Will PS Now Be a Digital Distribution Disruptor for Sony?

Sony (NYSE: SNE  ) has been making major headway in the so-called console war, with its PlayStation 4 console setting sales records right from its day of release. According to official sales figures, the console sold approximately 1.2 million more units as of the end of 2013 than Microsoft's (NASDAQ: MSFT  ) Xbox One did; this will give the company a solid advantage going into 2014.

Of course, there are still several years to go in the new console generation and an early lead can dwindle over time. To help maintain its lead, Sony is providing more benefits to PS4 owners. And these benefits should help the company prop up some of its other platforms that haven't been breaking sales records as well.

Enter PlayStation Now
At the recent Consumer Electronics Show, Sony unveiled a bit more information about its upcoming PlayStation Now streaming service. The service will stream playable games over the Internet to compatible devices such as the PS4, allowing players to enjoy them without physical media or a potentially hours-long download. Most of the processing required to run the games will occur in Sony's servers, reducing the amount of data that must be streamed to cut down on bandwidth requirements.

While some might draw parallels to existing streaming services such as Netflix (NASDAQ: NFLX  ) or Amazon.com's (NASDAQ: AMZN  ) instant viewing options, in some ways PlayStation Now is actually a bit closer to Nintendo's (NASDAQOTH: NTDOY  ) Virtual Console on the Wii and Wii U. The service will let gamers enjoy games from older PlayStation consoles, though they will have to pay to do so (either a flat-rate subscription or per-game rental fees).

The content war
While the PlayStation 4 has a lead on the Xbox One, the final victor in the latest console war will be determined by which console provides the best content for players. In addition to exclusive games such as the latest entry in the "Halo" series and Electronic Arts' (NASDAQ: EA  )  Titanfall, the Xbox One is set to feature original video programming to try and provide a more well-rounded entertainment experience. This is similar to how Netflix has been branching out into original programming such as its Emmy-winning House of Cards and its upcoming set of Marvel Studios projects.

Sony, on the other hand, is focusing on making the PlayStation 4 into a gaming console first and foremost. In addition to allowing gamers to enjoy older PS games through PlayStation Now, it is also providing portability options through interactivity between the PlayStation 4 and the PS Vita handheld; players can transfer games to the handheld to continue playing on the go.

Of the two approaches to providing more content to consumers, Sony's seems like a safer bet. While a hit original series or two might help to sell Xbox One consoles, trying to make it big with original content can be very hit or miss. Netflix has been successful with it, but Netflix also has access to the viewing habits and preferred genres of its userbase... that gives the company a very distinct edge when it comes to figuring out which genres it should expand into.

The drawbacks of Now
Of course, even the PlayStation Now model isn't without its flaws. Some worry that Internet streaming could introduce lag into the game controls or that games might freeze up or buffer during gameplay. Gamers have also been discouraged to learn that the system won't be able to recognize games that they already own on older consoles so they'll have to rent or buy them again to play them.

One other potential drawback comes from the rollout of new games. This was the largest problem that Nintendo faced with its Virtual Console on the Wii, since only a few new titles were released each week. The problem seemed to get worse on the Wii U as a number of the Virtual Console releases were simply repeats of NES and SNES games that had already debuted on the Wii ... and that players still had to pay a premium to get the Wii U-updated versions of, even if they owned the Wii version. Given that the PlayStation Now service will contain games from all of the previous PlayStation consoles, a slow staggered release could dampen early enthusiasm for the service.

Gaming in the digital age
While some have declared that PlayStation Now might potentially be a GameStop  (NYSE: GME  ) killer, the service needs to be a success first. GameStop enjoyed a robust holiday season on the backs of the PlayStation and the Xbox One, and will likely continue enjoying both new and used game sales for a while until a solid digital alternative really takes off.

With the PlayStation Now service expected to roll out this summer, owners of the PlayStation 4, the PS Vita, Sony Internet-ready TVs, and other compatible devices potentially have a lot to look forward to. At the moment it's hard to separate the hype from the reality, though, so it's important to keep in mind that Now might not change the future as much as some might lead you to believe.

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  • Report this Comment On January 13, 2014, at 9:31 PM, CatchTwentyTwo wrote:

    Jon, I am very impressed with your article.

    If Sony can manage to provide a strong catalog of essential games and keep the buffering times/quality reasonable we will see a successful change in console gaming.

    Why does no one mention Steam? It is not as if this idea has not successfully been implemented for the PC.

  • Report this Comment On January 13, 2014, at 11:11 PM, Croaxleigh wrote:

    I think that it's at least in part because digital distribution is much more common on the PC than on consoles. While there are digital options for the consoles, a lot of people still go to the store (be it GameStop, Wal-Mart, or wherever) to buy physical copies. For PC games, it's getting harder to find retailers that still stock more than just a handful of games. Steam's been around for a decade or more now, so as physical copies of PC games have become rarer in stores it's been able to establish itself as a comfortable go-to for gamers (and the Steam sales certainly don't hurt.)

    Steam dominates the PC digital market, but it was also has a very strong first-mover advantage there. If Steam had been trying to enter the market at the same time as Origin and some of the other platforms that are out there now, the digital scene would likely be a lot different.

  • Report this Comment On January 14, 2014, at 5:14 AM, puppybone69 wrote:

    What on earth makes you think that MS doesn't have access to the viewing habits and preferred genres of its userbase? You really think that XBOX Live doesn't tell them all that and then some? It's Microsoft, fool!

  • Report this Comment On January 14, 2014, at 9:04 AM, eQil1 wrote:

    Lets not forget that Sony also plans on making exclusive video content just like Netflix & Microsoft. I still don't quite get the fuss over backwards compatibility which is really the orgin for ps now & whatever xb1 does. What does everyone get rid of their current console when they here a new one is comming out. I for one will be keeping my ps3 & 360 along with my ps2 & xbox so it will not be that big of an issue for me. As far as ps now lets see how well it will work, if it lags serverly and they don't make it a resonable price for what I would hope would be a flat rate for unlimited content close to the likes of netflix & hulu it might not pan out as they are hoping.

  • Report this Comment On January 14, 2014, at 10:06 AM, Croaxleigh wrote:

    PuppyBone: Microsoft does have access to that information, yes. But Xbox Live doesn't provide nearly as much video content as Netflix does, and Netflix has potentially been tracking viewing habits for almost a decade longer than Xbox Video has been in existence (Xbox Video was announced in 2006, at which point Netflix was nearing its billionth DVD delivery.) While Xbox Live reported about 10 million more users than Netflix about a year ago, you also have to consider that not all of those 46 million use Xbox Video or other service (in fact, I'd wager that a significant portion only makes use of gaming and perhaps chat.) Meanwhile, Netflix's 36.3 million (as of April; the number now tops 41 million, but April was the closest that I could get to the Xbox Live stats I found) ALL use the service for viewing content. Netflix simply has a larger data pool, likely by several magnitudes.

  • Report this Comment On January 14, 2014, at 10:11 AM, Croaxleigh wrote:

    eQil1: You make a good point. Keep in mind that at least some of the target audience for PS Now has "aged out" of those older consoles, though; the original PlayStation is 20 years old this year, and the PS 2 is 14 years old. Younger gamers may not have ever owned one, and older gamers may have sold, broken, or otherwise parted with their consoles. Even if they still have them, PS Now will (theoretically) offer up a lot of games that they no longer have the discs for or never owned.

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