The Money Making Game #2: The PlayStation Phone

We certainly have no problem getting caught up in the fun of playing games, but the people who create them have their pocketbooks to worry about, too. In this column, finance expert and GameSpy contributor Chris Morris guides you through the tricky corridors the gaming industry's financial side, touching on big-time business decisions and how they matter to the common gamer.



Sony Phone Home

While the Internet has been buzzing about leaked images and details of what seems to be a prototype PlayStation Phone from Sony Ericsson, the debate has generally circled around whether the leaks were real or faked. The question no one seems to be asking is: Is this a good idea in the first place?

Just for the sake of argument, let's assume Sony is, in fact, working on a PlayStation Phone. The company, after all, hasn't done much to quell the rumors, with CFO Masato Kato stirring the embers during a quarterly results conference call earlier this month when he said "The PSP ... was more concentrated I'd say [at the] core gaming segment rather than the light game, but now we are addressing that market as well."


The PSP was hardly a failure, but it hasn't been the barn-burner that people imagined when it was first announced. I remember jaws dragging on the ground at E3 2003 when Sony first announced the machine; the press corps piled onto a bus, heads spinning, and shuttled over to the Nintendo conference -- where we all thought the portable game leader was about to meet its match.

It didn't. And, to this day, no one's quite sure why. Most have stopped trying to figure out the answer, and instead have begun wondering what Sony will have to do differently next time to have a better outcome. With the launch of the iPhone and the growing strength of Apple in the gaming field, adding a communications capability seems to be the only viable direction. But Apple has already set the gold standard in that field; the app store makes it simple to download new content seamlessly, and because the company isn't reliant on software royalties to maintain its profit margins, it's able to set a very low bar for app prices.

Consumers quickly got used to paying $.99 for apps (or $4.99 on the high end). And they also were spoiled by the quick pace of the downloads. It's going to be hard for Sony (or any game company, for that matter) to compete with that. .

If Sony wants to be a strong competitor in the smartphone gaming space, simply porting PlayStation games to the phone isn't going to do it. Sony needs to have an interface that is at least as convenient as the app store -- and said interface may need to go even further than that.


"If I'm Sony, I'm thinking about how the business model is shifting and how I can position and monetize people's time by giving away games for free and then getting them to pay for premium content of one kind or another, " says John Taylor of Arcadia Research. "I think Mr. Wada from Square Enix said 'the next major innovation in gaming is not going to be a technology, it's going to be a business model.'"

Bringing the social gaming formula to the mobile market certainly has its risks, but free-to-play has been an increasingly effective way to win over audiences and earn money in the gaming industry. Massively multiplayer online game developer Nexon, for instance, has seen double-digit growth over the past three years without selling a single game to consumers. .

"Facebook games have broadened the audience for us, " says Nexon CEO Daniel Kim. "The whole idea of microtransactions is easier to communicate. There are millions who are familiar with them and willing to spend money on them."


The handheld and mobile gaming markets are both shifting rapidly -- with a deep schism between "bite-sized" gaming and more robust experiences like, say, The Legend of Zelda: Spirit Tracks. Nintendo is betting big that the audience for longer games is stable, and has growth potential, with the 3DS. Sony has tried going head to head with the house that Mario built, and knows the difficulties that go with that. By finding a way to monetize people's time, though, it could be the yang to Apple's yin -- and carve out a spot for itself in the mobile market.

The strategy is not without risk, of course -- and it's certainly worth the company's time to at least test PlayStation ports onto a mobile platform -- but if the PlayStation Phone is real and the company is relying solely on the strength of the PlayStation brand and its lineup of franchises (no matter how esteemed they might be) to give it a real, lasting impact in the mobile world, Sony could be in for a rude awakening.

If, however, Sony has something truly unique up its sleeve that lets the PlayStation Phone stand apart from both the iPhone and the 3DS, then this could become a very interesting fight to watch... and a boon time for gamers.

The industry might have been busy focusing on Apple vs. Nintendo for some time, but Apple vs. Sony? That could be a real battle of the titans.



Chris Morris has covered the video game industry since 1996, offering analysis of news and trends, and breaking several major stories, including the existence of the Game Boy Advance and the first details on Half-Life 2.