Analyze This: Is There Anything Wrong with the Sony PSP?

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The Sony PSP has been out for over two years, and has sold over 24 million units. Yet sentiment for it remains mixed: Gamers and developers appear to put up with it, but not clamor for it. And a recent rumor has it that one major retailer even threatened to stop selling it (if Sony didn't initiate a price cut, which is did this month). At best, it's been characterized as a mediocre success.

We asked David Cole of DFC Intelligence, Ed Barton of Screen Digest, and Mike Wolf of ABI Research:

What are your general thoughts about the Sony PSP? Do you rate it as a failure or success? Or do you have mixed or neutral feelings about it?

What do you think Sony and developers could do to improve the PSP platform, to generate more excitement for it among developers, gamers and the industry overall? Or do they need to?

What do you forecast will happen with the PSP platform throughout this year, especially in relation to the PS3 (the fact that Sony plans to interface the device more with the console)? And rumors of a price cut and second generation model?

David Cole, DFC Intelligence

General thoughts about the PSP: My feelings on the PSP are mixed: It has shown there is demand for a more high-end portable system. The portable market has room for two competing portable systems. We forecast that over the next five years dedicated portable systems will sell just as many units as the new console systems. However, the PSP could really use a new model.

This has been the secret to Nintendo's success. When GBA sales slowed, Nintendo introduced the GBA SP, which addressed many of the system's problems. Ditto introducing the DS Lite last year to improve on the DS. Much will depend on how much emphasis Sony plans to put on the system going forward. Do they really want to put in the effort to continue to build the base?

On generating more excitement for the PSP platform: The portable market has been a challenge for third party developers and publishers. The business model is very tight. Nevertheless, publishers are already enjoying some greater success on the PSP than they ever did on Nintendo portable platforms.

However, the market is showing that you must develop a game specifically for the portable platform and not just repurpose console [i.e. PS1] games. The challenge is this is likely to take a high-end budget, probably around $5 million. I think the real issue is developers need to make a full commitment [to portable]. An example of a great job rethinking a franchise for the PSP was the recent Ratchet & Clank: Size Matters.

Ratchet & Clank: Size Matters

Forecast for the PSP this year: Interfacing a portable device with a console system can be overrated. As for price cuts and a second generation model: I think a new form factor is needed more than a price cut.

Ed Barton, Screen Digest

General thoughts about the PSP: The only way in which the PSP can be perceived as anything other than a success is by comparison with the Nintendo DS. Screen Digest believes that there is more difference between the platforms than is often acknowledged in mainstream coverage. The DS is wholly focused on handheld gaming, while the PSP is designed as a portable digital media platform which includes gaming. Additionally, the respective userbases are markedly distinct demographics.

We forecast that the global installed base of PSP users will be around 29 million at the end of 2007, generating $1.9 billion in software sales. Lifetime software sales at the end of 2007 will be around $4.5 billion. If this is "failing," then failure just got a huge brand makeover.

On generating more excitement for the PSP platform: The PSP should focus on games which are distinct from what is available on Nintendo DS and the PS2. These are two very competitive platforms to take on. Sports titles and FPS's are two genres which I feel have never really taken off on handheld platforms, and the PSP has proven it can execute in these genres.

Also the PSP offers strong connectivity technology. Perhaps game designers can use this to tie the PSP into SCEI's "Game 3.0" vision of offering users ways to create and share gaming content. Again, this is an area in which the PSP's capabilities should offer distinctive experiences unavailable elsewhere in the market.

As a gamer I have been less than delighted seeing so many top PSP games -- e.g., Grand Theft Auto: Liberty City Stories and Vice City Stories -- being ported to the PS2. Exclusive titles define a platform, and there is less impetus for PSP owners to purchase such titles at full price if they see a PS2 release a few months down the line.

Grand Theft Auto: Vice City Stories

Forecast for the PSP this year: I anticipate integration between the PSP and PS3, perhaps something involving Home. I am positive the PSP will fit into Sony's strategy to position itself at the heart of the broadband-enabled home: The PlayStation 3 streaming, downloading, storing content, which can be used on the move by the PSP. We are only just starting to see the potential.

Also 2007 to 2008 may be a good time for a new hardware iteration: more onboard memory and longer battery life would make the PSP a more capable device for non-gaming media storage and playback. Given that the media player capabilities of the PSP is an area in which Sony can distinguish the platform, this would appear to be a sound strategic direction.

Introducing more premium content download services, wirelessly and via PS3, would address potential which has remained largely unfulfilled.

Mike Wolf, ABI Research

General thoughts about the PSP: I believe the device's perceived "failure" by some is due to the device struggling to live up to Sony's own marketing of the product, much like what the PS3 is going through today. Sony tends to feature a certain swagger and bravado to its marketing campaigns that says "we are the one to beat and the others are not to be taken seriously."

With many things Sony does, there are elements of brilliance and vision, but also some obvious shortcomings. The good things about the PSP are processing power and screen size, which make for a great gaming. The Warriors, Sid Meier's Pirates!, and many others look great on the PSP.

As for shortcomings: Most begin with Sony's own proprietary technologies. Putting so much emphasis on the UMD format was a terrible idea, just as other portable devices were moving heavily towards digital distribution. UMD works fine for games, but the company put so much emphasis on the format for movies and that has proven to be a disaster.

A second big mistake was relying exclusively on Memory Sticks. It would have cost a lot more, but if this device had a hard drive or a significant amount of flash [memory] in it, the PSP would have been much more successful.

On generating more excitement for the PSP platform: Sony should take advantage of the community aspect and look to create links between the device and the PS3. The PS3 community is growing and will continue to significantly over the next year, and game and media distribution between the two will be a differentiator. Putting the Location Free client software on the PSP was a good first step, but Sony needs to go beyond that. Also, allowing the PSP to participate in the new Home online service would help.

While I don't think it will happen, I think Sony would be wise to leverage their game and phone expertise and deliver a "PSP Phone."

Forecast for the PSP this year: The current generation has seen a price drop, with retailers beginning to lose faith in the device, and we may see some new version of the hardware, possibly a smaller version that features better battery life.

As for a "second generation" -- and by this I mean a new processor, I think you will likely see that introduced in 2008 with the product shipping in 2009. Sony's too focused on the PS3 right now to deliver a new handheld in the next 18 months.

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