Market Overview

PlayStation 4 to be Cancelled?

As Sony denies the unveiling of its next game console, consumers are faced with the grim reality that one might not actually exist.

Two weeks ago, the Wall Street Journal reported that Sony (NYSE: SNE) does not have any plans to unveil a new game console at this year's Electronic Entertainment Expo. This news followed an MCV report claiming that new consoles from Sony and Microsoft (NASDAQ: MSFT) would be unveiled at the annual game industry event.

Going by Sony's 10-year plan – in which the company blindly hopes to sell an older console, the PlayStation 3, to consumers until the year 2016 – some might think that 2012 is too soon for a new console. But the truth is that it might already be too late for the next PlayStation.

The game industry needs new consoles in order to stay young. Without them, players tire of their dated hardware and begin to walk away. This happens with virtually every industry. In fact, next to smartphones, which have a turnover ratio of about 12 to 24 months, game consoles have the highest turnover ratio (roughly five years) among consumers who willingly upgrade. Sony's 10-year goal completely disregards this fact, and the game industry is suffering as a result.

If you've been following the news lately, then you know that Sony is rumored to be acquiring a 20% to 30% stake in Olympus. And who can blame Sony for this decision? After all, it's not as if Olympus was involved in a billion-dollar cover-up. Oh, wait a minute…

Investors might think that any company that can afford a foolish and overpriced acquisition is likely to survive. (Those investors should take a look at AOL (NYSE: AOL) and re-think that assumption.) Consumers might believe that if Sony is serious about expanding its product lineup, there's no way it would ever back away from an industry as profitable as video games.

But the truth is that Sony's future is anything but bright. While it might be too soon to state with 100% certainty that Sony will – gasp! – cancel PlayStation 4, the console's future is not looking good.

Confirmed: PlayStation 4 Loses Company Support

We already know that, if PlayStation 4 really exists, it will not receive the same level of company support that accompanied PlayStation 3.

Last May, IndustryGamers quoted Sony's Chief Financial Officer, Masaru Kato, who spoke on Sony's next game machine. “It is no longer thinkable to have a huge initial financial investment like that of the PS3,” he said.

With that kind of an attitude, you might wonder if Sony should even bother launching a fourth PlayStation.

Epic Launch or Epic Fail?

Consumers all over the world are in agreement that PS Vita (the most ridiculous console name since Dreamcast) is overpriced, underdeveloped, and without the game selection it needs to become a huge success. Where are the innovative launch titles, the groundbreaking sequels, or any other content that justifies that $249 (Wi-Fi) and $299 (Wi-Fi and 3G) price tags? We don't need to look any further than the Nintendo 3DS – the most hyped and most promising handheld game device in years – to be reminded of what happens when a handheld launches without any good games. Nintendo (NTDOY) was, to put it nicely, humiliated. Having come off the success of the original Nintendo DS, which sold somewhere around 150 million units worldwide, the 3DS launch was nothing short of a disaster. Thus, Nintendo was forced to lower the price by $80 well ahead of schedule.

PS Vita is in a far worse position. Unlike the Nintendo 3DS, PS Vita does not have any triple-A games in the pipeline. It would be great to believe that things will change this fall, but why should consumers have to wait? They hate waiting. Sony seems to have forgotten that if it weren't for the many delays that plagued Nintendo 64, PSone may have not come out on top in the ‘90s. Ultimately, Nintendo's downfall set the stage for Sony's success.

With stiffer competition, a revitalized Nintendo, the threat of Apple (NASDAQ: AAPL), and the rise of the Xbox brand, you might think that Sony would fight harder than ever to reclaim its spot at the top of the game industry. But Sony has failed in this regard. While PlayStation 3 has surpassed or caught up to Xbox 360 in many regions, the original PlayStation Portable could not keep up with the Nintendo DS. PSP was a great system; at launch, it had a better lineup of titles than the Nintendo DS when it first arrived. Consumers didn't care, however. Blame it on the battery life or the unusually high price tag (in 2005, consumers had not yet warmed up to the idea of paying $250 for a portable device). But you can't blame it on game content.

PS Vita's failure, however, was very much caused by its lack of quality games. The price was also a factor. Bear in mind that in February 2011, Sony said that it had learned its lesson about the danger of overcharging for a new game machine.

If Sony can't get its act together and release a successful successor to the PlayStation Portable, why should anyone believe that it will get its act together in time for PlayStation 4?

Blu-ray and High Prices

PlayStation 3 didn't need to retail for $600 at launch. Sony assigned the high price point for a few different reasons, most notably the built-in Blu-ray player. At that time, standalone Blu-ray players were selling for $1,000. Sony knew that movie buffs would flock to PS3, which they did. But movie buffs don't buy games – they buy and download $15 and $20 movies, which are far less profitable than $60 games.

Sony also charged $600 to reduce the amount of money it lost on each console sold. The company never revealed how much money was being lost, but you know how the story goes: the console was so advanced and so powerful that Sony was destined to lose money no matter how much it charged. Yawn. Suck it up Sony – everyone knows that software (game) sales will more than make up for any hardware loss incurred at launch. But you can't sell millions of games if you don't sell millions of consoles first. Thus, the $600 price point proved to be a mistake.

Going forward, that is a serious problem for Sony, because there is almost no way that the company will launch a new console for less than $600. If – and it's a big if – we are really lucky, PlayStation 4 could retail for $500. But even then the console would be priced too high for most consumers. At a time when the industry is suffering and consumers are second-guessing the need for new game machines, Sony cannot afford to screw this up.

If At First You Can't Succeed, Give Up?

Not quite. One of the more interesting things about Sony is that it doesn't quit. Vaio isn't exactly a smash hit with consumers, but that hasn't stopped the Japanese tech company from releasing new (and overpriced) laptops. Sony continues to sell MP3 players that no one wants. On top of that, the company's motion picture division produces bad movie sequels that no one will pay to see.

Thus, it wouldn't be that surprising if Sony decided to release PlayStation 4 after all. But it is far from a done deal. In fact, after the failure of PSPgo, the disappointment (and financial failure) of PS Move, the lackluster launch of PS Vita in Japan, and the promise to invest less money in the launch of a future console, Sony might be in search of an excuse to exit the game industry.

Follow me @LouisBedigian

Posted-In: Microsoft PlayStation PlayStation 3 PlayStation 4 PS VitaNews Rumors Tech Best of Benzinga

 

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