Bloomberg News

Sony’s Vita Trapped Between Nintendo Pricing, Smartphones

December 20, 2011

(Updates with closing share price in 11th paragraph.)

Dec. 16 (Bloomberg) -- Sony Corp. needs the new PlayStation Vita going on sale in Japan tomorrow to revitalize its game business and lure consumers increasingly turning to Apple Inc.’s iPhones for entertainment.

Success is critical for Sony after the gaming landscape was reshaped by price cuts from bigger rival Nintendo Co. and the growing popularity of Rovio Mobile Oy’s “Angry Birds” on smartphones, analysts said. Profit from the new portable console also is key to Chief Executive Officer Howard Stringer’s efforts to offset a slumping TV business that’s put the world’s No. 2 video-game maker on course for a fourth straight annual loss.

“Serious gamers may bolster Vita demand in the beginning, but what Sony needs is casual gamers to sustain sales,” said Satoru Kikuchi, a Tokyo-based analyst at Deutsche Bank AG. “Sony may need to cut the price as early as next year to keep attracting buyers. It’s a difficult time for console makers to make a living.”

A Wi-Fi version of the Vita, the first major overhaul of the handheld since the PlayStation Portable went on sale in 2004, costs 24,900 yen ($319 in Japan), while the 3G model costs 29,980 yen.

Sold Out

The device, with a 5-inch display using OLED, or organic light-emitting diode, technology and touch pads, already sold out in pre-ordering in Japan, said Andrew House, chief executive officer of Sony Computer Entertainment.

“There were lines to make reservations for the machine at retailers,” House told reporters in Tokyo yesterday. He declined to provide sales figures.

House’s comments came the same day Sony, Japan’s biggest consumer-electronics exporter, had its rating cut to one level above junk by Fitch Ratings, which cited difficulties reviving the TV business and deals that won’t improve profit.

Tadayoshi Sugaya, who cooks pasta dishes at an Italian restaurant in Tokyo, wasn’t among the Vita’s customers.

“I’m happy playing games on my smartphone,” said the 39- year-old chef, who uses Samsung Electronics Co.’s Galaxy model to play mahjong and other games. “I don’t see much need to buy a game player.”

The Consumer Products and Services Group -- Sony’s biggest by revenue and maker of TVs, games and cameras -- had a loss of 34.6 billion yen in the quarter ended Sept. 30, compared with a loss of 35.5 billion yen a year earlier.

Sony rose 1.1 percent to 1,360 yen at the close in Tokyo trading. The stock has declined 54 percent this year, while the benchmark Nikkei 225 Stock Average has lost 18 percent.

Nintendo 3DS

Reviving demand is important to help Tokyo-based Sony recover from its worst hacker attacks in April, when intruders compromised more than 100 million customer accounts in the second-largest online data breach in U.S. history. Sony suspended those services until July and budgeted 14 billion yen in costs this year.

The device will miss this year’s shopping season in the U.S., where it will debut in February and is priced at $249.99 for the Wi-Fi version and $299.99 for the 3G model.

That’s more expensive than Nintendo’s competing 3DS after the world’s biggest maker of video-game machines slashed prices of the new 3-D handheld player to as low as $170 because of poor sales. Nintendo sold more than 795,000 of the 3DS portable units last month, the Kyoto, Japan-based company said Dec. 10, citing figures from researcher NPD Group Inc.

Sony has a “very good product” at a “very affordable price” and, therefore, won’t cut prices of the Vita in response to other companies, Executive Deputy President Kazuo Hirai said in August.

Sony Strategy

Sony expects to sell 15 million of the PlayStation 3 consoles this fiscal year, up 4.9 percent from last fiscal year, after the company lowered prices in August.

The Vita is part of Sony’s strategy to link its TVs, Blu- ray players, game consoles and digital cameras via the Internet to movies, music and video games. Sony also is increasing online services, including the PlayStation Suite that allows users to download games on devices running on Google Inc.’s Android software.

There will be 24 titles available when the Vita goes on sale, Sony has said. They include the “Unchartered” adventure game, which costs 4,900 yen to download, and “Everybody’s Golf 6,” priced at 3,900 yen.

By comparison, Nintendo had eight titles when it began selling the 3DS in February. The 3DS allows users to see 3-D images without wearing special glasses.

Price ‘Obstacle’

“The number of titles is truly impressive, so there is no risk that people will wait to buy,” said Michael Pachter, a Los Angeles-based analyst at Wedbush Securities Inc. “The price point is the biggest obstacle.”

The iPod Touch media player, the cheapest Apple device that can download and play games, costs $199 in the U.S. while the iPhone 3GS is free with a wireless contract. Apple sold 17.07 million iPhones and 11.12 million iPad tablet computers, which can also be used to play games, in its fiscal fourth quarter.

In a similar strategy, Sony is consolidating its multimedia devices. In October, the company agreed to buy Ericsson AB’s 50 percent stake in their mobile-phone venture to integrate the smartphone business with its gaming and tablets.

That still won’t entice Ai Takenaka, 28, to buy the Vita because she can get free titles from Apple’s AppStore and Google’s Android Market.

“I like to play simple games with my smartphone because they are all free,” the Tokyo restaurant worker said.

--With assistance from Takashi Amano and Pavel Alpeyev in Tokyo. Editors: Anand Krishnamoorthy, Michael Tighe

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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