Sony’s PlayStation 4: One Box to Rule Them All?
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Sony’s PlayStation 4: One Box to Rule Them All?

REUTERS/Yuya Shino

Sony, the troubled Japanese electronics company, may have one last big chance to dominate the television universe again. But it won’t be because of 3-D TV, 4K TV, Blue-Ray DVDs or other such technology.  At an event in New York tonight the company will announce the “future of the PlayStation,” which most think could be the future of television

After seven long years, PlayStation 3, one of the two big names in gaming consoles, is getting an upgrade.  Experts think it’s going to be big.  This is hardly a surprise.  Microsoft’s pending announcement of the Xbox 720 has been the worst kept secret in gaming for months now.

The current generation of consoles is now well past the typical five-year lifespan for consoles. Gamers and developers have been screaming for updated hardware that would allow them to take advantage of advances in graphics and software that the current boxes just can’t handle.  Media commentators and industry observers have been debating whether consoles are dead or dying – whether Sony and Microsoft lost a loyal user base by waiting so long to update their hardware.

Why do we care?  Because millions of people globally have made gaming an $82 billion a year business. So no one will be surprised why Sony is banking on its new product.  The bigger question is…what is it going to be? The obvious answer is that it will be a video game machine, but increasingly the definition of a gaming console is fuzzy.

Think back to 1972 when Atari rolled out Pong--originally a machine that let you play digital ping pong. The success of Pong inspired a first generation of home consoles in the early ‘80s that expanded the concept. From the classic Atari 2600 through the Nintendo era, the cartridge model ruled the gaming world.  The ‘90s brought CD-Rom gaming and eventually DVDs. The technology might have improved, but the process remained the same. Customers purchased the hardware and then bought packaged software titles incrementally.

But that model, like many of the older technological models is increasingly under threat in the digital age, as consumers grow used to downloading apps and streaming content from the cloud.

The traditional economics of console systems are challenging. The next generation of gaming boxes will retail for around $399. A single (new) video game runs $60, and there is much speculation that the additional resources required to develop for the new high-end graphics cards will drive the price of an individual game even higher. For an average family struggling through the recession, that’s an awful lot of money to spend just to play a video game.

Additionally, the used game market has done much to gut the industry. Unlike music, gamers are much less likely to pull out an old favorite from even so much as two years ago. With a few exceptions, when a player is done with a game, which can typically take two or three months, he’s done forever. This led to the rise of stores such as GameStop (NYSE: GME), which built a business around the second-hand market. An experienced shopper knows that a $60 game will be available for $30 in six months. And with games becoming bigger and more involved, a gamer may buy no more than two or three games a year.

Ironically, the industry has also been damaged by the proliferation of gamers. Typically, the image of a “gamer” has been that of a shy loner with poor social skills. (An image the media often cites in the wake of events like Newtown). The download statistics on runaway successes like Angry Birds and Fruit Ninja prove that everyone from tiny kids to Dick Cheney is now a gamer. Those gaming apps for mobile devices run $4.99 or less, and often are available for free – a price that’s pretty hard to beat. Last year, the U.S. market for new video game sales totaled $7.09 billion, according to the NPD Group. Spending on used and rented games reached $1.79 billion. And digital gaming downloads and subscriptions, including mobile and social gaming, totaled $5.92 billion. So traditional sales represented less than half of the overall total, and spending on physical content fell 21 percent while sales of digital content grew 16 percent.

The trends are pretty clear, and as mobile app-makers roll out increasingly more sophisticated, engaging, and cheaper games for phones and tablets, the question becomes “what is the point of buying a console?”

The smartphone actually answers that question best. Consumers tend to view these devices as phones with a fair share of bells and whistles, but they don’t often consider the shear bulk of standalone devices that the iPhone and its ilk have rendered obsolete. The Palm Pilot, point-and-shoot cameras, Walkmen/Discmen/iPods, day planners, Gameboys, the watch, the map, the compass and the daily newspaper have all been turned into relics of a bygone age, replaced with one single convenient device.

This is the model that tech giants have long pursued in the battle for your living room, competing to supply the Internet-connected hub of a multi-pronged, multi-screen entertainment experience. In the same way that the smartphone has replaced all of those more limited devices, the PS4 and the Xbox 720 will likely take aim at all of those boxes under your TV: the DVD player, the DVR, the streaming device and, most importantly, the cable box.

For many owners of current gaming boxes, this is already a reality. A large selling point of the PS3 was that it featured a Blu-ray player at a cheaper price than standalone Blu-ray players. Currently most streaming video services are available through PS3 and Xbox players. In fact, more people are using PS3’s to stream Netflix to their TV than any other single device.

There are of course cheaper standalone streaming devices, such as the Roku. But the next generation of consoles could mean the death of cable television as we know it. The new machines will be a one-stop shop for all media needs. The ability to access your files on networked computers, download movies and music from the PlayStation store, and customize music channels will still be an important part of the package. And of course, unlike the Roku, the PlayStation plays top-of-the-line games.

Cable television providers, with their continued lock on premium content, are most threatened. HBO’s refusal to release HBO Go to non-subscribers shows that media and cable companies like HBO’s parent, Time Warner (NYSE: TWX), know what would happen if customers could get their “Game of Thrones” fix without having to pay for the Cooking Channel or the Golf Channel.

Sports, news and other live events have also kept home users bound to cable, but services such as the MLB.TV live streaming package allow subscribers to get all of their favorite team’s games directly through a Roku, PS3, Xbox 360 and both Samsung and Apple TVs.

As all of these individual boxes and services increasingly overlap, it’s easy to imagine that they will eventually be integrated into one single box that serves all of our various devices and screens. The maker of that winning box could rule the market. Console owners are already accustomed to using the devices in this manner, so it’s not hard to see them upgrading to a new generation of PlayStation or Xbox. But for Sony or Microsoft to really break through, they will have to convince traditional home entertainment users that the new products are much more than “just video game machines.”

With Sony’s announcement tonight, we’ll have a better sense of whether the next PlayStation will be a real step toward that future, or another sign of a company struggling to recapture its past.