Market Overview

Is Gaikai Acquisition Proof that Sony is Dumping PlayStation?

Related SNE
'We Just Move Quick': The Story Of Algomus, A Startup That's Streamlining Big Data With AI
Benzinga's Top Upgrades, Downgrades For September 11, 2017
Japan's Economy, Stocks Gather Steam Ahead Of Sunday Election (Investor's Business Daily)

Sony (NYSE: SNE) surprised the world this morning when it announced that it would pay $380 million to acquire Gaikai. The company plans to use Gaikai's technology to build its own cloud gaming service.

This announcement is a big win for the likes of Intel (NASDAQ: INTC) and Qualcomm (NASDAQ: QCOM), two of Gaikai's investors. It is also a big win for Gaikai co-founder David Perry, who has repeatedly argued that streaming, free-to-play entertainment is the future of the game industry.

But is it the future of Sony?

At this year's Electronic Entertainment Expo, Sony was accused of ignoring its latest game machine, PS Vita, which has been struggling at retail. While the handheld device experienced a small increase in sales in Japan last week, PS Vita has been unable to achieve any significant numbers. According to VG Chartz, the PlayStation Portable follow-up has sold a little over two million units worldwide since its release. (PS Vita was released in Japan last December and in the United States and Europe in February.)

Retailing for $249.99 (Wi-Fi) and $299.99 (Wi-Fi/3G), PS Vita is currently the most expensive handheld gaming device available. The Nintendo 3DS (NTDOY) also retailed for $249 when it was released in March 2011, but sluggish sales forced Nintendo to lower the price a few months later. In the weeks and months that followed, sales greatly increased. Worldwide, more than 18 million consumers have purchased a Nintendo 3DS.

Regardless, Sony is standing firm with its pricing model. Last month, Sony Worldwide Studios chief Shuhei Yoshida told Eurogamer that it was too soon for a price cut.

Sony faced similar challenges when it released its first handheld gaming device, which also launched with an MSRP of $249.99. Up until that point, consumers were used to spending less on handheld game machines. But in an effort to provide a portable gaming experience that was on par with that of a home console, Sony built a more expensive device. This was acceptable to hardcore gamers who buy and play everything. But it did not go over so well with parents, who are used to buying inexpensive handhelds for their kids.

Three years ago, Sony endured one of its most troubling hardware launches in company history when it released the PSP Go. Designed to be a thinner, lighter, download-only version of the original PSP, the PSP Go carried a $249 price tag. That price, the inability to play old PSP games without paying for new downloads, and a host of other issues kept the device from taking off at retail.

In April 2011, Sony discontinued the PSP Go.

When PlayStation 3 was released in November 2006, the company opined that it lost money on every unit sold. (Microsoft (NASDAQ: MSFT) did the same thing when Xbox 360 was released in 2005.) As of February 2010, PlayStation 3 was still a monetary loser.

Sony is willing to take that loss, however, because of the greater good. By selling as many consoles as possible, Sony can grow the number of consumers who play (and purchase) its software. While hardware is very profitable for some corporations, console manufacturers tend to make the majority of their money from selling games.

Now that Sony has purchased Gaikai, it could attempt to cut out the middleman (consoles) and bring games directly to consumers without requiring them to buy new devices. This would prevent Sony from having to endure another dreadful hardware launch.

In May, the Wall Street Journal reported that Sony considered releasing a Web-based, disc-free console. The company abandoned those plans for unspecified reasons.

Follow me @LouisBedigianBZ

Posted-In: Gaikai PlayStation 3 PlayStation Portable PS Vita PSPNews Rumors Tech Best of Benzinga


Related Articles (INTC + MSFT)

View Comments and Join the Discussion!

Partner Center