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Sony's PlayStation Now Could Be Too Expensive

By Sam Mattera - Jul 15, 2014 at 2:00PM

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Sony's upcoming video game streaming service could be too costly to entice gamers.

Sony ( SONY 0.17% ) has a lot riding on PlayStation Now, its upcoming cloud-based, streaming-video-game service. If it succeeds, it could quite literally revolutionize the video game industry, dramatically reshaping how video games are distributed. Transmitted over the Internet from Sony's distant servers, streamed PlayStation games would put pressure on traditional, brick-and-mortar retailers, while simultaneously giving Sony's electronics a leg-up over its competitors, including Samsung (NASDAQOTH: SSNLF).

But PlayStation Now might be too expensive. Early reactions from the ongoing beta test have not been favorable to Sony's pricing policy, and if it remains in place, it's possible that the service could fail.

Sony is betting big on game streaming
When it comes to music and movies, streaming has emerged as the preferred method of distribution: The growth of on-demand, subscription-based music-streaming services is weighing on market for digital music downloads; at the same time, demand for physical movie discs is rapidly declining in the face of Internet-based, video-streaming alternatives.

Sony is betting that video games are next. In a recent Q&A session at the Develop Conference, Sony's Andrew House compared video game streaming to music and movies:

Last year was the first year that music downloads decreased year-on-year. It's only by six percent, but it's on the downturn. Streaming, meanwhile, is something like 30 percent up...it says to me that convenience of streaming has been embraced first in music, now in video and television, and it's going to play some role in [video games] as well.

PlayStation Now grew out of Sony's purchase of Gaikai, an upstart streaming-video-game service that cost Sony $380 million dollars two years ago. But more than justifying its investment in the company, Sony is looking to use streaming to revive interest in its other electronics.

Currently, users of PlayStation Now aren't limited to Sony's recent video game consoles (the PlayStation 3 and PlayStation 4) but can also access the service through newer-model Sony TVs. Eventually, they'll be able to use Sony's smartphones and tablets as well.

Exclusive access to PlayStation Now could emerge as a distinct advantage over Sony's rivals. Sony's televisions, smartphones, and tablets compete with many other firms, but its most significant direct competitor may be Samsung.

Like Samsung, Sony's televisions are primarily aimed at high-end buyers, and its Android-powered Xperia smartphones and tablets compete with Samsung's expensive Galaxy devices.

In both markets, Samsung is winning: 26.4% of the smart TVs sold in the fourth quarter of last year were made by Samsung, compared to just 14.3% for Sony. Samsung is one of the world's leading tablet vendors -- Sony doesn't even chart. And Samsung sold 40 million Galaxy S4s in its first six months on the market -- more than all the phones Sony sold in 2013 combined.

While PlayStation Now might not appeal to everyone, it could entice some gamers -- who might've otherwise purchased a Samsung product -- to choose Sony's devices.

Prices are "insane"
That's assuming that the service is worthwhile. As it stands, it's an uncertain proposition. Kotaku, a video game-focused publication, described Sony's pricing policy as "insane," noting that games can often be purchased for less than what Sony is charging to stream them.

Final Fantasy XIII-2, for example, costs $29.99 for a 90-day PlayStation Now rental, or $7.99 for seven days. Alternatively, gamers could pick up a disc-based copy (and own it forever) for around $20 (less if they're willing to buy used). Another game, Guacamelee!, costs the same to rent for 90 days as it does to purchase outright ($14.99). Given the high premium Sony appears to be charging, few gamers may use the service when it debuts.

Premium streaming pricing isn't unusual
But I still see potential for Sony's service. Compared to physical media, streaming services have often been more expensive -- it is convenience, not price, that wins consumers over.

A Blu-ray copy of the film The Dark Knight Rises, for example, can be purchased from Amazon.com for $9.99. Buying it through Amazon's streaming service, Amazon Instant Video, is $3 more expensive. Other films, like The Amazing Spider-Man and The Hangover, are priced similarly.

Music CDs are generally cheaper than their MP3 counterparts, but subscription-based streaming services are relatively more expensive. Historically, in recent decades, the average consumer has spent around $45-$65 per year on music, David Pakman, writing for Re/code, notes. But streaming services, at around $10 per month, come to about $120 per year. Yet millions of consumers have been willing to subscribe to them, suggesting that many are willing to pay the premium.

PlayStation Now remains an interesting catalyst for Sony's consumer electronics
Until Sony formally launches the service, it's too difficult to determine whether or not it could be a success. But if it is, it stands to give Sony a tremendous advantage over its rivals -- literally none of Sony's competitors will be able to offer anything like it.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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