While most of Sony's (NYSE:SNE) E3 press conference was devoted to new games for its PlayStation 4 console, the company also sneaked in the announcement of a PlayStation TV set-top gaming and streaming video box. The device, which is already sold overseas under the PlayStation Vita TV name, will start at $99 in the U.S. and Canada.
PSTV will also be offered as part of a $139 bundle that includes a DualShock 3 game controller, an 8GB data card, and an HDMI cable. Sony's set-top box will play games from the upcoming PlayStation Now streaming game service as well as titles made for Sony's handheld PS Vita. The box will also allow gamers who own a PlayStation 4 to remotely play games on another TV in their home.
The launch of PSTV in the United States puts Sony in direct competition with Apple (NASDAQ:AAPL) TV, Google's (NASDAQ:GOOG) Chromecast, Amazon's (NASDAQ:AMZN) Fire TV, Roku players, and in some ways Blu-ray players with built-in "smart" functionality. It's a very crowded space, but PSTV makes Sony the only company with a high-end console option as well as a cheaper choice. That could allow the company to enter homes via the low-cost box then upsell users to a PS4.
What is PlayStation Now?
In addition to potentially offering access to apps like Netflix, Hulu, and countless others like all of its competitors do, PSTV will serve as a delivery system for PlayStation Now, possibly bringing that service to millions more homes.
PSNOW is a streaming service that eliminates the game discs normally associated with console gaming. It works a lot like Apple's app store in that some games will be sold while others will be offered for free. Sony devoted a portion of its E3 press conference to touting what it called "Free To Play" titles. The company also announced that PSNow will move into an open public beta at the end of the month, first on PS4, then rolled out to the company's other platforms. The service is currently being tested in a private beta fashion.
Sony said players using the beta will have access to over 100 games including Dead Space 3, God of War: Ascension, Metal Gear Solid: Ground Zeroes, and Ultra Street Fighter 4.
"PlayStation Now, fueled by the power of the network, will provide our community with access to our massive gaming libraries starting with PlayStation 3 titles," Sony Computer Entertainment America CEO Shawn Layden said during the press conference.
The PSNOW service makes PSTV more than just another set-top box. It has the ability to make Sony's offering stand out in a field where most of the devices do roughly the same thing.
There is a lot of competition
The Sony device seems similar in scope to Amazon's Fire TV, which also sells for $99 with an optional game controller costing another $39. In Amazon's case the key drawing card is giving the company's Prime members access to its Prime Instant Video service on their TVs. Fire TV also offers video games including some of the older Grand Theft auto titles as well as many games that began life as tablet apps.
Sony can match some of Amazon's video offerings with content from its movies and television shows. Where it should be able to blow the online retailer out of the water though is games. Sony has a massive library of titles for its earlier PlayStation Models as well as its PS Vita -- all of which could end up on PSNOW along with new titles.
The biggest challenge facing Sony is that nearly half of Americans already have an Internet device connected to their television. According to a recently released research report from Leichtman Research Group, 49% of all U.S. households have at least one television set connected to the Internet via a video game system, Blu-ray player, smart TV, and/or a stand-alone device. That's an increase from 38% in 2012, and 24% in 2010.
That of course still leaves 51% of the country theoretically as a potential market for Sony (though the number is likely much smaller as many of those who have yet to connect may not be willing to do so). The real question for Sony is whether PSNOW is compelling enough for people in the connected 49% to make the switch.
The upside and the risk for Sony
The danger in offering the PSNOW for Sony is that the company will steal market share from its more expensive PS4 console. Research firm IDC agrees that may be a problem. In a May report on the console business IDC wrote that microconsoles (digital-only devices such as Amazon Fire TV that support TV-based gaming) will "erode demand for disc-playing consoles at the margins in the next few years."
That may not matter however as PS4 is not a hardware play. The company makes its money from people buying games, not from selling consoles. Whether it sells you a PS4 or a PSNOW, it has access to your living room and a direct opportunity to sell you games and other content.
That opportunity is becoming increasingly important. Sales of physical games declined by $373 million (27%) in the first quarter of 2014 while digital download spending grew by 4%, according to NPD Group. The number of digital downloads also outpaced physical sales during the first six months of the year though more revenue was derived from selling physical titles due to higher selling prices, the research noted.
The reality for Sony and other game sellers is that the day of the disc is over. Instead of splitting revenue with a retail partner, companies can open a virtual store in everyone's living room. Whether you sell those potential customers a console or a set-top box, the key is having that pipeline. Adding PSTV to its lineup leaves Sony uniquely positioned with an addressable device at the top of the price range and one toward the bottom. PSTV may well cut into PS4 sales but that won't matter as long as the device helps Sony control more living rooms.
Daniel Kline has no position in any stocks mentioned. He is sort of interested in owning a PSNOW. The Motley Fool recommends Amazon.com, Apple, and Google (C shares). The Motley Fool owns shares of Amazon.com, Apple, 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.