The Market for E-Readers

I agree with this statement:

But industry executives believe the time has come for consumers to begin embracing dedicated readers, especially as the prices fall into a comfortable range.

“There were readers who were perhaps unable to join the digital reading environment because our prior products might have been cost prohibitive,” said Brennan Mullin, vice president of the audio and digital reading divisions at Sony. “These latest products are breaking that barrier.”

[From Market for e-readers may be turning a page]

However, I think the hardware vendors miss the point that it ain’t about the device anymore… it’s about the content. Amazon, like Apple with iTunes, was able to translate an engineering achievement into mass market success because they made it drop dead easy to enjoy content on the device and they lined up a huge inventory of content that could be enjoyed.

The Sony e-reader is a superior device to the Kindle in many ways, but like Sony’s failures with digital music services their e-reader has lagged because Sony does not have anything comparable to Amazon’s service integration for content.

The Plastic Logic device is one to watch because they have the wireless deal in place as well as a relationship with Barnes & Noble to integrate content merchandising and fulfillment. This is smart but in many ways they are set up to always be “Avis to Hertz”… as in we’re number 2 but we try harder. It remains to be seen whether a competitor to Amazon that is simply a lot like Amazon can achieve the market momentum necessary to carry them forward in the U.S. market, which for reasons I can’t explain, operates as a zero sum outcome for digital services, as in a winner and a bunch of losers.

That Sony could fumble their clear multi-year advantage in e-readers is mind boggling, right up their with whiffing digital music and screwing up the goose that laid their golden eggs… the PS3. At this point I think it is beyond debate that this company is incapable of asserting leadership in any digital services market, the preferred outcome for Sony shareholders should be to break up the company and sell it off piecemeal.

Sony Risks Losing Game Developers

Sony didn’t see this coming 4 years ago when they first announced the PS3. At that time the competitor was Microsoft and price points were footnotes on slides detailing world domination of the digital home, today the company has faltered so badly on the PS3 that not only are they are risk of continuing losses well into the future but 3rd party game developers may abandon the platform as R&D budgets inevitably tighten, which would put the PS3 platform into a death spiral that would be exceptionally difficult to overcome without a reset, a do-over, that takes them back to square one.   

Three years into the latest generation of game consoles, Sony is stuck in third place, data from the manufacturers show. The Tokyo-based company, once the dominant player, has half the worldwide users of Wii, even though the PS3 has earned praise for its processing power, graphics and Blu-ray movie player. U.S. sales of the PS3 have declined for three straight months.

“If they can’t meaningfully increase their install base, then you will likely see a capital reallocation,” Hickey said.

[From Sony Faces Heat From Game Publishers to Cut PS3 Price (Update1) - Bloomberg.com]

What killed the PS3? Two factors, the first being over confidence as a result of dominating the market with the PS2 for so long, which resulted in ambitious tangental strategies around home entertainment and technology adoption that were not linked to the gaming experience. The second being Blu-ray which pushed the bill of materials cost up beyond what the market would support and was responsible for critical delays in 2006 as Sony dithered around with DRM details unrelated to gaming which had the effect of giving Microsoft a full year head start in the market. More critically, the Blu-ray delay caused Sony to launch the PS3 during the Wii launch, literally a few days apart just before Christmas 2006, drawing contrast to the significant price delta between the two consoles.

While you can’t ever count Sony out of the game, the fact remains that the PS3 development and launch has been so badly executed that it could set the company’s game division back 5 years as they try to recover lost ground. The gaming market has long operated as a duopoly, if you are not in first place you are last, and right now the market dynamics are around Nintendo and Microsoft. As developers make hard choices about where to focus their limited budgets, it’s unlikely that Sony will retain the library of popular titles available on the PS3, much less grow it.

Sony has two choices and neither are good, they can subsidize the PS3 with a retail price that essentially gives it away and recover the losses from game royalties, or put the PS3 on life support and focus their resources on developing a PS4 platform that serves as the base from which to expand. The former is a defensive strategy and you don’t win by defending, while the latter is fraught with risk as it relies on completely unpredictable factors and a lot of luck.

PS3 Sinks Lower

Santa was not kind to Sony, who not only suffered body blows in cameras and television product categories, but was hit hard on the PS3 as Nintendo and Microsoft saw gains. At this point the market is essentially Nintendo and Microsoft, there is no compelling reason to consider a PS3.

But early results from this holiday season aren’t promising. U.S. sales of the PS3 fell 19% last month from a year earlier, while sales doubled for the Wii console and rose 8% for the Xbox 360, according to research firm NPD. Analysts say they expect PS3 sales for this month to be flat or lower than last year, while sales for its rivals are likely to rise. And Sony may not reach its goal of selling 10 million PS3 consoles in the fiscal year through March, analysts say.

[From PS3 Sags in Battle Again Xbox 360, Wii - WSJ.com]

I’ve written a lot about this over the last couple of years because it’s a fascinating case study on how misplaced product to market trends, pricing, and the inclusion of an orthogonal product (Blu-ray) dictated aspects of product and price to great detriment.

For Sony to move forward and rescue a very expensive mistake they should consider the following steps: 1) cut the price dramatically to be price competitive with Xbox360, 2) buy exclusivity for hot game titles, 3) bundle content from Sony Pictures and integrate video title content in a streamlined online service, and package the product for family gaming instead of power gaming.

Blu-ray is stillborn, they won a war that simply wasn’t worth winning. Sony would do well to invest minimally in Blu-ray while investing heavily in online content distribution capabilities that become the iTunes for gaming consoles. Lastly, partner up with Netflix or Amazon to integrate their download services with the PS3.

Sony PS3, Just Call a Do-Over. Please.

I could make a career writing about how much suckage the Sony PS3 represents. Almost 2 years ago I wrote a detailed list of things that were wrong with the PS3 and it still applies today, except Sony was forced to accept market reality and drop the price from $600 originally and there are much better game titles available today.

It’s still tough rock for Sony to push, as console sales figures out today reveal, given that they haven’t changed the marketing focus and there is still no strong online offering. Even without the Wii, Sony is getting their ass kicked by Microsoft who is selling Xbox 360 consoles 2-to-1 against the PS3, despite having a serious quality issue that set them back recently and essentially the same game title library.

# Wii: 803,000 consoles
# Xbox 360: 370,000
# PS3: 190,000
# PS2: 136,000 (People are still buying PS2s?)

[From October Game Sales: Nintendo Wii Kicking PS3 Butt]

Compounding Sony’s problems are the PSP, which has not had a meaningful upgrade/redesign in far too long, is underpowered, doesn’t have the equivalent of an “app store”, and doesn’t have any new compelling game titles. So now Nintendo is parlaying their success with the Wii for further success in the handheld category where the DS is outselling the PSP 2.5:1.

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