Forbes:
Is Sony Afraid Of Cloud Gaming?
Last summer Sony placed a big bet on cloud gaming with its purchase of GaiKai, an online-game streaming service for $380 million.
It was both a bold move and a bow to an inevitable future when video games will be streamed from the cloud to any device, just as Netflix streams movies and television shows today. While cloud gaming is only now starting to be offered to consumers, it will eventually grow big enough to threaten the market for consoles like the PlayStation.
In July Andrew House, president and group CEO of Sony Computer Entertainment, indicated that Sony would not sit around and wait for the console market to shrink. Instead, Sony would embrace cloud gaming. House promised “a world-class, cloud-streaming service that allows users to instantly enjoy a broad array of content ranging from immersive core games with rich graphics to casual content anytime, anywhere on a variety of interconnected devices.”
Last week’s launch of the PlayStation 4 revealed just how far Sony has backed away from that vision.
Visitors play Sony Computer Entertainment's game consoles A model at the Sony booth at the annual Tokyo Game Show in Chiba, suburban Tokyo, on September 20, 2012. (Image credit: AFP/Getty Images via @daylife)
Instead of integrating cloud gaming into the new console, a disruptive move that could have changed the dynamics of the game industry, Sony is using GaiKai’s technology to allow gamers to try a game for free before they buy it and to play a game while it downloads. Other features of the PS4 let a gamer stream a friend’s game and stream games that were made for earlier versions of the console.
These are nice capabilities, but they are not game changers. “It’s hard to see this indecision as anything but corporate cowardice,” Erik Sofge writes in Popular Mechanics.
Sony has reason to be afraid. During the quarter that ended in December, Sony’s gaming-related sales fell 15 percent to about $3 billion thanks to the lower hardware and software sales for the PlayStation 3. This is in line with broader industry declines.
According to market researcher NPD Group, sales for video game hardware fell 27 percent in 2012 to $4.04 billion, thanks to the popularity of games played on smartphones, tablets and social networks.
From the standpoint of margins, it’s not in the interest of Sony—or any other major player in the video game industry—to accelerate the move to cloud gaming. If the video game industry follows the movie industry in its transition to digital streaming, profits will take a hit as consumer behavior shifts to renting games from owning them.
But that perspective may be short sighted. According to Gadi Tirosh, a general partner with Jerusalem Venture Partners and a member of the board of directors of Playcast, a cloud gaming pioneer, cloud gaming does not attract the hard-core gamers that rush to buy the latest consoles and console games. “The people we cater to are what we call mid-core gamers,” Tirosh explained. Based on usage patterns, subscribers to Playcast’s gaming channel appear to be families who get more value out spending $10 to $15 a month to play 20 games on a publisher’s back list than they would buying two or three new titles a year for a console that cost between $300 and $400.
By shunning cloud gaming, the game industry could be missing out on an audience that is at least two or three times bigger than the current audience for consoles, which based on console sales is roughly 300 million.
Meanwhile, the shift in consumer behavior from renting to owning is likely to be slow. According to BTIG Group, consumer rental of home videos will outpace retail store sales for the first time since 2000 in 2013.
While the shift to cloud gaming will likely occur faster, it won’t happen overnight. Sony’s fear of cloud gaming may be a bigger risk to Sony than the streaming services themselves.