PlayStation Network shapes up

Sony is deliberate as it maps out plan vs. Xbox Live

Sony's PlayStation 3 might be following Microsoft's Xbox 360 into the video market, but it will blaze its own distinct path.

That's the early word from Sony Computer Entertainment America president and CEO Jack Tretton, who does not expect the PS3 to adopt the monthly fee imposed by its rival console on the Xbox Live service. The latter continues to gain traction not just for online gaming but also as a platform for downloadable movies, TV episodes and other content.

"We're very committed to online gaming and downloadable content via the PlayStation Network, but we're going about it in a unique way in that we're not charging a monthly fee," Tretton said. "This will be part of the PlayStation 3 experience when you walk out the door with the machine."

Tretton won't say just what Sony's business strategy will be to chase Xbox. However, he laid out broad preliminary plans supporting recent indications made by Sony chairman Howard Stringer that the PS3 home gaming console and the PlayStation Portable will be key platforms in a companywide plan to offer video downloads of entertainment content.

The PlayStation Network allows online gameplay, game and movie trailers as well as chat and text messaging, but no other entertainment offerings such as TV episodes and movies are now offered.

Moving aggressively during the past year, Microsoft has made video a mainstay of the Xbox Live environment. Through the Xbox Video Marketplace, users can download movies, TV episodes and other content from Warner Bros., Paramount, Disney, New Line, Lionsgate, Miramax, MTV, Turner Broadcasting and others.

Video Marketplace uses a points system for pricing, but costs range from about $6 for an HD movie to about $2 for TV episodes in standard definition. Parts of its online service are free, but Xbox Live does charge about $50 annually for its Gold tier membership, which is essential for online game play for titles like the upcoming "Halo 3."

Tretton said that a key differentiator for Sony would be that unlike Microsoft, SCEA can count on content to come from within the company.

"Everybody in the world has rightly pointed out that Sony is uniquely positioned with having a great heritage in hardware, and a great heritage in software — they own a music business, they own a successful movie studio and a successful gaming division," he said. "So just based on our internal resources alone, we should be able to take advantage of synergies. We're working closely together to come up with a service that we think will be of benefit to the consumer as well as not just the PlayStation brand but potentially across all Sony properties."

With content holdings, the PlayStation Network conceivably could offer exclusive paid downloads from Sony music artists or its movie and TV operations, creating an additional revenue stream for those divisions as well as a differentiator from its rivals. As with iTunes and Xbox Live, Sony also could make deals to bring in content from outside the company.

But the real question has always been the timing of this new strategy, and the only answers coming thus far from SCEA is not quite yet.

"Given that it's September, it's not something that we see happening in 2007," Tretton said. "But I would say the near future and clearly within this platform life cycle."

It's not Sony's grand vision, but rather the lack of urgency that seems to concern parts of the analyst community. "The longer that they delay building it out and making it something that's attractive, the farther behind they fall in terms of the development of Xbox Live," Wedbush Morgan gaming analyst Michael Pachter said.

Although SCEA declined comment, there are reports out of Europe that Sony may soon add DVR functionality and a TV tuner to the PS3 and then make that content available for playback on the PSP portable.

Pachter conceded those features, along with compelling content and no monthly charge, could give the PlayStation Network an advantage when it does launch. But he added, "If PlayStation Network gets any traction, you watch Xbox Live will go free, too."

Tretton, who's been with SCEA since the launch of the original PlayStation in the U.S. in 1995, said the gaming business has gotten more complex and competitive — and not just because of the current strength of rivals Nintendo and Microsoft or presumably because of the online component of home consoles.

"It's the most complex market in that we're now a three-platform player," he said. "In addition to the PSP, we have the PlayStation 2 that has a huge installed base and is still incredibly viable at $129. At the same time, a future-proof technology, the PlayStation 3, that many people have never seen and still don't completely grasp, is at $599."

Adding to that complexity is the Blu-ray Disc vs. HD DVD movie format war; the former is embedded in the PS3. While he noted that PS2 played a role in boosting DVD sales, Tretton said, "I think we play an every greater role this time around because DVD was established at the time of the PlayStation 2, but here with the PlayStation 3, we're really at the pioneer end of helping to establish the Blu-ray platform."

Noting that 83% of PS3 owners have viewed a Blu-ray movie with their console and 73% have purchased a Blu-ray movie, Tretton said, "People are buying the PlayStation 3 primarily for gaming, but they are buying, renting and watching Blu-ray movies on them as well."

Features like PlayStation Network and Blu-ray are helpful, but BMO Capital Markets Research analyst Edward Williams suggested the success of the PS3 ultimately is going to depend on the quality of the games.

"I don't believe that most people would choose to buy a PS3 simply because of the PlayStation Network," Williams added. "The primary thing has got to be gaming."
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