Sony's (SNE) plan to take on the likes of Microsoft (MSFT) and Apple (AAPL) with a video-downloading service some time next year is no secret. But on Dec. 11, Chairman and Chief Executive Howard Stringer offered a tantalizing clue about what the service would not be: another go-it-alone Sony effort.
In recent months, Stringer has said the Japanese electronics and entertainment company is testing a service—dubbed PlayStation Network—that will sell videos, music, and other digital content to consumers through Internet-connected PlayStation 3 video game machines. The PS3 will store tunes and high-definition movies and transfer the content to gadgets such as the PlayStation Portable gaming console.
But the big question facing Sony has been whether the company would open the network to others. In the past, Sony didn't limit content to its own music from Sony BMG Music Entertainment-licensed artists such as Lauryn Hill and Bob Dylan and movies such as Spiderman 3 from Sony Pictures Entertainment studios. But the copying protection software, which prevented users from freely copying the music and videos they own, meant that such content would only play on a Sony gadget. Stringer said that the PlayStation Network will rely on "open" copyright protection software. "It's not proprietary. It's based on open standards," he told a select group of journalists in Tokyo. "We're being very careful to be more open than anyone else."
Moving Away from the Walled Garden
That suggests that all the digital content available on the network, including from Sony's own movie studios and recording labels, will play on gadgets not made by Sony. Those gadgets would still have to be compatible with whatever copyright protection software—known as digital rights management (DRM) technology—Sony chooses for its PlayStation Network. But the DRM is likely to be one that's more widely used by other hardware makers. The result: Consumers would have a broader offering of content to choose from and more variety of electronics hardware to play them on.
The decision to dump the "walled garden" approach is in keeping with Sony's recent moves away from proprietary DRM. One motivation for the changes came after Sony outraged consumers and faced lawsuits two years ago for selling CDs embedded with so-called XCP rootkit software that installed spyware on users' computers. Sony also learned a lesson after the ATRAC audio format developed in-house ended up holding back sales of its portable Walkman digital music players. Its new Walkman players come with Microsoft's Windows Media software.
The shift toward greater openness could help Sony as it squares off against companies such as Apple and Microsoft in video downloads, an area many analysts consider to be the next frontier. Both of those companies already do music and video downloads and have been better than Sony at developing easy-to-use software. "I think this is a realization that in order to succeed Sony must open up," said Yankee Group analyst Mike Goodman.
Still, some analysts think Sony could find that letting other companies link to its network isn't as simple as it sounds. Microsoft's Zune players, for instance, now run on software that's not available on other gadgets, much like Apple's iPods. That's a shift for Microsoft, which had licensed software to Creative Technology, iRiver, and others, only to find that it wasn't making any headway against Apple. "The reason Microsoft struggled was you couldn't get it to work as well when there were so many parties involved," says Jon Erensen, an analyst with market researcher Gartner (IT). "The reason Apple has had such success with the iPod is the tight integration between the hardware and software over the network."
Luring More Consumers to the PS3
The PlayStation Network represents a huge strategic gamble for Sony. It involves building not only a global infrastructure to deliver a vast library of content but also a robust software platform. Stringer acknowledged that Sony doesn't exactly have a sterling record creating software but hinted that the company was exhausting its resources to get the network up and running. It's unclear how much Sony will spend, and Stringer would only say that it will "cost a lot of money."
The first step is to connect the PlayStation Network to the millions of PS3 and PSP machines the company has sold. Offering a broader range of services for Sony products could also lure more consumers to those gadgets. Sales of the PS3, which was launched last November, and the PSP, which was given a moderate makeover, have picked up in recent months.
The next step will allow access by other Sony gadgets, such as cell phones made in joint venture with Sweden's Ericsson (ERIC), and then later non-Sony devices. "If we can ever connect the dots, then we have a great advantage against our [consumer electronics] rivals and some advantage in competition with Apple and Microsoft," Stringer said.
Behind the scenes, the rollout is being led by Sony's online gaming division, Sony Online Entertainment, based in San Diego. There, staffers have spent months orchestrating the project, which involves Sony software programmers in the U.S. and Japan, electronics engineers, and executives at Sony Pictures. Ultimately, whether their efforts pay off rests on their ability to deliver something that's easy to use and reliable.