Has Sony's Digital TV Service Already Failed?

While Sony (SONY 0.37%) has done well with its PlayStation 4 game console, many of its other efforts over the last few years have failed to resonate with consumers, and a new over-the-top digital television service seems likely to join that list.

It's not that the product is a bad idea. Pay television served purely over the Internet without the requirement of a wired subscription is clearly going to disrupt the current cable industry. It's just that Sony, according to The New York Post, plans to charge prices for its OTT service that are cable-like.

Sony's upcoming Internet-delivered TV service will carry 100 channels and a surprisingly high price tag of as much as $80 a month, one source told The New York Post. A second source said the price would be between $60 and $65, closer to a what a basic cable package costs, but sill much higher than most would expect a purely digital service to cost.

This has happened, the article suggests, because Sony was unable to negotiate deals with the companies that own the cable channels -- many of which are also pay TV providers -- for a la carte pricing.

If this is true, Sony's service will appeal only to people who want to pay the same amount for cable that they would for a wired subscription just to watch on their mobile devices. That seems like a recipe for failure, especially when Verizon (VZ 0.88%) is preparing to launch a pure digital a la carte service in 2015 and DISH Network (DISH) is prepping something similar.  

What is Sony doing?

Sony announced in January at the Consumer Electronics Show that it would be creating a cable-over-the-Internet service. CEO Kazuo Hirai, at the time, said the service would be offered through the company's PlaySation game consoles.

"What we're trying to do is resolve one of the biggest hurdles that a lot of consumers have," Sony CEO Kazuo Hirai Hirai said The Los Angeles Times reported. "Watching live TV on one device, watching streamed video another device."

That's a noble goal, but consumers aren't merely looking for television delivered on a new platform, they want TV that costs less money. If a digital TV service costs the same as a wired one, then customers might as well buy a regular cable subscription, as most companies offer digital access to a package of channels to subscribers.

Sony's CEO Kazuo Hirai from CES 2014. Source Sony 

Who else is doing this?

Verizon's CEO, Lowell McAdam, has said that his company will be offering an a la carte digital pay TV service in 2015. When he announced the effort at a recent Goldman Sachs technology conference, he did not talk price, but clearly explained how it would be different from traditional cable.

"No one wants to have 300 channels on your wireless device," McAdam said, PC Magazine reported. "And I think everyone understands. It will go to a la carte."

DISH has also been making deals to launch a digital television service, which may not be a la carte, but would cost less money than a traditional cable subscription. Variety explained the DISH offering as follows:

The No. 2 satcaster...has said it plans to bow an OTT service by the end of 2014 that will include slimmed-down channel packages -- to deliver bundles over broadband that are less expensive than typical pay TV...Dish sees the OTT television service as a way to capture biz from younger consumers, who are less likely than their elders to subscribe to pay TV, aiming to intro a service priced at $20-$30 per month.

Verizon will let customers pick just what they want, while DISH will offer trimmed-down channel offerings at a low price. Either of those sounds like a much better bet than a Sony service which works just like cable, except not on your TV. 

Does Sony have a chance?

Sony has an excellent delivery mechanism in its PlayStation consoles, since over 80 million PS3s and 10 million PS4s have been sold. That would give it a major advantage if its service was well-priced, but it seems unlikely that users unwilling to shell out the full cost of a wired cable subscription would pay a similar amount just because they can do it through a game console.

People who are cutting the cord with cable aren't doing so because they want to watch TV on smaller screens, they're doing so because the "price you pay for what you get" ratio for pay TV makes it a bad deal. These cord-cutters will pay some money for television. Many of them are Netflix (NFLX -0.51%) or Hulu Plus (or both) subscribers.

What they won't do is fall for the same bloated pricing structure cable has used for years. If Sony wants its OTT digital TV service to succeed, it either needs to go a la carte and let customers buy only what they want, or find a way to match DISH when it comes to price.