Where now for Sony and the PlayStation Portable? A trio of analysts, representing firms such as Wedbush Morgan and Cowen and Company, discuss the PSP's state of play amid rumors of an upcoming redesign.
They are the professional analysts who research,
keep track of, advise their clients on, and opine to the news media about the
video game business.
In Analyze This, we present a timely
question pertaining to the business side of the industry, and then simply let a
trio of analysts offer their thoughts directly to you. Each person's opinion is
his own.
We asked Michael
Pachter of Wedbush Morgan Securities, Doug Creutz of Cowen and Company and Nicholas Lovell of Gamesbrief on what they think of the current state of Sony's PlayStation Portable:
Sony SVP Peter Dille admitted that PSP piracy is
a big problem. Yet major PSP titles can still sell (c. f. God
of War, Crisis Core). Do you see that piracy is the system's
Achilles' Heel?
There have been rumors of a redesign of the PSP
without a UMD drive. Does the PSP need to be refreshed, and is this the right
direction?
Despite piracy, the PSP is on at least an attempted
upswing -- new big-name games and a possible redesign may help boost sales. So
with this in mind, what do you think developers and publishers should be doing
on the PSP right now?
The PSP was a phenomenal idea that was burdened by Sony's compulsion to use it as a trojan horse to sell the concept of UMD. Sony apparently believed that if it could put games on UMD, a lot of consumers would buy PSPs. Then Sony could in turn sell these same consumers movies that were UMD-based.
The problem was that the format never quite took off, and use as a movie player was not particularly popular. At the same time (2005 - 2008), the iPod went through several iterations, with increasingly large flash memory drives and a well-stocked iTunes store that had tons of movies available for download. The iPod became the device of choice for multimedia. So the PSP was relegated to being a games-only device in practice, even though movies are still offered. Being a de facto games-only device, piracy is a serious problem.
I think that consumers are generally honest, and willing to pay a fair price for content. PSP games are fairly priced at around $20 - 40, and I don't see piracy becoming a huge problem. However, the device is evolving into a download device through the use of ever-larger (and cheaper) Memory Sticks. Those will hold a bunch of games or movies; piracy can be controlled through DRM, and games or movies can be stored on a PC so that the Memory Stick isn't overloaded.
Sony's Patapon 2
It makes sense to me that a redesign would be seriously contemplated by
Sony. The device could either use a Memory Stick, or Sony could opt in
favor of less expensive built-in flash (a la the iPod). In either case,
a PSP without a disc drive and without UMD could be made thinner, and
its battery life would be extended. Both of those features would make
the device more "iPod-like," and would allow it to compete better as a
multimedia player.
The real problem is that Apple figured this out five years ago, and
Sony is just figuring it out (maybe) now. Apple has a huge competitive
advantage, and Sony will play catch-up for a while. Sony does have
pretty compelling game content on its side, and this can truly be a
differentiator. But unless Sony figures out DRM and makes the PSP
download store a reality right away, it is going to fight an uphill
battle.
A PSP without a hard drive should be cheaper to make. So if Sony can
cut the price further, it has a real chance of skewing its audience
younger, and competing better with the DS as well.
I think piracy has had a moderate impact, but the
bigger problem has simply been that the installed base never took off to the
extent Sony hoped.
In the US, the DS installed base is about two times the PSP
installed base. PSP games are largely designed for only the PSP. So you don't
get any multi-platform leverage off your R&D efforts.
It's pretty clear that the UMD as a media
alternative (for video) is dead. If there's a better/cheaper alternative,
there's no reason for Sony not to embrace it.
If getting rid of UMD in favor of
another alternative helps solve the piracy issue, it should be an obvious
choice.
With the surprisingly weak launch of Grand
Theft Auto: Chinatown Wars on the DS, it's pretty clear that the PSP
remains the handheld system of choice for core gamers.
(However, that's a bit
of a contradiction in terms since core gamers tend to favor console gaming.)
Liberty
City Stories did just fine on the PSP, despite a vastly smaller hardware
installed base at the time of launch, compared to the current DS installed
base.
Rockstar's Grand Theft Auto: Liberty City Stories
But other than that, it's tough to make the
economics work. There may be a viable niche for smaller, less expensive,
creative downloadable games.
The challenge that the PSP faces is one of
content and distribution. As handheld rivals such as the iPhone and iPod Touch
start nibbling away at the edges of the PSP's market, Sony has to change its
route-to-market or risk a steady erosion of players.
That's not to say that the iPhone is a better
gaming platform -- far from it. I completely understand the perspective of
those who believe that a dedicated gaming device like the PSP will always
outperform the iPhone.
But we're not just talking about gaming performance.
We're talking about the ease-of-use of getting hold of, and paying for,
software.
And on this score the iPhone with its integrated AppStore and
seamless purchasing process wins hands-down. The average iPhone user has
downloaded 27 apps (not necessarily games);
the tie ratio for the PSP is 4.2.
Obviously, many of iPhone apps are free or have
very low prices, compared with $19.99 USD or more on PSP.
But that is only part
of the story, since the revenue from the PSP is split between the retailer, the
cost of the UMD, the physical distribution, Sony's cut and the
developer/publisher royalty. On the iPhone, it's a simpler 70:30 split in favor
of the developer.
So Sony needs to embrace digital distribution for
the PSP (all the signs are that they are going this way), reduce barriers to
entry for developers/publishers, and encourage the reduction in price of games.
The PSP remains a better gaming device than the iPhone -- the challenge is to
make sure it stays a more profitable gaming device for developers, publishers
and, ultimately, Sony.
Do you have a business-related question about the
video game industry that you would like to suggest for discussion in Analyze
This? Are you a professional analyst and would like to take part in this
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