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PSP debuts in Europe, but phone threat looms

Sony should make the most of its PSP heyday, industry observers warn, since a challenge to handheld game consoles could be coming from the mobile phone industry within a few years
/ Source: Financial Times

Fans of video games were queueing in London on Wednesday for the midnight launch of Sony's PlayStation Portable games console, tipped as the must-have device of 2005 by Britain's Stuff magazine.

Europe's video games users have been impatient to buy the PSP after its launch was delayed for six months as Sony coped with soaring demand from the US and Japan, where it went on sale earlier this year.

But industry observers warn that Sony should make the most of its PSP heyday, as a challenge to handheld games consoles could be coming from the mobile phone industry within a few years. Mobile phones already incorporate many different functions and have stolen sales from devices such as digital cameras and personal organisers.

Sony, which has tightly controlled sales of its PSP, won a court battle this year to stop European retailers selling versions of the console imported from Japan.

Leading retailers, including HMV and Dixons in the UK, report thousands of orders ahead of the launch. Many stores opened at midnight to accommodate shoppers.

The machine is Sony's first foray into the handheld games market, traditionally dominated by Nintendo with gadgets such as the GameBoy and the Dual Screen, launched in March this year.

The PSP, which will retail at £179.99, compared with £99.99 for the DS, is aimed at slightly older gamers and offers more than just games. The console also has limited wi-fi capability, and will play music and full-length movies.

In the U.S. these movies, stored on Sony's proprietary Universal Media Disk format and shown on a crystal clear 4.3 inch screen, have become a surprise success story.

Every PSP user in the U.S. has bought, on average, two movies for the console, and in some cases, UMD versions of a film have actually outsold the DVD version.

The big movie houses, initially sceptical about the format, have been won over. It is expected that by Christmas, 150 movies could be available on UMD.

Sony is hoping for big things from the PSP. Since its launch in Japan in January and in the US in March, some 5m units of the console have been sold, with another 1m of sales expected in Europe by Christmas. By March, Sony expects to have sold 16m PSPs worldwide.

But sales could be eroded within years if mobile phone operators move into the games console market, as has already happened with other devices. The personal digital assistant was once one of the most coveted executive tools, but after mobile phone manufacturers began including similar personal organiser capabilities in phones three years ago, sales dropped off dramatically. Combined mobile phone and PDA devices now outsell stand-alone PDAs eight to one.

Digital cameras were next. Mobile phone manufacturers have made cameras a standard feature in their handsets many take pictures of a quality similar to stand-alone digital cameras and now camera phones outsell digital cameras four to one.

"The mobile phone is still the only device that around 30 per cent of the world's population is carrying with them constantly," says Tomi Ahonen, a technology strategy consultant.

The current challenge facing mobile makers is from music-players such as the iPod. Several big handset manufacturers have announced plans to make phones with in-built music players, designed to look and feel much like the iPod. Storage capacity on these handsets is increasing rapidly and will soon allow storage of just as many songs as stand-alone MP3 players.

Sony Ericsson recently launched a music phone that uses Sony's famous "Walkman" branding. Before Christmas, Nokia plans to launch a multimedia handset with a 4 gigabyte hard drive able to store thousands of songs and rivalling the capacity of smaller stand-alone MP3 players.

Next week Apple Computer and Motorola are expected to launch a phone that runs Apple's iTunes music software.

"Next year, the game will be totally over," says Mr Ahonen.

Handheld games consoles are likely to be next in the firing line. Nokia has already made a foray into the market with the launch of its N-Gage phone and games console in 2003. Sales were disappointing but Mr Ahonen says Nokia simply entered the market too early.

"The games industry is now becoming very aware that mobile gaming is viable. Already, some $3bn, or 14 per cent of the $42bn total world gaming revenue, is generated by mobile phone games," he says.

"In two years I would expect every single major mobile phone maker to have heavily game-oriented phones in their portfolio."

With 1.7bn people worldwide estimated to be using mobile phones far outstripping the user base of any other portable device it is not difficult for mobile phone manufacturers to outdo the competition in any area that they set their mind to.