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Sony thinks the PlayStation 3, which saw lackluster sales in 2007, is poised for a turnaround. But is it?
By
msnbc.com contributor
updated 2/15/2008 9:22:42 AM ET 2008-02-15T14:22:42

While the beleaguered PlayStation 3 still faces an uphill battle, Sony believes the console is spring-loaded for a turnaround.

Why? The success of Blu-ray, an upcoming slate of much-needed exclusive games and new numbers from the NPD Group showing that the console bested Microsoft's Xbox 360 for the first time in January.

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Since the system's November 2006 debut, the PlayStation 3 has consistently been humbled by the Nintendo Wii and its chief rival, the Xbox 360. But numbers released Thursday show that the PS3 outsold the Xbox 360 in last month, moving 269,000 units in the U.S. and coming in second only to the Nintendo Wii.

Jack Tretton, Sony Computer Entertainment America's CEO, was upbeat in a email sent to reporters after the release of the NPD data: “Coming off a great holiday sales season we see strong momentum behind PS3 in 2008, and feel confident about the year ahead."

So will 2008 be the breakout year for the PS3? Probably not. The changing tastes of the market are not on Sony’s side, and a twitchy economy doesn’t help the company's chances, either. Plus, one month of besting the Xbox 360  — in a month where none of the systems sold more than 300,000 units — doesn't necessarily signal a turnaround.

Colin Sebastian, an analyst with Lazard Capital Markets, sees January as an aberration due to short Xbox 360 supplies following their successful holiday season.

"There may be a substitution effect there," he says. "It says as much about Xbox 360 supply issues as it does about PS3 sales."

Blu-ray boosted PS3
But the PlayStation 3 isn’t down for the count. The immediate advantage Sony has going into 2008 is something that initially looked like a liability: its Blu-ray DVD player. It was pretty cool to have the cutting-edge player inside every game system, but it also hoisted the price of the PS3 to $600 — at least initially.

"The added cost of Blu-ray to the PS3 hurt it. Consumers didn't see it as a compelling value,” says Sebastian.

But Sony has dropped the price of the PS3 since launch.  The base model, which sells for $400, makes it one of the cheapest Blu-ray players on the market.

And even though the PS3’s sales looked anemic in comparison with its competitors — even in comparison with its older sibling, the PlayStation 2 — 3.2 million units sold surely helped Blu-ray in its apparent triumph over HD-DVD.

This week, online DVD-rental site Netflix threw its weight behind the format. And last month, Warner Bros., the largest movie studio in Hollywood, announced it was going exclusively with Blu-ray.

...But high-def hasn't caught on like DVD did
Having HD-DVD on the ropes is a good thing, but high-definition movies have not caught on like DVD did back in 2000. And after several years of the iPod's stratospheric ascendance, consumers are now plenty comfortable downloading their entertainment. For a new generation, physical media is just so yesterday.

Indeed, Apple recently announced the launch of HD movie rentals via its Apple TV box, mirroring something Xbox 360 owners have been able to do for a year. And let's face it — for a large number of consumers, DVD is simply good enough.

This dovetails with another problem Sony had in 2007 — a situation that is unlikely to change this year: The PlayStation 2 was also apparently good enough for many consumers. Last year was a good one for the eight-year-old system, which outsold the PS3 by almost 1.5 million — thanks to a $129 price point and a host of great games, such as "God of War 2."

There are also thousands of PS2 games on shelves, many in the $20 range, making them not only impulse buys, but also more comfortable purchases in an economy that has many consumers minding their bank accounts.

So, where are the exclusives?
Another problem that the PS3 must conquer in 2008? Its lack of exclusive releases. Microsoft’s Xbox 360 had a great 2007, with exclusive titles such as “Halo 3” and “Mass Effect.” Sony needs to step up the number of titles for its new system, period, and the number of games that can’t be played anywhere else as well.

"Exclusive content is one of the hallmarks of the PlayStation brand," says Scott Steinberg, vice president of product marketing at Sony. "And we'll have that in 2008."

The calendar looks good so far. The announced titles on deck for 2008 are Sony's racer "Gran Turismo," the sci-fi shooters "Resistance 2" and "Killzone 2," and the inventive "LittleBigPlanet," an action game that relies on gamer-created content to flourish.

All the anticipated games look fantastic so far, but "LittleBigPlanet" has potential to be a true breakout hit if it catches on via word of mouth, not entirely unlike a Facebook or Second Life. And speaking of Second Life, Sony will also debut "Home," its 3D virtual world community for both the PS3 and the PlayStation Portable in 2008.

Will 'Metal Gear,' 'Final Fantasy' be the ticket?
The PS3 will also be supported by Konami's anticipated "Metal Gear Solid 4" and Square Enix's "Final Fantasy XIII" — as long as these games remain PS3 exclusives.

Because games now cost tens of millions of dollars to develop, and the Xbox 360 has sold almost 10 million consoles in America alone, many publishers have converted former PS3 exclusives to multiplatform games, such as Capcom's "Devil May Cry 4" and Ubisoft's "Assassin's Creed."

What’s more, these games repeatedly sell better on the Xbox 360. "Assassin's Creed" sold only 377,000 copies on the PS3 last November, compared with 980,000 on the Xbox 360.

It's all about differentiation
The PS3 was also dealt a blow when decided to make its much-anticipated “Grand Theft Auto 4” for the Xbox 360 and the PlayStation 3. What’s more, Microsoft also secured exclusive bonus content for the Xbox 360 version of the game.

To really win this console war, Sony needs to figure out a way to differentiate the titles that go multiplatform, like “Grand Theft Auto IV.”

"If these games look like Xbox 360 games or are not as fun as Wii games, that's a problem," says Sebastian.

Will Blu-Ray keep exclusives on the platform?
Sony counters that the success of Blu-ray will help keep exclusives on the PS3 and provide that needed differentiation.

"The industry is moving toward large blockbusters that only fit on Blu-ray," says Steinberg, referring to the 50GB of storage available on a Blu-ray disc. (The Xbox 360 uses regular DVDs that store only 9GB.)

Size matters, but is the market really moving toward physically bigger games? With the graphically inferior Nintendo Wii as the uncontested winner of last year’s console slugfest, the unscientific data would seem to indicate that bigger isn’t always better.

"(Sony) probably miscalculated in terms of where the market was going. Sony moved up-market," says Sebastian. "The market has moved a little bit more casual."

In an attempt to capture this casual trend, Sony has its PlayStation Network, a place where gamers can download smaller games, such as the upcoming "echochrome," a puzzle game that looks like an M.C. Escher illustration.

These games should sell to a dedicated Sony fanbase, but it's doubtful that Sony (or Microsoft, for that matter) can wrest the casual narrative away from Nintendo at this point. The only thing that could possibly nudge the needle is another price drop, which Sebastian thinks is in the works for 2008. But Microsoft could immediately neutralize that salvo with an expected (and much overdue) price drop of its own for the Xbox 360.

This is now Nintendo's game to lose, and they show no signs of relinquishing the table — especially with the anticipated release of "Super Smash Bros. Brawl" next month, a title more hyped than last year's best-selling "Super Mario Galaxy."

The contest is for second place right now. And Microsoft just has too much of a head start on Sony to make 2008 a reversal of fortune, leaving Sony again holding the bronze over a console that was supposed to deliver the gold.

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