Gaming the System: Can Movie Downloads Revive Sales of Sony’s PSP?

Article ImageAnticipation grows as technophiles eagerly await the launch of Sony's new video download service for its PlayStation Portable (PSP). Although Sony spokesperson Al de Leon declined to comment on the service's launch, there's no shortage of commentary going on: Bloggers, analysts, and investors are all speculating about Sony's new video downloading service.

In a move designed to enhance the Sony Connect store, The Wall Street Journal reports that Sony Pictures Home Entertainment plans to upgrade its online media service with the ability to purchase movies and watch them on the PSP.

Projected for release in early 2007, the service will initially offer movies from Sony Pictures, but is expected to integrate movies from other studios in the future. Sony is reportedly in negotiations with several possible content distribution partners, including, Movielink, and CinemaNow, according to a Financial Times report.

Sony is also readying a video downloading service that will allow users to download movies via a computer and store them on memory sticks. The company believes users will be able to upload and store for playback as many as ten feature films on its 4GB Memory Stick. However, the final release plans for the direct-to-handheld service have yet to be unveiled.

Sony has previously tried to expand the PSP's uses beyond gaming to include movies. It began offering movies on the small discs used by the PSP, but sales have been low and the movies never caught on among many users. However, "increasing the gaming and communication functionality of the PSP will ramp up sales and answer critics who point to poor movie sales as an indicator of the failure of the device's non-gaming functions," says Forrester Research's analyst, Paul Jackson.

The PlayStation game console was introduced in the United States in 1995. Packed with power and the added ability to play CDs and DVD movies, the system made it possible for smooth, lifelike animation to be shown in real time. In August 2002, the company introduced the option to play games online with the network adaptor (ethernet/modem) for PlayStation 2.

The PSP was launched in late 2004 and initially enjoyed strong sales. By the end of March 2005, shipments reached 3 million units and jumped to more than 14 million units in April 2005. However from April 2006 to March 2007, sales began to decline. Sony initially expected sales to drop to 12 million units, but in October 2006 revised its forecast to 9 million units.

The successful launch of a movie download service could help boost sales of PSP hardware. "This is the first sign that Sony is watching what its competitors are doing and responding accordingly," says Jackson. "If it can live up to these promises, Sony's success will guarantee its continued dominance in home consoles and significantly increased market share in the portable console space," he adds. Some say the move would put Sony into direct competition with Apple Computer's iTunes store.

Rivalry between the two giants may be inevitable as there has also been speculation that Apple is considering its own venture into the gaming console business. Prudential analyst Jesse Tortora said in a research note that Apple's addition of video game downloads to the iTunes Music Store lineup suggests it may have designs on the device market. A multi-function home device could help Apple advance its video ambitions, Tortora wrote, while a handheld version "could be developed as an enhancement for a future version of the widescreen iPod."

If successful, reviving flagging PSP sales could help Sony regain its balance after a difficult year. The PS3 lost ground to the Xbox 360 because of production delays that caused it to be released late in the holiday season and only in limited quantities.

Sony's new service could generate millions of new customers, not just youngsters but also big spenders on home entertainment systems. The company's strength in the entertainment market makes it evident that it is strategically emerging into the online market.

"Now, not only will the PSP support the download of more casual Flash-based games, but it will also play downloaded PSOne titles via an emulator," says Jackson. "While business model and game storage questions remain unanswered, this represents a step in the right direction for Sony but leaves users eagerly awaiting details of the online services it will offer."