Sony (NYSE:SNE) will release the PlayStation TV, a $100 set-top streaming box, in North America and Europe this fall. The device, which will compete against Apple TV, Amazon (NASDAQ:AMZN) Fire TV, Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Chromecast, and Roku, was originally released in Japan as the PS Vita TV last November.


PlayStation TV. Source: Sony.

The key difference between the PlayStation TV and other set-top boxes is that it offers a video game experience beyond casual games. The PlayStation TV acts as a larger screen for handheld PS Vita and PSP games, and allows the player to play a PS4 from another TV in the house. The PlayStation TV will also eventually be able to stream PS1, PS2, and PS3 games via PlayStation Now's subscription-based cloud streaming service.

While that package certainly sounds pretty feature-rich for $100, Sony is overlooking three key reasons that the device could fail in the U.S.

1. Plenty of features but no clear focus
The main problem with the PlayStation TV is that it's unclear who the device is designed for.

If it is targeting the streaming media device market, there are much cheaper options -- Google's Chromecast only costs $35, while the Roku starts at $50. The Chromecast can also mirror the screen of an Android device or a PC. Meanwhile, Amazon's Fire TV, which also costs $100, offers a clearer package -- customers can simply stream media and play Android games on their TVs. There's no confusion about accessing consoles over networks or streaming games off the cloud.

The PlayStation TV appeals to a fairly narrow group of customers -- those who have a PlayStation 4, own more than one TV, and are in the market for another media streaming device. PSP and PS Vita owners interested in playing their handheld games on the big screen might be interested as well, but the PlayStation TV notably doesn't support titles that use the touch screen, rear touch pad, motion sensors, camera, electronic compass, or microphone.

2. It already flopped once in Japan
Meanwhile, the PlayStation TV has already flopped in Japan as the PS Vita TV. According to industry tracker Media Create, the PS Vita TV sold 42,172 units during its first week on the market back in November. In the second week, sales plummeted 82% to 7,686 units. In the week ending on June 8, sales trickled in at a mere 1,193 units.

What's disappointing about Japanese sales of the PS Vita TV is that its sales haven't been helped by relatively strong sales of the PS Vita, which sold 11,450 units that same week. The PS Vita has sold 8.3 million units since December 2011, with 35% of sales coming from Japan.

The PS Vita TV's sales could also have been dragged down by poor sales of the PS4, which was outsold by Nintendo's 3DS LL, the Wii U, and the PS Vita in Japan during that week. If Japanese gamers aren't buying the PS4, there's simply no market for a device that streams it to another TV.

But what failed in Japan won't necessarily flop in North America. Sony has a key advantage in the North American market -- robust PS4 sales. Sales of PS4s in North America currently account for 46% of global sales, making it a more favorable market for the PlayStation TV.

3. Nixing net neutrality could also nix cloud-based gaming
Beyond streaming PS4 games and playing PSP and PS Vita games on the big screen, a key selling point of the PlayStation TV is cloud-based backwards compatibility.

While the notion of Sony letting gamers rent and buy older PS1, PS2, and PS3 games via a Netflix (NASDAQ:NFLX)-like service sounds appealing, changes in net neutrality rules in the U.S. could make that a much less enjoyable experience.

Back in January, a federal court overturned several FCC rules that prevented Internet service providers (ISPs) from slowing down or blocking access to legal web content. This essentially allowed Verizon, Comcast, and AT&T to throttle high-bandwidth connections to streaming services like Netflix at will.

Therefore, ISPs gained the legal ability to charge companies for higher speed connections, or to charge customers tiered pricing schemes for varying connection speeds. Those fears were confirmed earlier this year, when Netflix agreed to pay Comcast and Verizon for faster connections.

The size of an HD film on Netflix is about 3 GB per hour. The average size of a PS1 title is 500-700 MB, a PS2 title weighs in around 2-3 GB, but PS3 games can clock in over 25 GB (including additional HDD content). Therefore, streaming older games off the cloud might not be practical unless Sony follows Netflix's example and inks special deals with ISPs. But those costs might be passed back onto the customer in the form of higher rental and purchase costs for cloud-based games. In that case, it might make more sense to simply play the original physical copy on an old console instead.

The Foolish takeaway
In conclusion, the PlayStation TV is an interesting niche device that could appeal to a portion of PS4 owners.

However, there are cheaper, easier-to-understand devices that could prevent it from gaining much ground in the market. Meanwhile, poor sales in Japan aren't encouraging, and changes in net neutrality rules could crush Sony's dream of becoming the "Netflix of gaming."

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Leo Sun owns shares of Apple and Google (C shares). The Motley Fool recommends, Apple, Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of, Apple, Google (A shares), Google (C shares), and Netflix. 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.