Sony is Losing the Game
Mary is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Can Sony’s (NYSE: SNE) Playstation3 keep up with Microsoft’s (NASDAQ: MSFT) XBox or Nintendo’s (NASDAQOTH: NTDOY.PK) Wii? Sony’s share price has recently hit record lows in Japan and is faring no better in U.S. Trading with its price bringing down the 52-week low. Sony has posted four consecutive annual losses. Investors are more than concerned about their weak earnings. One of the major places that they are losing out on profits is with their video game console.
Video games are growing increasingly more popular. The biggest purchase that a gamer will buy is the hardware that runs those games. And they remain loyal, tending to upgrade or repurchase within the same brand. There are several reasons for this. First, each system is set up with a completely different user interface. Those that switch are forced into a learning curve similar to switching from a PC to a Mac. Second, unlike DVDs or BluRays, video games cannot be played on just any gaming console. Games created for XBox will not work on the PS3, and vice versa. Third, to play these games online with your friends and maintain all your badges and trophies, each separate platform requires an annual membership fee. They are already payed into the system. For this reason, building brand loyalty and reeling them in for that first purchase is of paramount importance.
Nintendo has done quite well with its Wii because it targets the children. Their strategy is to hook them to Nintendo while they’re young and hope that they never leave you. However, in doing this they have alienated some potential customers. Also, the Wii is not set up for an HD gaming experience. Their display resolution is quite weak compared to others. And the more developed market sees this as taking a step back. They want sharp life-like images displayed on their screens at all times. Sony’s PS3 does provide the HD experience, but their PS Move system has been rated as inferior when compared with XBox 360’s motion capture system.
Also, one has to concern themselves with the quality of the games being made for their systems. Electronic Arts (NASDAQ: EA) is perhaps one of the largest creators of video games. Their newest Battlefield 3 is quickly becoming the new big thing. Its images and clarity are extremely close to reality. EA creates games for PS3, XBox, and Wii users. However, for some reason there are more available if you are an XBox owner. Microsoft’s gaming system seems to be doing a victory lap right about now.
If Sony wants to keep up, the company must begin improving upon their system. They have begun adding music capabilities through their Music Unlimited service, but that is at an additional subscription cost not included with your Playstation Network subscription. Music alone will not be enough to pull the serious gamers. Sony is accepting a huge loss in the gaming category by simply not remaining competitive. A successful gaming system could more than make up for the other weak areas in the company.
MaryPosey has no positions in the stocks mentioned above. The Motley Fool owns shares of Microsoft and is short Sony (ADR) and has the following options: long JAN 2013 $22.00 calls on Sony (ADR). Motley Fool newsletter services recommend Microsoft. 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.If you have questions about this post or the Fool’s blog network, click here for information.