Saturday, October 28, 2006

5 Reasons Why Sony Won't Lose The Nex-Gen Console War.

No console maker has ever dominated three consecutive platform generations. Will Sony pull it off? We think so. Here's why the PlayStation 3 will assume the PS2's throne in the next few years...

Let's face it; Sony's seen better days. The company's turnaround plan hasn't been going quite as smoothly as they'd hoped, they've been forced to recall thousands of laptop batteries, they've significantly downsized their PlayStation 3 launch quantities and delayed the launch altogether in Europe, and their net profit forecast for the current fiscal year was recently slashed by almost 40%. In fact, in their most recent quarter, profits plunged 94%.

But you know what? Despite these setbacks and all the negative press the company has garnered over the last six or so months, when it's all said and done the PlayStation 3 will be No.1 worldwide, although not as dominant as the PS2 has been.

Here are five reasons why we believe Sony will stay on top in the console race:

The Brand

Go up to any random person on the street and ask them to name a video game system. Odds are that the vast majority of the time the individual will respond with "PlayStation" or "PlayStation 2." In the late '80s and early '90s Nintendo was king, but on today's market there is no brand more synonymous with the world of video games than PlayStation. It's true that Microsoft has made great strides in this area with the Xbox and now Xbox 360, but on a pure mindshare basis Xbox still can't compare.

"Rather than bolting the door shut, Microsoft has left it slightly ajar, just waiting for Sony to slam it wide open."

Sony is well aware of the power of its brand and it will do everything it can to leverage the PlayStation name. Providing backwards compatibility with both the PS1 and PS2, as well as offering full PS1 titles for download through the PS3, can only help to reinforce that brand and remind gamers of the PlayStation games they hold so dear.

Selling over 100 million units, twice, has its advantages. In fact, there are a number of people who have probably owned nothing but PlayStation consoles, and those consumers are likely to stick with a brand they know and trust. Before they've even learned anything about Sony's new console, many consumers have already made up their minds that they want the next PlayStation no matter what. A strong brand should not be underestimated.

Microsoft (somewhat) Squandered its Lead

Prior to the 360's launch, all we heard about was how Microsoft didn't want to be beat to market. They wanted to get all the time they could to convince consumers to buy into their "HD Era" before Sony unleashed its PlayStation 3. Well, now it's almost a year later and is Microsoft really that far ahead? According to NPD data, Microsoft sold around 2.7 million units in the U.S through September. MS' figures indicate that the company sold 5 million units worldwide through June, and just yesterday they revealed that they had reached the 6 million units mark.
That said, some analysts believe the 360 is tracking below market expectations. There's certainly no guarantee that MS will hit its goal of 10 million units sold by the end of 2006, even if Microsoft CFO Chris Liddell remains "confident".

The fact of the matter is that although there have been many truly solid 360 offerings (GRAW, PGR3, Call of Duty 2, to name a few) there have been basically no "killer apps," except for perhaps Bethesda's Oblivion. And guess what? That'll be a PS3 launch title—so much for that advantage. If Microsoft really wanted to run away with the lead they would have needed Halo 3 to be released within the first four to six months of launch, or at the very least a near-Halo category title like Gears of War.

When the PS2, a six-year-old console, outsells your next-gen hardware month after month—which has been the case in recent months—something is not right. And according to Deutsche Bank analyst Jeetil Patel, the Xbox 360 continues to underperform the original Xbox at the same stage of its life. Rather than bolting the door shut, Microsoft has left it slightly ajar, just waiting for Sony to slam it wide open.

Japan is Ripe for the Taking

Let's not forget that this is a global market. Sure, Microsoft can do just fine with North America and Europe, but in order to win on a worldwide basis, all three of the major territories become quite important. The original Xbox was an outright failure in Japan, and despite Microsoft's renewed efforts in the country the Xbox 360 is simply continuing the struggle. The company has tried to make itself more attractive to Japanese gamers by courting developers who can make games that appeal to Japanese tastes, but those games were needed much sooner in order to make some headway in a market dominated by Nintendo and Sony.

