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PS3 delay could derail high definition agenda

http://www.tgdaily.com/2006/03/16/sony_ps3_delay_multiple_impacts/
Playstation 3 delay could derail high definition agenda
By Scott M. Fulton, III
Published Thursday 16th March 2006 21:23 GMT

Tokyo (Japan) - It was a brave gesture for Sony Computer Entertainment president Ken Kutaragi to make, in announcing before a major press conference that one of his company's most anticipated and important new products, the PlayStation 3 game console, would be delayed from the spring release that consumers and the press were told to expect, until this November at the earliest. While a firm release date had never been announced until yesterday, and Kutaragi's announcement merely made official the comments of his own CEO one week earlier, still, he had to know this delay will have implications extending far beyond whether gamers have to wait a few months longer.
PlayStation 3 has been intentionally billed as a "convergence" device for home entertainment, bringing together not only 3D gaming but high-definition movies and video, and Internet-driven interactivity. Prior to yesterday, PS3 was perceived as the premiere vehicle for an entirely new class of consumer entertainment, for which interactive gaming is just one aspect. But according to a long-time correspondent for the AV Science Forum who attended a Sony trade event in Las Vegas yesterday, while the company's stand-alone Blu-ray Disc players are also expected to see delays, they may still make it (http://www.avsforum.com/avs-vb/showthread.php?p=7315953&) into retailers' hands by August.

Granted, the various divisions of Sony have had difficulty of late in "getting the memo" - up until yesterday, its PR division flatly denied news that had been revealed by its own CEO (http://www.tgdaily.com/2006/03/08/sony_ceo_confirms_ps3_delay/) in an interview with Variety. But if these new dates are confirmed, PlayStation 3 is no longer the premiere vehicle for Blu-ray Disc. And as a result, it may not be the convergence vehicle for digital home entertainment for November that it was propped up to be for June.

While the term of PS3's delay is just three months, that's an entire quarter of income and profitability for the various industries whose livelihoods depend not just upon PS3, but upon whatever device sets up the whole "convergence" plan. Furthermore, it's the second worst possible three months that a company could delay: not from February to May, when sales are slow anyway, but from June (or "spring") to November, up against the very beginning of the holiday sales rush. The worst possible time, of course, would have been from October to January. While trading values of shares of game producers largely rose on the NASDAQ exchange today, analysts are saying the reason is largely because the PS3 delay didn't miss the holiday season completely.

As part of Kutaragi's long-prepared statement, perhaps written way back in the day when PS3 was just around the corner, he touted his new console as presenting to consumers' homes for the first time what he called a "4D" experience, which unlike 3D gaming heretofore, was dependent more than ever upon timing. If Sony has created a new, 4D universe, then it is now finding itself its own hapless inaugural occupant.

Unless Sony's multiple schedules have yet to catch up with one another (which is a distinct possibility), the company may have chosen to shift its reliance to its conventional home electronics division, to launch Blu-ray and 1080p high-definition during the fall rather than the winter. If that's so, then some of the pressure is off of the PS3 to perform so well that whole industries ride upon its success. But even so, the game plan for home entertainment changes, in a much more drastic way than it first appears on the surface. Timing in this business is everything; and here is what the delay in PS3's timing may set forth:

* The quantity of PS3 game titles during the holiday sales period will be lesser. Had PS3 been released this spring, game and movie companies (including, ironically enough, Sony on both counts) would have had a buffer zone of sorts, for them to extend and prolong their advertising and promotional campaigns, letting them build up an audience over time, especially by perhaps staggering release dates of multiple supporting product between spring and the holidays. But a November launch narrows the window of visibility for holiday titles, forcing their promotional campaigns to bunch up against one another at the starting line of the big purchasing season. As a result, some lesser titles that could still have been profitable for software companies, may have to be delayed until after January (see "worst possible time" above), in order to make room for the blockbuster releases upon which the gaming and movie industries depend.
* The pricing and promotion plans for high-definition disc players changes. Manufacturers had openly been hoping for PS3 not only to introduce Blu-ray Disc players, but to establish the entry level price point and package for the devices...so they won't have to. Creating an entry level price point for a definitively premium product is a difficult thing, and the PS3 had been fulfilling that duty on behalf of companies such as Pioneer, representatives of which told us at CES last January (http://www.tgdaily.com/2006/01/04/pioneer_unveils_blu-ray_players/) that they would only be focusing on the the premium end of the Blu-ray product line. With few Blu-ray players available on the market over the next few months, it's possible that studios may be compelled to delay their initial release of Blu-ray-based movie titles past the end of May, when they're currently scheduled (there are already hints of possible delays of HD DVD titles (http://www.tgdaily.com/2006/03/14/blu-ray_hddvd_face_new_technical_issues/)). But assuming such a delay, if it were to occur, doesn't extend until November, somebody will still need to help Sony make a market out of Blu-ray Disc, specifically by ramping up production of lower-priced players. The PS3 delay creates a scheduling void that somebody besides Sony will need to help fill.
* A key portion of the itinerary for the movie production industry could be thrown into disarray. While all the major Hollywood studios have scheduled initial releases for both Blu-ray and HD DVD versions of existing movies, it is the home video release dates for new movies that, more than ever, determines the release and even the shooting schedules for both blockbuster films, particularly in the action genres, and franchise films that rely on established brands, such as James Bond and The Pink Panther. As the entertainment economy evolves, studios are starting to see more profits from home video releases than from the theatrical releases that precede them; and soon, studios may experiment with actually releasing films to video first, prior to their appearance in theaters. To that end, studios have been enticed by the possibility of releasing select films first to high-def video, then to theatres, and finally to standard DVD. Assuming PS3 sells as many units as Sony can produce, which Kutaragi predicts will be one million units per month, it will still only have built a market of under two million users, prior to January when sales are expected to seasonally decline. If that number, as many predict, still constitutes the bulk of the Blu-ray player market, then a few million viewers may not be enough for studios to justify planning "pre-premiere" high-def releases prior to Christmas. In that event, studios that are now scheduling high-def and DVD releases for separate dates, may have to settle for high-def dates no earlier than May 2007, to coincide with their roster of summer action blockbusters. For some studios, the PS3 delay may as well have been past January.
* A principal element of the PS3 value proposition is its Internet service. According to Sony's Kutaragi, a basic version of what's now being called the PlayStation Network Platform is being distributed free to PS3 users, with premium features (read: "playing games online") available presumably for a fee. This adds an entirely new ingredient to the mix, that was never considered in the context of the PlayStation 2: installation. Internet service is not only a feature of PS3 gaming, but of its AACS copy protection as well. If PS3 adheres to current AACS rules, then it must connect to the Internet separately from any other computer in the household - its connection must be dedicated. All of this makes the PS3 a service which, for most households, will require professional installation...which would be an easier service for them to procure in, say, July or September than in December.

What a difference three months can make. All this trouble for this yet-to-be-born console, and we haven't yet mentioned Microsoft's Xbox 360. Given the circumstances - with Sony coming out against certain features of AACS copy protection, with version 1.3 of the digital HDMI connector now scheduled to be ready by June at the earliest, and with Blu-ray Disc apparently not ready for prime time, Ken Kutaragi had few other options. He could have divorced PS3 from Blu-ray, perhaps saving the game console, but in so doing sending a terribly negative signal about Blu-ray at a time when Microsoft is playing with reversing its stand on HD DVD availability for Xbox 360. Alternately, delaying PS3 past December would have left the holiday season without a well-defined entry-level Blu-ray player, unless another manufacturer scrambled to fill the void in time. In this particular game, Kutaragi may just be one cool customer, skillfully playing the hand he's been dealt.