AP NEWS- Sony Corp (NYSE:SNE – news). will delay the launch of its much-anticipated PlayStation 3 console until November, prolonging the agony not only for itself but also for many others in the video game industry.
Ken Kutaragi, the head of Sony’s video games division, said Sony is still trying to finalize the copyright-protection technology and other standards for the Blu-ray DVD disc, the high-definition video format for PlayStation 3 and other next-generation DVD players.
The PlayStation 3 is critical for Sony’s profits and brand image, so the delay from its promised “spring” debut is a major setback for the Japanese electronics and entertainment company as it struggles to mount a recovery after several years of poor earnings.
And any potential delay after November — missing the holiday season — would be even more damaging, though financial analysts are mixed on concerns about whether Sony and its component suppliers will be able to deliver as now promised.
“I’d like to apologize for the delay,” Kutaragi said Wednesday at a hastily called news conference in Tokyo after reports of it surfaced in publications. “I have been cautious because many people in various areas are banking on the potential of the next-generation DVD.”
Blu-ray preparations were initially to have been completed by last September, but now won’t be finalized until next month, he said.
Speculation of a delay had been growing in the last few months as Sony’s “spring” launch drew nearer without any confirmation of a specific date.
Still, the now-confirmed half-year lag from the predominant console maker will sting.
Already, sales of video games have slowed as customers have been withholding purchases and waiting to switch to new models of game consoles.
In 2005, video game sales fell 5 percent to $7 billion in the United States, according to market research firm NPD Group. And Electronic Arts Inc., the world’s largest video game publisher, saw its net income fall by nearly a third in its pivotal holiday quarter.
Now the industrywide decline will continue, and possibly worsen each month, with sales of current-generation console games falling as much as 35 percent from year-ago periods, predicted analyst Michael Pachter of Wedbush Morgan Securities.
In addition to the PlayStation 3, consumers had been waiting for Microsoft Corp.’s new Xbox 360, which debuted last November with supplies falling short of demand. Also, Nintendo Co., maker of Game Boy machines, is set to release its next-generation Revolution console later this year.
Microsoft spokeswoman Molly O’Donnell said Sony’s delay won’t change Microsoft’s strategy. “We’ve blasted out of the gate with the greatest launch in the history of video games and we’re keeping our eyes squarely fixed on today and on the Xbox 360 road ahead,” she stated in an e-mail.
The PlayStation 3 delay will likely help Microsoft and Nintendo chip away at Sony’s 60 percent global market share, but analysts think Sony will still reign. Sony has shipped nearly 204 million machines worldwide when combining shipments for the original PlayStation and its upgrade PlayStation 2.
“It’ll sell 20 million PS3s in the next couple of years no matter what,” Pachter said.
The PlayStation 3 console can be used as a Blu-ray DVD player, but will also read previously released PlayStation and PlayStation 2 games, Kutaragi said. It will also have a 60-gigabyte storage drive, broadband and wireless Internet connections and support for high-definition televisions.
The company is expecting monthly production of 1 million machines, and targeting production of 6 million units for the fiscal year ending March 2007, Kutaragi said.
The significance of the Blu-ray DVD technology in the console could not be ignored, analysts say. At stake are billions of dollars in royalties from movie or game providers that will use the format.
Blu-ray is competing against another high-definition disc format called HD DVD, backed primarily by Toshiba Corp. Both formats are making their product debuts this year.
As electronics makers, including Sony, plan new Blu-ray DVD machines, the PlayStation 3 is considered a way for Sony to sneak the Blu-ray format into households that may not necessarily be ready to buy a separate Blu-ray player.
So with the new PlayStation 3, consumers would get not only the latest game console, but also the latest DVD technology, for a price that Sony has said will not exceed $500.
The announcement came after the close of the Tokyo Stock Exchange, but earlier news reports sent Sony’s stock tumbling 1.8 percent to 5,470 yen ($46) Wednesday.
In the United States, however, Sony’s American depositary shares rose 17 cents, or less than 1 percent, to close at $46.68 on the New York Stock Exchange, off a four-year high of about $51 from late January.
Shares of video game publishers also advanced modestly Wednesday.
U.S. analysts said Sony’s announcement brought some relief. The new timeline means that the PlayStation 3 will hit store shelves simultaneously in Japan, North America and Europe, just in time for holidays.
“We believe this is the single biggest issue to drive these stocks over the next nine months, as investors have worried about a PlayStation 3 slip into 2007,” American Technology Research analyst Paul-Jon McNealy wrote in a report.
But the delay still means Sony won’t benefit from the new product until November. Its game revenues will likely hurt, said Toshiaki Nishimura, analyst for Yasuda Asset Management Co.
Also, Sony “still has a number of obstacles to surmount before it can achieve a simultaneous global launch of PS3 in November,” Merrill Lynch analyst Hitoshi Kuriyama said in a research note. “We will need to keep close tabs on whether any further delays emerge because postponing the launch will worsen the company’s competitive position.”
Despite the typical risks of component constraints in electronics manufacturing, some analysts, including McNealy and Pachter, are confident the November launch will hold.
“They wouldn’t have held a press conference if they didn’t have all the components lined up already,” Pachter said.
Sony, which also has movie and music businesses, was battered in recent years by declining electronics prices. Since Welsh-born Howard Stringer took over last year as the first foreigner to head the company, Sony has been trying to achieve a turnaround.