When most people hear the word "PlayStation", they probably think of a box that plugs into the television. For good reason: Since 1994, Sony (NYSE:SNE) has sold nearly 350 million PlayStation consoles.
Soon, however, the phrase could come to mean something else entirely.
Sony PlayStation Now, unveiled last January, has made great strides in recent months. The streaming service, which delivers games over the Internet, could send shockwaves through the entertainment industry.
Widespread critical praise
Like the Netflix video streaming service, PlayStation Now delivers games over the Internet. For a flat monthly fee ($20 per month on a one-off basis or $15 per month with a three-month commitment), subscribers get access to a catalog of roughly 100 PlayStation 3 titles, which they can stream to their television with the push of a button -- no disc or download necessary.
Various firms have attempted to offer streaming game services in some capacity since at least 2010. Unfortunately, nearly all of them have failed. OnLive -- an early pioneer -- struggled to add subscribers, ran into severe financial problems in 2012, and was forced to layoff its entire staff. Spawn Labs, a competitor backed by GameStop, was shuttered last year. Repeated failures have led some critics to speculate that streaming services would never catch on in the video game space, but with PlayStation Now, Sony appears to have finally delivered a worthy option.
Critical reception has been quite strong. ArsTechnica called it "surprisingly compelling" and "practically indistinguishable" from playing a disc-based game. GameSpot was less enthusiastic but admitted that it was "close" to playing a local game and particularly convenient.
Gaming as a service
Currently, the PlayStation Now subscription service is only accessible to owners of the PlayStation 4 console. Owners of the PlayStation 3 and select Sony smart TVs can stream games on a one-off basis, but individual rentals are surprisingly costly. Sony says that the subscription service will eventually come to all "PlayStation Now enabled devices" but has offered no precise time table.
In the past, I had speculated that Sony would -- as a way to entice potential buyers -- limit PlayStation Now to its own consoles, smartphones, and tablets. But it appears that PlayStation Now will eventually make its way to a wide variety of devices from many different manufacturers. In December, Sony announced that it had reached a deal with Samsung to offer PlayStation Now on its 2015 line of smart TVs. Collectively, Sony and Samsung manufacture about one quarter of TVs worldwide, meaning that PlayStation Now will quickly be accessible to a large audience.
The benefits to both Sony and its customers are immense. Even now, almost nine years after its debut, the PlayStation 3 console retails for roughly $200. Its successor, the PlayStation 4, is $400. Although both consoles offer multi-media features (including blu-ray playback), the money spent on hardware is largely a sunk cost for gamers. Subscribing to a monthly service would dramatically reduce upfront expenses and open gaming to a much wider audience. For Sony, it would remove the risks associated with designing and shipping hardware.
Collectively, the PlayStation 3 and Xbox 360 have sold roughly 160 million consoles on a global basis, suggesting that the Sony streaming service could eventually have a subscriber base of 100 million or more. At $15 per month, PlayStation Now would generate monthly revenues in excess of $1 billion.
Of course, it will likely take many years to get there, but the positive reception is an encouraging sign. Sony's $380 million acquisition of Gaikai -- which gave it the technology that underpins PlayStation Now -- is looking like an increasingly prescient move.
Sam Mattera is short shares of GameStop. The Motley Fool recommends Netflix. The Motley Fool owns shares of GameStop and Netflix. 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.