Sony's Delay of Game

The electronics giant won't release the PlayStation 3 console until November. Will consumers find it worth the wait?

After months of speculation about Sony's (SNE) plans for its much-anticipated next-generation PlayStation video game console, the worst-kept secret is now out. On Mar. 15, Sony's games czar Ken Kutaragi confirmed that PlayStation 3 wouldn't be available this spring as initially planned. Instead, the consumer-electronics giant will spend the next few months fine-tuning the technology before releasing PS3 in stores in Japan, North America, and Europe in early November.

The delay was a painful admission that packing all the newest high-tech goodies into one machine won't be an easy task. When completed, the PS3 will play all PlayStation games, old and new, as well as high-definition movies. It will let users surf the Internet via a broadband connection and sport a 60-gigabyte hard drive to store downloaded games or music, a wireless antenna to link to other Sony gizmos, and a tiny camera for chatting with friends over a video hookup. "This is not something I like to publicize, but the hardware is going to be costly," Kutaragi said.


  What led to the delays? Kutaragi blamed the copyright-protection system for the Blu-ray disk player, the PS3's next-generation DVD technology, which took longer to finalize than Sony had expected. He also pointed out that he had decided to wait for a key digital audio and video connection technology, known as HDMI (for high-definition multimedia interface), to be standardized.

The bad news for Sony (its share price fell 1.8% in Tokyo trading) is that its rivals, Microsoft (MSFT) and Nintendo (NTDOY), now have a chance to chip away at the company's dominant 70% market share in living-room game consoles. Microsoft's Xbox 360, which hit stores last November, will have been out an entire year before Sony sells even one PS3. And Nintendo's Revolution could debut around the same time as the PS3 -- or earlier.

"There are rumors that the Revolution could be released as early as June," says Akiteru Itoh of Tokyo-based game-research outfit Media Create. "If that happens, and Nintendo sells around 1 million units, Sony would have a harder time catching up."


  Not everybody thinks being late is a huge liability. PS3 will still make it for the year-end holiday shopping period when Sony has historically sold the bulk of its game machines. The company clearly hopes to market its "poor man's Blu-ray disc player" against similar DVD players from Matsushita Electric Industrial, Samsung, and Pioneer, which will likely be pricier, while keeping at bay the Toshiba-led camp backing the rival format, HD-DVD.

The delay also buys time to work out any production and tech glitches -- which are common in a machine that's crammed with so much new technology -- and dedicate more time and money to building an online network of super-fast games, real-time messaging functions, and other services that can match Microsoft's Xbox Live service, the gold standard of the industry. "The online network has been our weak point," Kutaragi said.

If anybody knows the importance of a glitch-free launch, it's Kutaragi. The PS2's launch was beset by massive supply shortages when it came out in 2000, forcing consumers to buy it at a mark-up online or wait months for stores to replenish their stock. This time, Kutaragi is dealing with manufacturing new machines as well as new games. He said he plans to prepare 1 million PS3 consoles for the worldwide launch and have enough capacity to roll out another 5 million through the end of March, 2007.


  Kutaragi said he has secured a supply of 10 million Blu-ray discs for software makers' games. But he'll also need to have a lineup of must-have games -- such as the hit series Metal Gear Solid created by developer Hideo Kojima -- and keep the machine's price tag below $500. (The previous generations of PlayStations sold for $299.)

"More important than the timing of the launch is what impact the PS3 will have when it debuts, which depends on the game lineup and the pricing," Goldman Sachs analyst Yuji Fujimori wrote in a report hours before the announcement.

Why is so much hype over a game machine? The PS3 is Sony's best chance at controlling the digital home. For Sony, that would open a new channel for selling all kinds of downloadable content -- from movies to music and games -- to consumers, and help the company turn around its loss-making core consumer-electronics division. The PS3 will be a litmus test for Sony for another reason: Its gizmos are some of the coolest on the planet, but they haven't proven to be particularly user-friendly. Making the PS3 easy to operate could go a long way in convincing consumers that they're better off buying a Sony machine to watch a Sony movie.


  If the PS3 works as it's supposed to, more power to Kutaragi & Co. But getting consumers to figure out all the features could be a challenge, and Kutaragi hasn't really digested that fact. With Sony's handheld PlayStation Portable console, for instance, consumers spend far more time playing games at home than they do using its Net-surfing multimedia functions while on the go, according to Sony's own surveys conducted in Europe and North America.

Yet, in the next few months, Sony is plowing ahead with PSP software upgrades to handle podcasts and voice over Internet protocol video and audio calls, among other things. "Consumers tend to get confused when there's so much stuff packed into one machine, says KBC Securities analyst Hiroshi Kamide. "They don't really know what to do with it all."

Kutaragi likes to brag that he's not just creating a game console, but a next-generation entertainment device and always-on portal to the Net. The question is, will consumers think all that is worth the wait?