PlayStation Network's free service could be stripped down, says Pachter

Sony is preparing for its biggest loss in company history and new CEO and former PlayStation boss Kaz Hirai is facing a steep challenge. What does this mean for Sony Computer Entertainment and the PlayStation business?

Well, for one, it's clear that Sony is going to be stressing PSN and online services, as Hirai's new strategy outline indicates: "The Company also aims to increase sales by enriching its catalog of downloadable game titles and subscription services available through the PSN platform."

Could Sony actually abandon its free online multiplayer option and go the Xbox Live route, charging players an annual fee? It's not likely, but what could happen is that the free version gets minimized and Sony will do everything it can to entice consumers to sign up for an enhanced paid version of PSN.

"SCE should also look to partner with other networked media providers worldwide, particularly in media such as cable television"

Billy Pidgeon

"I think it's unlikely that they will require a fee, but think they will strip down the free version to multiplayer and not much else in order to encourage people to pay the fee," Wedbush Securities' Michael Pachter told us.

Billy Pidgeon of M2 Research agrees. "Providing networked services for online gaming is not inexpensive, and charging for these services would help Sony defray those costs. I think Sony would best benefit by continuing to build out on the currently employed freemium model, charging for enhanced, tiered and incremental items, services and add-ons to add value to the online gaming experience," he said.

Pidgeon added, "The PlayStation Plus program provides great incentives for subscribers, and Sony can get more revenue from advertising, item transactions and specialized services to enhance specific aspects of online gameplay such as custom content and rules for use for individuals, guilds and other groups. Sony should also move quickly to shift paid content other than gaming to the network."

As Microsoft continues to enhance its Xbox Live app offerings with HBO Go, ESPN, and more, Sony also needs to beef up its partnerships, Pidgeon noted: "SCE should also look to partner with other networked media providers worldwide, particularly in media such as cable television, which is likely to become a key target market for competitors such as Microsoft, Apple and Google."

Ultimately, if Sony is going to succeed it will need to streamline its business and leverage its synergies across divisions, including PlayStation.

"A version of the PS4 will be 'baked' into a high-end Bravia TV set... consumers would get a PS4 for an incrementally higher price than the cost of a high-end Bravia HDTV"

Lewis Ward

"Clearly Sony reporting their biggest loss ever is not good for any divisions of the company, including SCEA. Sony's culture has created a lot of animosity between the various divisions of the company," Asif Khan, CEO of Panoptic Management Consultants told me. "If the company had a more synergistic culture I don't think Sony would have faltered as badly as they have. SCEA would be better off as a spun off company, but Sony would not as SCEA has some of the best margins and earnings growth in the entire organization. If I had a chance to impart any advice to the new management team it would be to stop making so many products. Streamlining their product line would lower costs and in turn help out their profit margins, which have been downright atrocious."

Khan continued, "I would much rather see the company spin off the music label and motion picture studios while refocusing on making devices. At the Apple shareholder meeting, Tim Cook explained to me that Apple makes money off of selling devices while letting content creators fight amongst themselves for distribution dollars. It wouldn't hurt Sony to try and do the same. Mr. Hirai's reorganization efforts will take years before we really see if Sony has gotten the message from shareholders. The SNE ADRs have fallen 88% from $157.38/share in the year 2000 to $18.79/share today. While I still believe Sony is a financially viable company, their business model is still very much in need of repair."

As long as Sony is keeping its TV business alive (much to the chagrin of some investors), one possible way to leverage synergies is to incorporate PlayStation into Bravia televisions. In fact, IDC research manager Lewis Ward believes "a version of the PS4 will be 'baked' into a high-end Bravia TV set."

It may sound far-fetched, but there is some precedent here. Sony did launch a Bravia set with a PS2 incorporated into the TV's design, although if we had to guess, it probably wasn't a hot seller. On the other hand, tying a new HDTV to brand-new next-gen gaming hardware might be more attractive.

"My thinking is that a PS4-Bravia combo along these lines would be something unique that Sony could certainly build, it would likely be an especially efficient use of production resources, and that savings could be passed on to customers. They'd get a PS4 for an incrementally higher price than the cost of a high-end Bravia HDTV," Ward commented.

As Ward noted, however, it would be "a specialty SKU since TV replacement cycles are long and many people are already happy with their HDTVs."

It'll certainly be interesting to watch Sony's gaming strategy and next-gen plans unfold in the coming year. What impact do you believe the financials will have?