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    China Business
     Apr 7, 2006
Sony PS3 trails Microsoft in console war
By Ting-I Tsai

TAIPEI - When Sony Computer and Entertainment's Asia manager Tetsuhiko Yasuda pushed a button parting black curtains in front of the long-awaited PlayStation 3 (PS3) video game console at the Taipei Game Show on February 16, countless fans and cameramen chaotically squeezed ahead to get the best photos of the secret console. The frenzy lasted more than 30 minutes.

However, aside from a demonstration of the model's silver appearance and a chance to experience screenshots of several games, there was no news about the console's release date then.



A month later, as rival Microsoft launched its Xbox 360 in the Asian market, Sony conceded that issues over the finalization of copy protection technology related to its Blu-ray optical disc technology forced it to delay the official rollout of the console probably until November. As of early April, the company had not announced a firm release date, although key software vendors such as Namco Bandai were nervously calling for a release in advance of the Christmas season.

What gave Sony some hope is that the Xbox 360 models on display in Taipei have been standing unused, most of the time, in the electronics shops and wholesale markets.

In February, Sony was confident in its mysterious strategy. Yasuda said Sony hoped the multi-functional games console would help it effectively defeat piracy. Emphasizing the importance of ensuring the PS3's perfect quality, Yasuda said at a news conference he was not worried about the Xbox 360's debut. "Even though [the] Xbox will already have been launched by then, our silence doesn't mean we are doing nothing. We would have been really concerned if we messed up our strategy because of Microsoft's moves."

Microsoft Xbox 360 faces China obstacles
A month later, the Xbox 360 was available to players in Hong Kong, Taiwan, and Singapore. Andres Vejarano, regional marketing manager of Microsoft's Asia and Greater China entertainment and devices division, noted, "Sony got an 18-month head start last time [referring to the introduction of Sony's PlayStation 2 being out earlier than Microsoft's original Xbox]. In the next generation, that won't happen. So if we give developers great software tools, services and support, and design hardware with great software and games in mind, we believe we will lead." Vejarano emphasized that Microsoft has tried to localize the market by working closely with Japanese, Korean and Taiwanese game developers, and plans to offer Chinese games developed by Taiwanese game developers, including FunTown World, SoftStar and XPEC, which will be available later this year.

Since last year, however, a group of Chinese players has continued to complain about Microsoft's release plans for the Xbox 360 in China, venting their frustrations on Internet game forums. One of the most popular topics was: "Why is there no China in Microsoft's eyes?"

Senior Microsoft official Alan Bowman, the company's general manager of entertainment and devices for the Asia-Pacific and greater China regions, said while in South Korea in late February that his company is taking a very careful approach in China by actively working with the Chinese government, noting they don't want to repeat Sony's mistakes when introducing the Playstation2 in China.

The PS2 China fiasco
Sony introduced its PS2 to Chinese players in January 2004, but the rollout was followed almost immediately by massive piracy of not only games, but the console itself, which put Sony in an extremely difficult position. Sony declined to offer its figures for PS2 sales in China. Interestingly, recent reports suggest that the copy-protection issue might be the major reason for the PS3 release delay: a Forbes report speculated that Sony might be developing another layer of copy protection in addition to the Advanced Access Content System (AACS) copy protection already found in Blu-ray players expected to be released in June. The extra protection would presumably thwart the piracy that so damaged Sony's results for the PlayStation 2 in China.

Despite piracy being a serious problem in China, the size of the Chinese market is so great that neither Microsoft nor Sony can afford to neglect it. According to the Beijing-based research and consulting firm BDA Limited, the market size of the massively multiplayer online role-playing game (MMORPG) market in the country will hit US$651.5 million by the end of 2006, and may possibly triple to $1,767.8 million by 2010. As Microsoft's Xbox360 is capable of Internet connections, some analysts assume that using the new generation game consoles to tap into the "interactive" (pay-to-play) revenues MMORPGs offer is the motivation for both Microsoft and Sony to enter the market again.

At least six years in the making, the PS3, with a new "Cell" multimedia processor chip jointly developed by IBM, Sony and Toshiba, plays high-definition games, Blu-ray next-generation DVDs and digital music, while offering high-quality TV output. Furthermore, it can connect to the Internet to allow game play against rivals around the world or simply to check headlines. More specifically, the Cell enables many of these functions to be carried out at the same time, realizing many players' dreams of playing a game and listening to music or downloading a TV show simultaneously.

