PlayStation Vita Launches Into Challenging Market

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New York - Sony's launch of the PlayStation Vita next-generation handheld video game player in North America and Europe Wednesday is expected to bring the company a significant revenue boost, but the platform's success will ultimately hinge on gamers seeking quality over convenience and cost, industry observers said.

Strategy Analytics

, a Boston-based research firm, has forecast the game player to sell 12.4 million units globally this year.

In making the prediction, the firm cited a major promotional blitz behind the product and assumed the company will cut the price at some point this year, resulting in a $180 average selling price. The Wi-Fi-only version is currently selling for $250, while the Wi-Fi, GPS and AT&T 3G model goes for $300.

Sony

is hoping to impress gamers by offering a console-like experience in a handheld platform. Players have the option of using a directional pad and buttons, dual analog sticks, front touchscreen and touch-sensitive back panel. It features an accelerometer for tilting and twisting, and inward and outward facing cameras. It also has a powerful processor and an AMOLED screen.

But the player will be competing in a market rife with smartphones and tablets that play games costing less than $1 in some cases, while many of Vita's games will sell in the $20 to $30 range.

Strategy Analytics said Vita's hardware sales could generate $2.2 billion this year, which would equate to a $1.2 billion annual revenue increase.

"The real value of the PlayStation Vita is its drive for content revenue growth and its strategic position in Sony's entertainment ecosystem," said Jia Wu, Strategy Analytics connected home devices senior analyst. "The PlayStation Store will have a vital role in selling games, videos and other content through its online access. We believe that PlayStation Vita will cause Sony's 2012 portable console software revenue to grow by $800 million compared with 2011. Although it's too small a device to turn the company around in terms of financial contribution, we expect it to bring in $2 billion incremental revenue from both hardware and software sales in 2012."

The cross-platform availability of content will also boost Sony's position in competition with giants Apple, Samsung and Microsoft, the report noted. Sony can leverage its console gaming business, which Apple and Samsung do not have, to build its online content Cloud.

"Despite the popularity of Xbox 360, Microsoft lacks a serious portable console and mobile gaming device. So with PlayStation Vita, Sony further strengthens its brand, device competition and future content reach -- even if the console hardware itself will not generate much profit," Wu said.

But the firm warned that a small profit margin on the device will not in itself be enough "to save the struggling company from its current turmoil."

The firm pointed out that the sub-standard quality of gaming on smartphones and tablets today is good enough for most casual game players.

"To survive the march of smartphone's entering the casual gaming space, Sony needs to achieve the Holy Grail of inventing innovative new game play whilst at the same time investing heavily in exclusive content," said Wu.

Tracking Vita sales to date in Japan, the research firm said Sony now is experiencing a slowing in demand that could be corrected with a timely price cut.

Sales of the Wi-Fi version of PlayStation Vita at $249 initially exploded, selling more than 300,000 units in the first week of release. But the new console is barely moving 20,000 units per week in its home market after all the hardcore fans made their purchases, mirroring the experience of the Nintendo 3DS, Wu observed.

Strategy Analytics said it expects sales of PlayStation Vita in North America and Europe to follow the same pattern, and predicted a price cut will be essential to stimulate sales and forge a competitive position.

"Despite the solid design and strong processing power, it is challenging to convince consumers to buy a dedicated game console above the $200 price range in today's economic environment as Nintendo has learned. Sales of 3G models will be a particular challenge as it demands a $50 premium and additional data plan charges and in the long run is likely to represent only a small portion of total PlayStation Vita sales," the report noted.

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