Playstation Guru Endorses Xbox

Includes: MSFT, SNE
by: Jason Wood

Like many people my age, I consider myself a "gamer." I grew up on never-ending cascade of "personal entertainment systems":

But while I consider myself a gamer, like many people my age I'm now a heckuva lot busier than I used to be. For the first time in my gaming life, I'm no longer obsessed with being a first mover. I didn't clamor for the PSP when it hits the shelves. I didn't pay 3x the asking price on eBay for the Xbox 360 when it came out. And, yes, I do have several unopened PS2 games received as Christmas presents that I look forward to playing "when I have the time."

Busy or not, I'm still interested in gaming, consoles in particular, and will certainly buy one of the next-gen consoles (Wii, PS3 or 360) at some point. For me, given my time constraints, it's really a question of the best flagship titles. The first console with three or four "must have" games is probably the one I end up buying and sticking with.

But I'm also an investor, and like many technology-focused investors, the gaming world is of keen interest. Gaming is eating up an ever-increasing portion of people's free time. Gaming is becoming more immersive, more interactive, and yes, more complex. Meanwhile Microsoft (NASDAQ:MSFT) and others view gaming as part of a broader basket of home entertainment services; and view a killer game console as a trojan horse into capturing a unified, home networking environment.

So it was with great interest today that I saw this blog post by Dana Jongewaard (via Om's blog). Dana is the editor of the U.S. Playstation Magazine, a publication officially endorsed by Sony (and published by Ziff-Davis). Dana, who makes her living thanks to the Playstation, has DECIDED TO BUY AN XBOX360 INSTEAD. Wow...I realize no one should overreact to anecdotal data points as a rule, but this is one I might make an exception for:

Contrary to popular belief, editors of the Official PlayStation Magazine don't get free hardware for their own personal use. So I've been having an ongoing debate with myself about the PS3 since E3. After Kaz announced that the price would be $600, I found my enthusiasm sagging.

It's not that I find the concept of a $600 console insulting. Inflation happens, and it's natural that eventually inital prices will be higher than they used to be. But when I know that a console's direct competitors cost two-thirds or half of that price, it becomes harder for me to justify shelling out that kind of money--especially when I can probably get the Wii and the 360 combined for the cost of a PS3.

$600 might be worth it if there were several huge titles on the near horizon that were PS3-exclusive. But for the first year at least, there are very few big titles that are PS3 exclusive. GTA4 and Assassins will be available for the 360 at the same time. And most of the big guns--FFXIII, MGS4--won't be hitting for quite some time after the launch.

The other big reason for people to shell out $600, BluRay, is frankly something I don't care about. I have a crummy 12-year-old 21-inch very-non-hi-def TV sitting on my stand at home, and while we've been talking about upgrading it for the past three years, we always end up walking out of stores TV-less. And I don't buy movies; I rent non-BR discs from Netflix. Much like I've never been an audiophile--as long as I can hear it, I don't care if it's mono, stereo, 5.1, 7.1--I really don't care how high-res the picture is. My bottom line is that as long as it has color and is free from static, I'm good to go.

So ultimately, I can't justify it. $600 is a lot of money, especially when I can get what--for me at least--will be a very similar experience for $400. I would like to own a PS3, and I hope that the price drops soon so I can consider it. But until then, this Official PlayStation Magazine editor will have to join the dark side.

All you can say is, kudos to Dana for her honesty. This kind of editorial comment would never have been possible prior to the blogosphere. Perhaps that sounds like hyperbole but I firmly believe Dana and others like her wouldn't have felt empowered enough to disaggregate her role as a professional writer about Playstation with her personal qualms with the PS3 as a consumer of gaming peripherals.

Dana's point about Blu-ray is especially illuminating. Sony is trying to emulate the success it had with the PS2; which enjoyed major uptake in no small part due to its ability to act as a DVD player in addition to a gaming console. This was particularly effective in Japan. Sony would have you believe the Blu-ray angle is similar; but I disagree. In the PS2 instance, DVD players were entering the peak of the consumer lifecycle, moving well beyond first movers. The economics had become compelling enough that average American and Japanese households wanted, and were willing to pay for, DVD players. PS2 offered consumers two devices for the price of one. In the PS3 case, Blu-ray is far too new to have the same kind of pull through effect we saw with PS2, in my opinion. Not only do you need an HDTV to enjoy Blu-ray to its fullest, but you also have to wait for an appropriate level of Blu-ray formatted media (movies, et al.) Blu-ray is at a much ealier stage of the consumer lifecycle. People will happily do without a Blu-ray player; so PS3 has to compete more directly on a) the quality of available titles, b) the feature set of the game player, and c) price. At $600 proposed MSRP, that's a hard pill to swallow.

As a Microsoft shareholder, anything that makes XBox 360 more ubiquitous or more likely the winner in the next-gen console wars is welcome news. XBox, in and of itself, has cost billions and the ultimate payback only comes if Microsoft can carve out a large share and then rake in the profits through subscriptions to Live as well as high tie ratios from higher-margin game titles. If Dana's reaction is right, Sony needs to re-cast the go-to-market strategy for PS3 out of the gates. Her point about Blu-ray is especially telling.

Note: At the time of this writing I, and/or funds I maintain discretionary control over, maintained a long equity position in MSFT but did not maintain a position (long or short) in Sony (NYSE:SNE). We may also, at times, carry derivative options on underlying equity positions as a hedge.