Market Watch

Sony Unveils Its Next Generation Handheld Console Strategy


Display Driver IC Forecast

At a special PlayStation event held in Japan at the end of January, Sony Computer Entertainment Japan announced plans for its next generation handheld games and multimedia device. The 'Next Generation Portable' (NGP) as it is currently codenamed represents a significant upgrade in technology across graphics capability, connectivity and interface compared to the original PSP.

NGP runs a new proprietary operating system and includes dual analogue sticks, five-inch OLED capacitive touch screen, rear capacitive multi-touch pad, camera (both front and rear), GPS, 3G, Bluetooth, and Wi-Fi support. Components-wise, the device features a four-core ARM Cortex-A9 core processor, SGX543MP4+ graphics processing unit, six-axis motion sensing system (three-axis gyroscope and three-axis accelerometer combined) and a three-axis electronic compass. The NGP will use a newly designed 'LiveArea' as its main touch-friendly user interface, which succeeds the XrossMediaBar (XMB) used for the original PSP and PS3. It will use physical and digital media for games, distributed and sold through traditional packaged games retail channels and the company's PlayStation Network Store.

Analysis
The reveal of Sony's NGP represents a continuation of the company's long-held strategy to push the technological envelope with its games devices. Both the processor and GPU are a considerable step up from the performance of the original PSP and the demos on show at the event displayed high graphical fidelity aligned to a crisp OLED-based touch screen. Like the PS3, Sony will be seeking to market this product as the best-in-class with regards to graphical output and polygon-pushing power. This strategy is little different to how Sony develops and positions its other consumer electronics and is therefore completely consistent across the company and helped provide remarkable results for the PS1 and PS2, has been considered very successful for Sony's first foray into the handheld sector with the original PSP (60m sold worldwide) but has had less success for the PS3 (certainly compared to the PS2).

While this approach is entirely consistent across the company, this consistency makes it more difficult for Sony to deviate away from this chosen route. The performance of the PS3 and its status as the third most popular console this generation reflects a market, industry and consumer that have evolved somewhat from the high-point of the PS2 generation, especially in the Western markets. In the TV console space this evolution has taken place due to increased competition and due to disruption through the introduction of new controller interfaces. In the handheld/mobile space the disruption has been far more significant and driven by non-specialist competitors, a warning sign for Sony in its attempt to continue along this strategic path with the NGP.

Indeed, while the impressive technology included in the NGP is very much at the forefront of handheld entertainment devices, it is still firmly aligned to the traditional, publisher-led games industry with its utilisation of physical media and high-end graphics, likely to be reflected in high development budgets for its games. It will of course take advantage of both physical media and digital distribution offered by PSN through its multiple connectivity options, so has a foot firmly in both established and transitioning camps, but its graphical capabilities are there to show off the best blockbuster content on the move. Increasing development budgets for handheld titles and resultant commercial risk is unlikely to be at the top of any publisher's wish list, many of whom are attempting to come to terms with a market more skewed towards digital opportunities.

At Screen Digest we believe that the market opportunity for a specialist device such as the NGP is shrinking rather than growing and that short- and medium-term market conditions are less supportive of the release of a high-end handheld console. This is reflected in our market forecasts for the platform, which at this stage we do not believe will be as successful as the original PSP.

Our assumption on future NGP performance is based on the following factors. The competitive landscape for handheld and 'on-the-move' gaming has been highly disrupted in recent times. Disruption has occurred on the device, content and distribution level. From a device perspective, smartphones are now aggressively intercepting a wide range of consumers further up what we describe as the 'consumption chain'. The consumption chain is increasingly dominated by mainstream devices that are used for a wide range of everyday activities and that also happen to serve games content. On the move, this represents a convergence of activities into single devices, a trend that will result in usage away from specialist devices by the mainstream consumer and onto smartphones.

On smartphones with disruption in content and distribution, not only is games content plentiful, it is cheap as well, the combination of which delivers a hammer blow to specialist devices. The overlap between the average future NGP user (14-35 male with high disposable income) and high-end smartphone user is substantial and as such we believe that the addressable opportunity is narrowing especially in Western markets.

Based on the platform's technological specification, we expect it to retail at a relatively high price - higher than Nintendo's 3DS platform and above most consumers impulse-purchase range. With many consumers already using smartphones (and often under contracts which subsidise the upfront cost of the handset) the reason for purchasing a high value specialist device is being steadily dismantled especially when many middle-income families, particularly in select European markets and the USA are feeling the economic squeeze.

As many are aware, there is a second PlayStation handheld device on the horizon - currently referred to as the PlayStation Phone. The evolution of a two-pronged strategy for Sony's handheld initiatives reflects a changing market for 'on-the-move' consumption. It also reflects the siloed and divisional nature of Sony as a whole, and, importantly, the global nature of its business. There is no doubt that Sony will conduct brisk business for the NGP in Japan, a market where TV consoles have been overtaken my specialist handheld devices which are entrenched in youth culture. Here mobile games consumption has done little to halt the strong performance of DS and more recently PSP. While Sony announced NGP to a global audience there is also little doubt that first and foremost the platform is being made for the Japanese youth, to engage users in the Sony brand as Walkman's did in the past. On the flip side the PlayStation Phone will be more relevant to the Western rather than Japanese consumer and will attempt to compete head-to-head with Apple and Android-based competition. This represents a two-pronged strategy for an increasingly diverged global market.