For over a year, Japanese electronics giant Sony (NYSE:SNE) has been working to create an Internet-based, cable TV killer: a service that would deliver live broadcasts and on-demand programming to owners of its PlayStation video game consoles and Bravia TV sets. Though it would likely be limited to owners of Sony's hardware, it should compete with traditional paid-TV providers, and could deal a blow to the cable complex.
Or maybe not. According to The New York Post, Sony's service will cost $60-$80 per month, making it just as expensive as the costly cable bundles it seeks to replace. If so, it is quite unlikely Sony will be able to shake up the cable industry the way many had hoped.
Sony looks to leverage PlayStation platform
An Internet-based cable TV provider may seem like an odd business for Sony, but it could indirectly support its core consumer electronics. Sony's CEO Kaz Hirari told CNBC earlier this year that the company's base of installed video game consoles -- more than 25 million American households owned PlayStation 3s as of January -- was a compelling advantage, one it was looking to leverage. That advantage has only grown in recent months, as Sony's follow-up, the PlayStation 4, has been a runaway success, emerging as one of the fastest-selling video game consoles of all time.
By introducing a service exclusive to its hardware, Sony could generate recurring revenue streams off its installed base, while at the same time giving would-be buyers another reason to purchase one of Sony's video game consoles or TV sets.
However, if Sony's service is priced equivalently to traditional paid-TV providers, it is quite unlikely to succeed. Sony may offer an advantage in terms of customer service, quality, and interface, but it would be hamstrung by its reliance on the Internet: Streaming HD video requires a fast connection and loads of data. It would be another option, but consumers may find it easier to buy a bundle from a cable company rather than upgrading their Internet or risk going over their monthly data cap.
Details on those services remain scant, but management of both companies has repeatedly expressed in an interest in offering an Internet-based, less expensive alternative to traditional paid-TV services. Both will be targeted at younger consumers uninterested in expensive cable packages.
Verizon's CEO, Lowell McAdam, told attendees at a Goldman Sachs conference last month that his company was building a service that included the "big 4" broadcast networks as well as some "custom channels." Verizon's service, which should launch some time next year, will be targeted primarily at "Millennials."
Dish Network is hoping to offer something similar. During its most recent conference call, Chairman Charlie Ergen told analysts that Dish's Internet service would be aimed at getting younger consumers to buy in to the paid-TV ecosystem: "We'd live to get them to pay for ESPN and get them started on pay-TV."
Though cord-cutting is happening to some extent, Ergen believes the bigger risk facing the industry is the increasing number of millennials that have never paid for TV in the first place.
A victory for cable?
Admittedly, Sony has yet to announce official pricing for its Internet-based service, but if it is as expensive as The New York Post claims, it may be dead in the water: If consumers want to pay $80 a month for TV, they already have several options, including local cable and satellite providers.
That would be a clear victory for cable, but the future of Internet-based TV doesn't depend on Sony alone. Verizon and Dish Network's services appear to hold far more promise, though investors in the space will have to wait for further details.
Sam Mattera has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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