The Cloud-Gaming Battle Is Coming, and Sony Has Its Game Face On
(Bloomberg) -- The PlayStation 4 is like the video-game character that can’t be defeated.
Five years after its debut, Sony Corp.’s $300 console is enjoying one of the strongest product cycles seen in the business, thanks to a steady stream of popular game titles. That’s helped the Tokyo-based company ship twice as many PS4s as Microsoft Corp.’s Xbox One, even without relying on its usual tempo of price cuts.
That puts Sony’s franchise in a strong position to counter the $34.6 billion console industry’s next challenge: games delivered via the web. After years of predictions that cloud-based gaming would make hardware — machines and games on discs — obsolete, the technology finally appears close to being ready. Google’s Project Stream this month began letting U.S. users play the latest version of Assassin’s Creed on a Chrome browser from any computer. Amazon.com Inc., which bought gameplay-streaming website Twitch and has the No. 1 cloud-computing service, is in a prime position to push into cloud gaming.
“Within PlayStation’s history, this will be the most robust holiday quarter ever,” said Masaru Sugiyama, an analyst at Goldman Sachs Group Inc. “Until now Microsoft was the only rival, but with Google and Amazon moving in, it’s going to become tougher to stand apart.”
Microsoft isn’t sitting still, either. From next year, the software maker’s Project xCloud will use the company’s global cloud network Azure to stream and play high-end games, on “any device.” Early impressions of Google’s Project Stream have been favorable, with users saying that the experience comes close to playing on a console or personal computer — without the need to actually own one.
For now, Sony’s dominance in consoles — 84 million PS4s versus 39 million for Xbox One — is paying off. Analysts estimate the company is on-track to post operating profit of 790 billion yen ($7 billion) in the current fiscal year. Last month’s PS4 exclusive title Spider-Man, which set company sales records, will provide the largest contribution to profit growth when Chief Executive Officer Ken Yoshida reports quarterly results on Oct. 30, analysts say.
For the upcoming holiday quarter, the PlayStation 4 boasts its strongest video-game lineup in years. The PS4’s dominance over Xbox One means most gamers will buy and play blockbuster titles such as Red Dead Redemption 2 and Call of Duty: Black Ops 4 on Sony’s console. Even its virtual-reality business is getting a boost from this month’s critically-acclaimed Astro Bot.
Game titles, which typically make up 80 percent of the industry’s total revenue, are key to the PS4’s longevity. Sony has cut the price of its flagship console by just 25 percent since 2013, compared with reductions of at least 50 percent seen for previous consoles at the same point in their life cycle. With more room to lower prices and add to the PS4 user base, Sony is well positioned to bolster profitability through 2021, according to Atul Goyal, an analyst at Jefferies.
The big question is whether PS4’s successor will be designed to embrace cloud gaming, include handheld gaming, move deeper into virtual and augmented reality — or all of the above. Sony has yet to set a date for what will presumably be called the PlayStation 5. One thing that gaming analysts and experts agree on is that the next-generation console will probably be backward-compatible, meaning users will be able to play PS4 games, and vice-versa. That will create a smoother transition, helping to keep gamers within Sony’s ecosystem and away from cloud-gaming rivals.
“If I already have a ton of games linked to my account with all my trophies and saves, the last thing I want is to abandon it all and move to another platform,” said Damian Thong, an analyst at Macquarie Group Ltd.
Given that cloud gaming has been one of Sony’s weak points, it’s more likely that the company will continue to focus on hardware or look to tie-up with Amazon, which has yet to announce its cloud gaming offering. After rolling out its PlayStation Now platform in 2014, the online service has mostly failed to gain traction, with gamers complaining about spotty performance. CEO Yoshida recently told the Financial Times that the PS4’s successor will be a physical device.
“The battle between local and cloud is beginning,” said Goldman’s Sugiyama. “What can the PS5 achieve that isn’t possible in the cloud?”
©2018 Bloomberg L.P.