This May Be Sony's Dumbest Move Ever

Let me start off by saying that Sony (NYS: SNE) is a company with a recent history of bad decisions and bad luck.

When you delve into last year's repeated hacking attacks on its consumer-facing PlayStation network or the fact that it's lost a ton of money on its bread-and-butter TV business for seven consecutive years, you come to the conclusion that Sony is either unlucky at best or incompetent at worst.

However, it's the self-inflicted moves -- typically revolving around brainless decisions to overprotect its media -- that deliciously backfire in the once-great company's face.


Well, it's at it again.

There should be a cheat code for this
Gaming enthusiast website Kotaku has unearthed some chilling tidbits about Sony's next console. Now, while Orbis -- and that's the name of the PS3 heir, according to the website's source -- won't be out until late next year, some of the rumored specs continue to stick.

I'm not talking about the graphics and sheer processing power that will make Orbis a powerful gaming console. I'm actually talking about the two things that may make Orbis seem more like an obit if they wind up being incorporated into the final product. According to Kotaku, the new PlayStation gaming console will not be backward-compatible with earlier PlayStation systems and it will have "anti-used games measures" built into the console.

The former is going to eat into sales. If folks can't play their PS, PS2, or PS3 games on the Orbis, most gamers are unlikely to upgrade right away. Since they've also seen how Sony systems fall precipitously in price over time, waiting is never a bad strategy with this company.

The latter is going to be worse. If the Orbis won't be able to play secondhand games, you may as well just toss them into the clearance bin as overpriced paperweights.

Sony can't be this stupid. Right?

Does it really think that folks will buy a likely pricey system that can't play used games?

Sale and resale
It's easy to see the attraction of an "anti-used game" platform for both software developers and Sony (which collects a royalty on new software sales).

Friends swap games when they're done playing with them, eating into the sale of shrink-wrapped releases. There are also several ways to rent games. Folks turn to GameFly, Coinstar's (NAS: CSTR) Redbox, and DISH Network's (NAS: DISH) Blockbuster to rent games at a fraction of what they would cost new. Once the titles outlive their popularity, these companies will also sell the used games.

Redbox and Blockbuster obviously make more money through movies than they do through games, but then we get to GameStop (NYS: GME) . The video game retailer's biggest margins lie in its resale business. GameStop will buy back old games -- make sure they work -- and sell them at huge markups.

All of these models would be toast if the Orbis can't play rented or cheaper secondhand games. If Orbis games come with unique codes that can only be installed on one system, all of these companies will take a hit.

However, it will be Sony itself that pays the biggest price here. After all, the reason that GameStop has been able to hold up far better than the video game industry that has been largely fading over the past three years is that customers know they can trade in their older games and gear. If they can't do that with Sony's new console, suddenly that $60 game is no longer the $40 game that they were used to buying after flipping a $60 game for $20 of credit.

If GameFly, Redbox kiosks, and Blockbuster can't rent Orbis games, there goes that promotional lifeline. Gamers may also conclude that a new platform isn't selling well if it isn't being promoted through these channels -- and they'd be right, though for the wrong reason.

If Sony upends GameStop's thriving resale model, how much support do you think the small-box retailer is going to give Orbis? You probably know the answer, and it would be more bad news for Sony.

No more Mr. Softy
There were rumors earlier this year that Microsoft (NAS: MSFT) was weighing similar anti-used measures for its eventual Xbox 360 replacement. Forcing owners to register new purchases online would lock purchases into a particular console. The big push to digital delivery also anchors purchases to the original owner.

However, the chatter is hard to believe when it comes to Microsoft. It may not always get it right the first time, but it does think things through. Sony has a history of stupid media-protecting decisions. It's dumb enough to actually go through with this move that will nix any chance that the Orbis has of succeeding before it even hits uninterested retailers.

The video game industry in general, and Sony in particular, can't afford to be cocky.  

Play on
A new special report singles out three winners in the iPhone, iPad, and Android revolution. Sony and its gaming ambitions don't play into that, but can you guess the three that do? The report is free, but it won't be around forever, so check it out now.

