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Sony PlayStation 3 Is Down, but Is It Out?

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The Sony (NYSE: SNE  ) PlayStation network suffered a severe outage last week. There is a lot of speculation regarding what brought down the network, but no one really knows for sure. Most people blame hacker group Anonymous for an elaborate distributed denial of service attack. Even Sony views this as a criminal act and posted a comprehensive detail on its website regarding the extent of data breach that might have occurred.

Whatever the case may be, the outage obviously does not bode well for Sony, which has recorded high sales for PlayStation, but now sees that position threatened as competition from Microsoft's (Nasdaq: MSFT  ) Xbox 360 and soon-to-be-launched successor of the Nintendo (OTC BB: NTDOY.PK) Wii threaten sales. With mobile game sales in a fever thanks to mobile apps on Apple's (Nasdaq: AAPL  ) iPhone and other platforms, Sony's position looks even more threatened. As an investor, what does the road ahead look like?

What a wicked game to play
Sales of the Sony PlayStation 3 hit the 50 million mark worldwide in the five years that it has been around. With a steady rise in sales every year since its inception, the PS3 has made its presence felt. But with a recent intrusion attack and now plateauing sales, the PlayStation platform and network are beginning to show signs of age. Meanwhile, Nintendo has announced the development of the widely successful Wii game console that should launch next year.

Furthermore, the threat is greater still with Microsoft Xbox 360. There is a looming possibility of several users losing confidence in Sony's security after the breach and moving to the Xbox, which would seriously affect long-term software and hardware sales for the company.

You get what you pay for
Of course, the PlayStation Network offers free access to community gaming platforms (which might incidentally explain a lack of security investment?). Thus, the segment is a cost center for the company. Microsoft will surely use this opportunity to swoop in to snatch some portion of the market from Sony to serve popular multiplayer platform games like Electronic Arts' (Nasdaq: ERTS  ) Madden NFL.

To top Sony's worries, several major PS3 games are set to be released in 2011, such as the next iteration of Activision Blizzard's (Nasdaq: ATVI  ) highly anticipated Call of Duty. These games also have an Xbox variant and a massively rabid fan base. If security concerns persist, networks stay down, and gamers can't get their fix, it's only a matter of time before gamers move to Microsoft for a more reliable gaming experience.

Gaming loyalty
To add insult to injury, the other serious concern here (that is equally scraping away at all the traditional console players) is Apple. Apple is rapidly expanding its formidable computing and mobile empire and is now in the process of hogging access to the new gaming business -- mobile and tablet gaming.

Adding the new Game Center feature on its iPhone and iPad, it aims to bring handheld gaming to its buyers. This will clearly be a big threat to the PlayStation Portable in the short term. PSP games are much costlier, and the device itself is a dedicated gaming device whereas the iPhone is already widely popular in the consumer electronics market and will provide games for a bargain. Plus, it is important to note here that EA has a large presence in Apple's App Store. Clearly, large game developers like EA see the future in the mobile industry and not in consoles.  Long term, this is a serious problem for Sony.

Not one to take an assault like this sitting down, Sony has some tricks up its sleeve. It is one of the recent entrants to the crowded tablet PC market. The new S1 and S2 tablets launched by Sony come with the ability to play PlayStation games.

Fool's game
With all the competition around, Sony has a lot of hard work ahead. Plus, in the handheld gaming devices arena, there's Apple to be wary of.

The scary part is the fact that the PlayStation network outage and possible data breach caused a major stir in the market leading to a fall of 5% in Sony's shares, which is incredible considering all the other spaces that Sony competes in.

I doubt Sony will be wounded because of this in the long run. The PS3 has a strong user base, and once the network is secured again people will definitely want to keep playing on it. So even though the Sony stock might face short-term losses in stock prices, it should stay steady in the long run.

Arunava De does not own shares of any of the companies mentioned in this article. Microsoft is a Motley Fool Inside Value recommendation. Apple and Activision Blizzard are Motley Fool Stock Advisor picks. Motley Fool Options has recommended a bull call spread position on Apple. Motley Fool Options has recommended a synthetic long position on Activision Blizzard. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Activision Blizzard, Apple, and Microsoft. Alpha Newsletter Account LLC owns shares of Activision Blizzard and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (37)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 02, 2011, at 3:14 PM, anominous wrote:

    im not going to be bought by "free" trials that most wont care about. They screwed up and im done with sony.

  • Report this Comment On May 02, 2011, at 5:31 PM, Ballsakkkk12 wrote:

    Yeah, you're also someone who's too dumb to know how to spell anonymous even though its been posted on every ps3 blog for 3 weeks now. Go back to school and stop worrying about being in love with ur soon to be Xbox.

  • Report this Comment On May 03, 2011, at 12:30 AM, Cuatros wrote:

    What a horrible article. Inaccurate and obviously written by someone not familiar with gaming. What do you mean nobody knows for sure what brought down the network? The article makes it sound like the attack itself is what caused the outage! The servers were infiltrated and once Sony figured it out (obviously they dont know who the hackers are yet) they turned their own servers off. The hackers did not bring down the network. There is a big difference. Any servers can be hacked with enough skill. I'm with the State employees credit union, the biggest credit union in my region, and their servers were hacked a couple years ago. Hundreds of thousands of credit cards (including mine) were stolen, and the bank immediately sent everyone replacements. No big deal life goes on. If the damn banks machines can be cracked, it shouldn't be shocking that the servers for a video game console fell too, even though Sony has been praised for the sophistication of the ps3 servers in the past before this., Not anymore I guess.

  • Report this Comment On May 04, 2011, at 4:47 AM, katysexy1986 wrote:

    why would some hack the system when its free i think its ps3 making up this so they can have money which i think its stupit just like you have to pay xbox 360 i thing people stop byeing these systems because of this

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