Early reports suggest that pre-orders for Blue Dragon and related bundles are selling out, but will that be enough to stand up against the introductions of both the Wii and the PlayStation 3 this year? Yes, there will only be 100,000 PS3 units available on day one in Japan, but recent consumer surveys indicate an increasing interest in Sony's next-gen console as its launch approaches. What it comes down to is that the PS3 will have the content Japanese gamers (and plenty of Western gamers) want—Metal Gear Solid 4, Final Fantasy XIII, Virtua Fighter 5, Devil May Cry 4, Gran Turismo, etc.

And if the incredible success of the Nintendo DS is any example, the Japanese seem ready to embrace alternate control methods and unique gameplay. The Wii's innovative controls, cheaper price, and valuable catalog of IP could potentially lead to sales on the level of the DS in the land of the rising sun. Ultimately, Japanese gamers are far more likely to flock to either the Wii or PS3 than some American-made system.

Blu-ray Will Matter

No, we're not talking about Blu-ray as a next-gen movie format. The worst case scenario for Sony is that Blu-ray will fail as a movie format, HD DVD will be crowned the successor to DVD, and Sony will be left with a proprietary game disc format. And while that would certainly hurt them as a company, it wouldn't take away the fact that Blu-ray provides PS3 developers with much more storage space. Microsoft can tout highly advanced compression techniques all they want, but the extra space on the Blu-ray discs affords developers the opportunity to make their games more expansive and more detailed without having to worry about whether it will fit. Of course, if the best case scenario occurs, and Blu-ray beats out HD DVD, then the PS3 will get the added boost of being the first viable hi-def movie player for many consumers, just as the PS2 introduced DVD to many for the first time.

Sure some of this is hype, and maybe we're falling for it, but certain PS3 launch games (e.g. Resistance: Fall of Man) already look as good as the best Xbox 360 has to offer. In one to two years, we think the combination of the Blu-ray medium and the Cell processor will lead to a noticeable difference between the visuals of the PS3 and the Xbox 360, as developers begin to really harness the technology in the PS3. And by that time the PS3 won't be retailing for $500 or $600 anymore. Nintendo may not care about hi-def graphics, but in the ultra-tech battle between Microsoft and Sony, it's beginning to look like Sony has the edge.

Free Online

In the next five years and beyond, online is going to take on much greater importance, not only in terms of online gameplay, but also as a way of downloading games, extra content, and episodic material. Judging by the company's recent Gamer's Day announcements, this appears to be one area that Sony is prepared to make great strides in. PS2 online, despite Sony's arguments to the contrary, hasn't been a great experience. Xbox Live, on the other hand, continues to be a fantastic experience. Microsoft's certainly got the online advantage for now, but the Redmond giant has a weakness that Sony can and will exploit—the company, as far as we know, has no plans to make its Xbox Live Gold service free of charge. Moreover, it now appears that free, Silver-level Xbox Live membership doesn't always entitle you to free content at the same time that Gold members can access it. Meanwhile, the PS3 will offer full online gaming and other online features completely free from day one.

Yes, the argument can be made that for the price of the PS3 gamers should be entitled to free online gaming, but we think this is a great move on Sony's part nevertheless. With the inclusion of free online play, publishers know that anybody in the PS3's install base can go online. Not only does that automatically encourage developers to make use of online functionality, but it also could have important ramifications with regards to in-game ads that are streamed online. All of a sudden the potential audience for these ads is that much bigger, while on the 360 publishers of online titles with streamed in-game ads will still be limited to the number of Xbox Live Gold subscribers. Ultimately, we think that Microsoft will have no choice but to go free as well (perhaps with some ad-supported scheme with the help of MS-owned Massive Inc.), even if it's not for another couple years.

Final Thoughts

New console launches are often some of the most exciting periods to witness in the video game industry and we can't wait to watch it all unfold. This industry is poised for some tremendous growth in the years ahead, but we still believe it'll be Sony that'll maintain a leadership position and will lead the charge forward.
We don't expect Sony to dominate the way it did with the PS2. Certainly the first six to twelve months could be rough going for the PS3 as Sony deals with ramping up its manufacturing, but at the end of the day Sony will have done the "impossible" by winning three console generations in a row.

Agree? Disagree?


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