At the time this article was published The Motley Fool owns shares of GameStop and Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft and Coinstar. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft and writing covered calls on GameStop. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


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11 Comments

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crispy_hair

Sony does have a really bad habit of getting very, VERY cocky when things go their way for a week or two.... the PS3 should of, would of, could of owned this generation of consoles, but a string of selfish and bad decisions absolutely obliterated any chance or lead they might of had with the PS2 (175 million anyone) ... how do you blow a lead like that? ... especially when xbox's were falling apart, dying and being recalled for the red ring of death. You do things to piss of your loyal fanbase, like pushing them aside like they don't matter when the PS3 starts selling a bit better... by taking away features like backwards compatibility and installing "other operating system" .... those are two HUGE features that were selling points for many of us. Also poking a stick at a group of international hackers and wacking the hornets nest basically calling them out.... wow. there are so many dumb things they have done and a lot of it comes from Sony thinking in their mind that they are still on top calling the shots, and until they realize that they are just another company now, they are doomed to keep making the same dumb mistakes.

March 30 2012 at 9:32 PM Report abuse rate up rate down Reply
Pablo

boring

March 30 2012 at 3:23 PM Report abuse -1 rate up rate down Reply
pcpimpster

Once I read the disclaimer to this article I realized why it was even written in the first place...
The reality is most price conscious gamers only care about getting a good price, they don't care if the game is used or downloaded or re-playable outside of their own system. Some actually care that the publishers get their money for their hard work as well.

The Steam platform on the PC has already proven if you offer sales and discounts on popular games that both gamers and the publishers will be satisfied.
On Steam publishers will often take a -50% price cut to create a sales frenzy because it is ALL revenue at no additional overhead cost to them. Verse used games which generate 0 revenue for the publishers/platforms and where Gamestop makes most of its profit by underpaying on trade-ins and then overcharging on the resale.
A double rip off for consumers, the smart ones sell/buy used games off Ebay where the law of averages generally decides the true market price.

There is also the convenience and impulse sales effect of making all games downloadable/playable with a few presses of a game controller. Who needs a brick and mortar when you can just download it? (see Netflix/Blockbuster and how that played out) With rumors that the next Xbox and Playstation will not have used game resale abilities, if that holds true; it will be a huge blow to Gamestop. They are in no position to replace that part of their revenue when it disappears.

Also it seems a bit misleading to suggest MS is not in the same boat as Sony in its effort to kill the resale of used games. Why do you think the rumor has slipped now from both companies?
MS actually wants to kill ALL physical media, they have been suggesting exactly that since the dawn of broadband internet. Xbox Live was one of the first services to offer full game downloads with no media. I wouldn't be surprised to see new releases be made available for download at the moment they are made available in stores.
It may take another console generation or two but physical media in games will go the way of the CD. It may still exist but it will be DRMed and become a secondary convenience to just downloading the thing.

March 30 2012 at 2:16 PM Report abuse +1 rate up rate down Reply
Darr247

The only reason I would buy a PS anything is for ripping SACDs and DVD-As to 24-bit/96KHz FLACs.

Phu.ck sony and the brown hole they live in for anything else, after I had to spend 2+ days trying to clean the rootkit off my daughter's computer that one of their CDs (that she BOUGHT!) installed on it without asking.

If I know ahead of time they had anything to do with it, I won't even go to a theater to see a movie made by sony, let alone buy one of their flat screens; When I found out they had a joint venture with Samsung to make LCD panels, I crossed Samsung off the list of TVs I would buy, too.

Last year I bought a used computer off an auction site, and it had a sony DVD drive in it... I tore it out, sold it to some other sucker for $5 and bought a new Plextor BD burner to stick in it instead.

Do I need to say it again? FOAD, sony.

March 30 2012 at 1:57 PM Report abuse rate up rate down Reply
1 reply to Darr247's comment
Kayoss

Its funny, Blu ray is a collaboration of multiple companies which includes Sony... will you be ripping that out too???

