Waiting for PlayStation 3

Talk of a delayed launch for the next-generation console is growing. If the rumors are true, Microsoft and its Xbox could win big

When Sony Computer Entertainment head Ken Kutaragi unveiled the first details of the PlayStation 3 in May, 2005, calling it a "supercomputer for computer entertainment," game enthusiasts rejoiced. Packed with so much technology that even nongamers have said they will give it a look, the PS3 appeared to solidify Sony's reputation as the kingpin of the video-game industry even as Microsoft and Nintendo introduced their own next-generation consoles.

But recent conflicting reports from Sony's internal public relations team now cast doubt on that dominance. Responding to a report by two respected Merrill Lynch analysts on Feb. 17, a Sony (SNE) spokeswoman told BusinessWeek and others that "the (PS3) launch could be delayed" beyond the stated late-spring launch.

The potential culprit? Final specs for Sony's Blu-ray high-definition DVD standard, due to be woven into the PS3, have not yet been set, she says. Another spokeswoman quoted in the Japanese press flatly denied such a delay is possible and reiterated that the company is on track for a spring launch in at least one region of the world.


  What's Sony's game? Like politicians floating trial balloons, Sony execs appear to be preparing the market for some delay or limited release this year of the next-gen console, which will play high-definition movies, have interactive online features, and sport the bells and whistles of top consumer electronics gear.

Such a delay may not be the worst thing. Few industry analysts expected the games master to accomplish much more than a token launch in Japan by June, with many predicting a wider rollout in time for the U.S. holiday shopping season.

To date, Microsoft's lead in the next-generation race with Xbox 360 has been impeded by a parts shortage that has limited U.S. sales (see BW Online, 10/28/05, "Microsoft's Xbox Factor"). Also a problem are lackluster sales in Japan, where Nintendo and Sony enjoy home-field advantage. Sony's PlayStation 2 also continues to sell well, as does its PlayStation Portable handheld game console.


  What's more, with a bill of materials estimated at between $600 and $900, Sony initially will take a huge loss on every box sold, assuming they will be priced below $450 apiece, analysts say. By comparison, Microsoft (MSFT) loses an estimated $125 on every Xbox 360 sold (see BW Online, 11/22/05, "Microsoft's Red-Ink Game").

But the conflicting signals have raised doubts that even a fall launch may be impossible, causing Sony's stock to drop over the past three trading days on the Tokyo stock market. In the U.S., Sony shares have tumbled 4.6% since Feb. 15, closing at $43.10 on Feb. 21.

With the Merrill report speculating the bulk of Sony's worldwide launch will slip into 2007, Microsoft could enjoy an unexpected second holiday season of sales without heavy Sony competition. A PS3 delay also gives developers more time to perfect games for the Xbox.

Another wild card that could undermine Sony's leadership: Nintendo executives say they remain on track for a fall console launch. "It may have been no big thing for Sony to give Microsoft one holiday period on the shelves to itself. But you're going to be sorely testing that loyal hardcore audience if it goes to two," says DFC Intelligence analyst David Cole.


  Executives at Sony's PlayStation unit also risk testing the patience of their colleagues on the consumer electronics side of the company, who say plans for Blu-ray are on schedule. Members of the Blu-ray Disc Assn., including those at Sony's consumer electronics unit, are furious at what they call erroneous statements about Blu-ray delays.

Sony, Matsushita Electric Industrial, and others are pushing Blu-ray as the next-generation DVD standard, and are in a heated battle against a camp led by Toshiba that is promoting a similar, but noncompatible standard called HD DVD. At the Consumer Electronics Show in January, Blu-ray makers announced that the major specifications for the machines had been locked down, with only copy-protection software issues to be worked out.

Sony in mid-March is scheduled to release pricing and availability this summer of standalone machines, sources say. Meantime, both Samsung and Pioneer have said their machines will be on retailers' shelves in a few months. "We are pretty much on track to see initial Blu-ray products appear as early as May," says Pioneer Senior Vice-President Andy Parsons.


  Game developers suggest Sony could be aiming to build anticipation for PS3 ahead of the annual Game Developers' Conference in late March and the larger E3 gaming event in May. Phil Harrison, president of Sony Computer Entertainment's Worldwide Studios, is scheduled to deliver a GDC keynote that will focus on PS3, and the world will be watching to see if he reveals pricing and launch dates. Most game developers say they're anticipating a fall launch.

If, however, that's pushed beyond November, the delay would be a huge embarrassment for Kutaragi, who last spring was passed over for the top job at Sony in favor of Sir Howard Stringer. The success of PS3 has been seen as an important factor in determining whether he will get the job when Stringer retires.

Whatever the case, it's clear the battle for leadership in the $35 billion-plus games industry is far from over -- and Sony's predominance may not be assured.

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