "I think Sony clearly needs to demonstrate the value proposition to get people to buy the network adapter."

 

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