Sony (NYSE:SNE) recently announced that it will launch its cloud gaming service, PS Now, for the PlayStation 3 on May 12th with a free 7-day trial for new members.
Cloud-based games, which are streamed like interactive videos, allow games to be played on-demand without time-consuming downloads or installations. PS Now costs $19.99 per month for access to its core library, which features over 100 titles like Final Fantasy XII, Saints Row IV, and Batman: Arkham City. Other titles can be rented from a wider list at a la carte prices.
That launch was long overdue, considering that PS Now was announced over a year ago and arrived on the PS4 four months ago. But considering that over 85 million PS3s have been shipped compared to 21 million PS4 shipments, it would have been silly for Sony to neglect its big user base of last-gen consoles.
On paper, PS Now seems like "Netflix for video games". But if we dig deeper, it's unclear if it can achieve mainstream adoption.
What Sony believes will happen
Back in 2012, Sony acquired cloud gaming company Gaikai for $380 million and used that technology to develop PS Now. In theory, cloud gaming could solve two big problems: the decline of console gaming and backwards compatibility issues.
The original PlayStation sold 104 million units worldwide. The PlayStation 2 sold 158 million units, becoming the best-selling console of all time. But when the PlayStation 3 only sold 85 million units, it became clear that cross-platform game releases on rival platforms and PCs were reducing demand for dedicated consoles.
To prepare for the "post-console" gaming era, Sony moved its top PlayStation games -- from the PS1 to the PS3 -- to the cloud. It then announced that these games could be streamed to a wide variety of devices, including the PS Vita, select BRAVIA TVs, the PlayStation TV, the PS3, and the PS4. This would essentially let Sony turn the PlayStation brand from a console into a cloud-based service.
Therefore, Sony could deliver the latest games through multiple first-party hardware devices, instead of exclusively through gaming consoles. Instead of developing, marketing, and selling $400 consoles every few years, PS Now could generate a steady flow of revenue from gamers paying more than $240 per year.
The potential pitfalls
$240, or the equivalent price of about four new $60 games, sounds like a good deal for unlimited access to over 100 games. However, PS Now faces two big obstacles to mass market adoption.
First, Sony recommends a minimum 5 Mbps download speed for "an optimal gaming experience." However, Ars Technica recently tested that claim and found that a 9 Mbps download speed was actually required for many games.
That might not seem like a huge problem in the United States, where the average broadband connection runs at 23 Mbps. But in a shared household, PS Now games will still take up a big percentage of that bandwidth. This means that other demanding services, like Netflix's 4K video (which requires a 15 Mbps connection) could conflict with PS Now's bandwidth needs. A recent survey by Video Games Intelligence (VGI) also found that 54% of respondents believed that latency and scalability were the biggest challenges for cloud gaming.
Second, there's the concept of ownership. With cloud gaming, gamers give up both physical and digital ownership of a game. Moreover, the core PS Now library is filled with older games instead of the latest releases.
As of this writing, gamers can own used copies of Final Fantasy XIII for $6, Saints Row IV for $9, and Batman: Arkham City for $3 on Amazon.com (NASDAQ:AMZN). Suddenly, PS Now's $20 "all you can rent" rate doesn't seem that economical.
The key takeaways
PS Now is an ambitious attempt to shape the future of gaming. As the market leader in home console gaming, Sony certainly has the muscle to make that happen. However, cloud gaming requires fast connections and gamers to see games as streaming content instead of purchased products.
Other companies already failed to change gamers' minds in the past. OnLive, which tried for over a decade to take cloud gaming mainstream, recently closed its doors and sold its patents to Sony.
However, the aforementioned VGI survey also found that nearly two-thirds of respondents believed that cloud gaming could achieve mass market adoption with three to five years. If that happens, Sony could dominate that market, thanks to early investments like PS Now.
Leo Sun owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, 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.