Set-Top Box Wars: Why Sony Is Launching PlayStation TV

Learn why Sony is launching its new set-top box and what this means for Amazon's Fire TV.

Jun 19, 2014 at 9:00PM

Japanese tech giant Sony (NYSE:SNE) has undertaken a long restructuring process over the past few years, eliminating product lines and cutting jobs. At the recent E3 conference, the company announced that it will release its own set-top box in the U.S., called PlayStation TV. After the successful launch of its PlayStation 4, the company seems to be aiming toward a new segment of the entertainment tech industry.

Plus, the fact that its set-top box is compatible with the PlayStation 4 allows Sony to reap more benefits from its latest console. In that sense, the launch of PlayStation TV could lead to considerable increases in revenue and user engagement, and keep pace with companies like (NASDAQ:AMZN), which produces its own video game set-top box.

Expanding product portfolio
Since the financial crisis, Sony has struggled to maintain positive earnings, continually accumulating net losses. In its fiscal year ended March 31, 2014, the company had a net loss of approximately $1.26 billion and losses per share of $1.21. In its attempt to adapt to the rapidly changing industry, the company has taken several measures, and continues to do so. One of these moves has been expanding its portfolio with products that are up-to-date with current market trends.

Despite incurring high restructuring costs, Sony has managed to create a very successful console, the PlayStation 4, which has surpassed its competitors, Microsoft and Nintendo. Beyond enjoying the benefits of having a No. 1 console, it seems like the company plans to amplify its success with a new PS4-compatible set-top box. Clearly, Sony's PlayStation TV is designed to draw more customers into the PlayStation ecosystem.

Promoting the PlayStation ecosystem
The PlayStation TV can connect to a nearby PlayStation 4 and stream content to another TV via remote play. As a result, gamers can use the console in more than one room. Through access to PlayStation Now -- Sony's cloud-enabled game streaming service -- the set-top box includes over 1,000 software titles, classic games, and top hits from past-generation consoles, as well as the PS Vita.

Moreover, the set will be sold in a bundle in the U.S. that's composed of PlayStation TV, the Lego Movie video game, and a DualShock 3 controller, making this new set-top box an effective way for Sony to engage new users. This engagement could attract a considerable number of users to the high-end PS4 console, further improving Sony's top line.

Facing Amazon's Fire TV
Amazon, the world's largest online retailer and cloud service company, has its own set-top box called Fire TV, which also streams video games. Through its video streaming service, Amazon Prime Instant, users can access a library rich in movie content. Moreover, Amazon offers its own video game controller for $39.99. So far, Fire TV contains game titles from renowned publishers like Rockstar Games, Electronic Arts, and Ubisoft

Due to these features, the Fire TV has raised concern for Sony, as it could potentially take away a slice of PlayStation's gamers. In that sense, Sony is answering with a very differentiated set-top box, able to draw new users into the PlayStation ecosystem. In that manner, Sony can protect PlayStation's user base, and also keep up its growth. 

Both set-top boxes are priced equally at $99, however, Sony might get a competitive advantage through its launch, as it will sell its set-top box in a bundle.

Final foolish takeaway
In the process of restructuring its business, Sony will soon launch PlayStation TV, expanding its product portfolio and further promoting the PlayStation ecosystem. The new set-top box could attract and engage new users, possibly leading to additional sales of PS4 consoles. Moreover, PlayStation TV allows Sony to properly compete with Amazon's Fire TV, which could take some of Sony's potential users. As a result, Sony can protect its PlayStation user base while maintaining its growth, increasing its top line, and getting further ahead in the market.

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Alvaro Campos has no position in any stocks mentioned. The Motley Fool recommends The Motley Fool owns shares of 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.

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