When Sony (NYSE:SNE) announced the PlayStation TV, a $99 a set-top box, I wrote that the success of the device hinged on the success of the PlayStation Now cloud gaming service, which in turn depended on the price being reasonable. PlayStation Now, which will allow PS3 games and, eventually, PS4 games to be streamed over the Internet, represents a huge opportunity for Sony . It will be available for the PlayStation TV, PlayStation 3, PlayStation 4, and select Sony TVs. But, pricing for games in the currently running beta are not only too high, but out of touch with reality, and Sony is risking squandering a golden opportunity.
The prices don't make sense
Initially, Sony will offer game rentals through the PlayStation Now service, and during the currently running closed beta, rental periods range from 4 hours to 90 days. Sony has mentioned that a subscription service might be coming in the future, but for now, rentals are the only option.
The prices for these rentals are crazy, to put it lightly. Renting a game for a 4 hour period costs between $3-$5, while a 90 day rental costs between $15-$30. Considering that these are not new games, but PS3 games that have been on the market for years, these prices just don't make sense. One example is Final Fantasy XIII-2, a game that sells for less than $20 at retail , but is priced at $5 for a 4-hour rental and $30 for a 90-day rental.
One argument for the high prices is that these games can be played with a $99 device, or on some of Sony's TVs, and that they don't require a console. So, in a way, the rental price and the retail price aren't quite comparable .
But, the PlayStation TV will be competing with the onslaught of Android-based set-top boxes that are undoubtedly coming after Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) recent announcement of Android TV. Plus, with Android games free or extremely inexpensive , Sony needs to price PlayStation Now competitively if it wants to have any chance at selling the PlayStation TV. More than 80% of Android apps are free, and the top paid games in the Google Play store range from $0.99 to a few dollars, with Minecraft the most expensive at $6.99.
The PlayStation ecosystem is valuable, but not that valuable
The first Android TV set-top boxes are coming this fall, and TVs with the system built-in will be available in 2015. PlayStation Now has the potential to make Sony's PlayStation TV and televisions stand out, offering high-quality games that Android devices can't match, but that requires PlayStation Now to be reasonably priced.
Sony's television operations have been struggling, losing billions over the past decade as televisions have become a commodity. However, Sony expects its TV business to turn a profit this year, a sign that the company is turning things around. PlayStation Now could be what keeps Sony's TV business in the black. The PlayStation ecosystem provides Sony with a valuable asset, and all Sony needs to do is leverage it effectively.
Gaming is one of Sony's most important businesses, and it's one that doesn't involve commodity products. During the most recently reported quarter, gaming accounted for a little more than 18% of total revenue, buoyed by the release of the PlayStation 4 console. Gaming generated more operating income than the mobile devices, home entertainment, and imaging products segments, and with sales of the PlayStation 4 doing well, gaming will likely continue to be a major source of profits.
PlayStation Now will allow Sony to use the success of its gaming business to differentiate its other products, like televisions and the upcoming PlayStation TV. The home entertainment segment represented another 17% of revenue, but it produced an operating loss during the most recent quarter, so getting away from selling commodity products by leveraging PlayStation Now should help improve Sony's profitability, a great thing for Sony's shareholders.
Android TV isn't going to help television manufacturers, since it gives no one company an edge over the others. Google is the main beneficiary, since it gets a cut of all app sales. Android TV doesn't change the commodity status of TVs, but PlayStation Now has that potential for Sony.
The bottom line
Sony could be primed for quite a comeback if it can fix the PlayStation Now pricing, as it could sell millions of PlayStation TVs, as well as provide a boost to its TV business. But, if PlayStation Now fails to gain traction due to high prices, it could spell further trouble for the company. Sony has spent more than a decade building the PlayStation brand and ecosystem, and now is the time to reap the benefits.
Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). 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.