Yasuda explained that Sony would like to launch its latest game console around the world at the same time, but wide gaps in different areas' Internet services could make that difficult. Nevertheless, he said to avoid some traders taking advantage of currency and time gaps among Japan, Hong Kong and Taiwan (ie, by buying up units sold in one market for sale in the others at a large markup), Sony would try to make the console available simultaneously in the three markets. He confidently expressed, "I believe we will achieve our goal in a shorter period of time than [was the case for the PS2]."

The delay in the PS3's launch has been attributed mostly to Sony's ambitious design. According to a Merrill Lynch report released in mid-February, "Sony's design choices for the PS3 [have] resulted in an expensive and difficult-to-manufacture product, and we think that we're seeing the consequences of [those] choices being played out now," noting that the Sony Cell processor and the Blu-ray drive may be the source of problems. The report estimated the console could cost Sony $900 initially, falling to $320 three years from launch. It is not yet clear how much the company plans to charge its Asian customers, but the Xbox 360 now sells for NT$12,980 (US$430) in Taiwan, restraining Sony's pricing options. In addition, vice president of Sony Computer Entertainment Europe George Fornay stated in a French radio interview in early April that the high-end gaming machine will cost between 499 euros and 599 euros (US$600-$730) in the EU, which gives some indication of Sony's pricing intentions for other markets.

Whether hardcore game players will appreciate the game console's various functions, and how much they will be willing to pay for them, remains to be seen. Playing his PlayStation Portable while taking a train in Taiwan, a loyal PlayStation system player, who identified himself only by his surname, Chu, said it is impossible for him to pay more than US$500, explaining, "It is just a game console. Those multipurpose services are not practical. If I want to connect to the Net, I would prefer a personal digital assistant (PDA)."

Liu Yin-miao, 27, a Taipei-based seasoned game player who started playing games when she was 10, also named $500 as her maximum budget. She also raised concerns that the PS3's advanced Cell might create obstructions for her to play her old games or for game creators to develop compatible games. "I am really not interested in any other functions. Taking [the] Blu-ray DVD [function] as an example, I would rather use a [dedicated] DVD player instead," she said. Even so, she said she simply couldn't appreciate the Xbox360 at all, after she tried it at the Carrefour wholesale market in Taipei. "In the first place, we're already so used to the [PlayStation] system. It is simply difficult for us to switch to [the] Xbox system now."

Hsu Kuei-fen, an analyst at the Taiwan-based Market Intelligence Center (MIC) under the Institute for Information Industry, noted that Sony would still be able to dominate the Asian market, as long as it launches the PS3 this year. "As with cartoons, Asian players still appreciate Japanese games more."

Microsoft officially introduced its Xbox 360 at the end of November. According to official company statistics, sales of the updated console hit some 2.5 million as of late February, and between 4.5 and 5.5 million units will be shipped worldwide by the end of June. Hsu at Taiwan's MIC, meanwhile, said it was too early to predict the sales of the PS3, as its launch date would make a big difference.

As Sony is positioning the PS3 as more than a game console, some analysts have also raised concerns about its software sales, citing the fact that historically, game players have bought fewer games for multifunction consoles. Yasuda, who used to be a software salesperson, noted that piracy has always been a crucial element, and Sony hoped its emphasis on the hardware would eventually reduce its reliance on software for profits (many game consoles are sold at a loss in the first part of their product lifetimes, with profitability being maintained through software sales). According to game player Liu, most Taiwanese players play pirated games purchased from illegal vendors, because official games have been 10 times more expensive than pirated ones.

Nintendo: The other option
Sony and Microsoft are the dominant, but not the only players in the game console market. Another console hardcore players have been eagerly waiting for is Nintendo's Revolution, which comes with a remote-control-like freestyle controller that contains a gyroscopic mechanism that can pick up even the slightest movements of a player's hand. Furthermore, the Revolution could be as cheap as $200, easier for young game players to afford. It is not yet clear when Nintendo will launch the new console, but company president Satoru Iwata told the Japanese media in mid-January that his company aimed to release it in the US before the Thanksgiving holiday, in November. A report released by Citigroup in mid-January estimated that some 3.9 million Revolution systems would be sold by 2008.

Hsu hinted that the Nintendo Revolution's lower price may allow it to become a second game console for players, since it would be too costly for a Xbox 360 player to afford a PS3 or the other way around. "Whether the new generation game consoles [can] really attract multimedia entertainment customers will be a crucial element [in] the growth of their sales," noted an MIC paper.

Ting-I Tsai is a Taipei-based freelance writer.

(Copyright 2006 Asia Times Online Ltd. All rights reserved. Please contact us about sales, syndication and republishing .)


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