Sony Outduels Microsoft in First PS4-Xbox One Skirmish

Sony Corp. (6758)’s PlayStation 4 won the initial skirmish over next-generation video-game consoles by exploiting the weak spots in Microsoft Corp. (MSFT)’s plan for the Xbox One: price and used-game policies.

In dueling press conferences this week at the Electronic Entertainment Expo in Los Angeles, Sony and Microsoft each made their pitch to the serious gamers whose opinions set the trend in the $37 billion market for console-based video games and hardware. Then customers were able to start reserving the new console of their choice.

The result has been a rapid shift in expectations for the two machines, with Sony gaining the upper hand with fans and early sales against Microsoft, the console leader for the past two years. The Xbox One will sell for a premium-priced $499 and limit users’ ability to buy, trade and resell games. Sony, once dominant in the industry, came in $100 cheaper and won’t limit transactions, and has been rewarded with a boom in orders.

“Sony essentially kicked Microsoft’s ass,” said Gabe Bethke, 19, a sophomore at Occidental College in Los Angeles, who watched online and owns an Xbox 360. “A lot of people who are hardcore gamers are going to be turned off by the Xbox One. It has too many rules and restrictions.”

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Attendees walk past Microsoft Corp. Xbox, left, and Sony Corp. Playstation logos as a woman gestures at the Xbox logo during E3 2013 in Los Angeles.

Bethke’s comments echoed the views of attendees walking the floor of E3, the annual video-game industry trade show, as manufacturers and game publishers introduce new products meant to fend off a shift toward smartphone and tablets.

Fresh Orders

Sony is cashing in with higher-than-expected pre-orders for the PS4 at GameStop Corp. (GME), the biggest video-game retailer, according to Andrew House, president of Sony Network Entertainment. He said the company has delayed a decision on whether to start selling in Asia by year-end in order keep up with demand in the U.S. and Europe.

The PS4 was outselling Xbox One on the U.S. website of online retailer Amazon.com Inc. today, taking the No. 1 spot on the video-games category bestseller list. Xbox One was No. 2, although Amazon had sold out of its special Day One edition of the console.

“We definitely felt positive when we heard their price,” Sony’s House said in an interview. “We’ve been in the same position so we felt particularly positive.”

Sony Resurgence

Sony lost its lead in the current generation of video-game hardware by charging an initial $599 for the PlayStation 3 seven years ago. Nintendo Co. (7974)’s cheaper Wii sold the most units during that round, although Redmond, Washington-based Microsoft’s Xbox 360 has topped the monthly charts recently.

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The game controller for a Sony Corp. PlayStation 4 console is displayed during the Sony E3 media event in Los Angeles.

Now Microsoft has to justify an extra $100 for its machine, which goes on sale in November -- a premium that largely goes to cover the Kinect motion sensor that some gamers aren’t convinced they need.

“$499 is too much. It should have been $399,” said Michael Pachter, an analyst with Wedbush Securities Inc. who has been following video games for more than a decade.

Kinect, the Xbox Live service, content partnerships with the NFL, access to Skype video calls and unique features such as the SmartGlass app that allows users to switch between screens set Microsoft apart, Don Mattrick, president of the company’s interactive entertainment unit, said in an interview. The console will have 13 exclusive next-generation games, including the next “Halo.”

‘Lame’ Connection

“We’re overdelivering value against other choices,” Mattrick said in an interview. “Any modern product these days, when you look at it, $499 isn’t a ridiculous price point.”

Microsoft’s plan to require an Internet connection every 24 hours to check game licenses has proved unpopular. Game discs can be resold only through authorized retailers, can be given away only once, to friends who have been listed for at least 30 days, and publishers can opt out of supporting resales. Titles, stored online and on the machine, can be shared with as many as 10 family members.

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Attendees look at the Microsoft Corp. Xbox One video game console during the E3 Electronic Entertainment Expo in Los Angeles on June 11, 2013. Close

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Attendees look at the Microsoft Corp. Xbox One video game console during the E3 Electronic Entertainment Expo in Los Angeles on June 11, 2013.

Igor Zabo, a 19-year-old game-design student attending E3 from Sao Paulo, Brazil, called Xbox One’s need for a daily connection to the Internet “lame,” noting that Web access in parts of Brazil can be sporadic.

“The PS4 has a lot more to offer,” Zabo said. “I can get a lot of games. I can play used ones, I can sell or give to my friends.”

Microsoft unveiled the Xbox One rules last week, giving Sony time to put together a satirical video that pokes fun at its rival.

‘Step One’

The clip, posted on YouTube, purports to be the “Official PlayStation Used Game Instructional Video” and features Shuhei Yoshida, president of Sony Computer Entertainment Worldwide Studios.

“This is how you share your games on PS4,” Yoshida says, before cutting to a screen with the words: “Step One.” In the next shot, he hands the game to a second person who says, “Thanks,” and the video is over.

Since its press conference on June 10, Sony has clarified its stance on so-called digital rights management. Like Microsoft’s Xbox One, the PS4 won’t prevent publishers from instituting limits on trade-ins and resales. However, that represents no change from the current PlayStation 3.

“It’s really the way things have been, the way consumers like it and they’d like it to be going forward,” Jack Tretton, CEO of Sony Computer Entertainment America, said in an interview. “They really responded to our confirmation that we didn’t intend to change our policy very positively.”

Audience Cheers

Sony’s American Depositary Receipts were little changed to close at $20.28 in New York. Earlier in Tokyo, Sony fell 1.1 percent to 2,000 yen. The stock has more than doubled this year. Microsoft rose 0.5 percent to $35 in in New York, and has risen 31 percent this year.

The two companies’ June 10 press events were mirror images of each other. Microsoft went first, highlighting its exclusive titles and unique features like SmartGlass and the Kinect motion sensing controller. In the closing minutes of the event, Microsoft announced the price and was met with a gasp followed by silence.

Then it was Sony’s turn. There were a couple of glitchy product demonstrations and no real surprises for most of the presentation, until Sony executives took aim at Microsoft. It ended in cheers when Sony said the PS4 would be $100 cheaper and have no controls over trading in video-game discs.

Microsoft didn’t explain to gamers why the Kinect was worth the extra $100, said Brian Blau, a Gartner Inc. analyst. He said there weren’t enough must-have exclusive games to set the Xbox apart.

“They didn’t talk about Kinect too much and part of the $500 is going for that, so where are the games?” he said.

Ebb, Flow

Both machines will compete against Nintendo’s $300 Wii U, which was released in November and has generated disappointing sales. Nintendo announced coming titles for the new machine based on characters including Zelda, Super Mario and Smash Bros.

For game publishers, the developments are encouraging, said Frank Gibeau, president of labels at Electronic Arts Inc. (EA), the second-largest U.S. game publisher. While Sony and Microsoft have differences in their approaches to online services, title slates and how they use the power of the machines, the dialog with the public is still very early, he said.

“You’re going to see sentiment shift between now and the time they go on sale,” Gibeau said. “We will monitor the ebb and flow and develop where the audience is.”

To contact the reporters on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net; Tom Giles at tgiles5@bloomberg.net

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