April 03 2012 at 1:31 PM Report abuse rate up rate down Reply
joshcube1

Help us Google with an open source gaming console.... you're our only hope. :)

The only reason I went from PS2 to a PS3 instead of switching to Xbox was because I didn't want to pay for Xbox live... there seems to be zero incentive to stay loyal to Sony with Orbis.

March 30 2012 at 12:47 PM Report abuse rate up rate down Reply
Tron Carter

Ahhh, to read articles written by people who know nothing about the games industry. For me the biggest issue would be not being able to borrow games. But let me point out things this guy fails to address in his little rant to try to seem like he knows what he is talking about.
1) PC games have for years relied on CD Keys and online authentication. Steam is the biggest platform for PC game sales and they seem to be doing just fine. You can't sell back games or buy used.
2) Backward compatibility has been shown to be a non issue. No one is buying a PS4 for backward compatibility. If you are upgrading early, you have the money to do so, love games and probably already have a PS2 or PS3. For price conscious shoppers, this issue is forgotten because the consoles get cheaper and the games get cheaper down the line too. The PS3 and Xbox 360 completely dropped BC support a few years ago and their sales have never been better.
3) Gamestop is the bane of the real gamer. They sell used games with huge mark ups. I have not shopped there just on principle and realize that part of why games are 60 bucks is because of used games sales. If all games sales went to the developer and publisher and Sony, then there would be less worry about the money that is going to Gamestop alone. Simply put, Best Buy, Walmart and Target are better at selling video games, and they don't depend on used games to do so.
4) The iPad and iPod seem to be forgotten in all this in that all their software and apps are locked to an account. And I imagine this would work the same way if true. You sync you account online with your console and play the games without having to be online.
I really really can't get over how stupid the line about gamers not buying early because of backward compatibility. Unlikely? No one ran out on day one to buy a 360 or PS3 to play their old games. You have the money for the early adoption, you are gonna put down for a new game that takes advantage of the hardware.

March 30 2012 at 12:45 PM Report abuse +1 rate up rate down Reply
1 reply to Tron Carter's comment
Ogar

1. Yes however you fail to see that one reason (not the only) that console gaming crushed PC gaming the past decade is used game sales.
2. It really does not matter once the customer buys the system as they quickly realize they do not play older games anymore. However emotionally customers will be more inclined to purchase the system because they believe they will use it and need it.
3. That statement makes no sense. If you do not like their prices or business model don't shop there. However customers spend over 9 billion there in 2011. This shows that while not everyone likes their business practice the majority of Americans buy games do. They make it easy and cheaper to afford new games through trad-ins. The industry will take a hit if customers are not able to offset the cost of $60 dollar games.
4. Correct however 5-10 dollar games are not a concern for needing the cost offset. The writer has it spot on though that the longer the next gen takes to release and the more draconian they are with there software the more they will push customers to tablets and other mobile gaming. Sony and Microsoft have it fundamentally wrong when they say consumers want 10 year life spans in consoles. If consumers are not willing to buy a new 400 dollar console every 5 years then why do millions and millions buy a new Ipad every year or 2 or new phones every 2 years?

if Microsoft and Sony are truly looking to go in the direction rumored the gaming industry as we know it will change and leave them both to wonder how they got it so wrong.

March 31 2012 at 9:16 AM Report abuse rate up rate down Reply
2 replies to Ogar's comment
Kayoss

Who here regardless of what sony and microsoft do, Used games are killing the industry? I for one believe this to be so. Yes games do cost $60 bucks a pop when bought new, but the cost and man power to make a game is a very large amount. Developers are depending on the game to sale well and for that to happen is through the sales of new games, where the profits goes to the developer. It good and dandy when you buy a used game for $5 cheaper, but in the long run the developer who made that game for you to play will soon go out of business. When developers goes out of business then there wont be any more games. I do not buy used games, but I do not buy new games when they come out either. I wait until the new games are on sale and buy them that way the developers get the money they deserve.
With the PS4 and xbox720 I think they should work out something with Used games retailers so that they do get some profit through the sale of used games. Honestly Gamestop is a rip off.

April 03 2012 at 1:39 PM Report abuse rate up rate down
Kayoss

Who here regardless of what sony and microsoft do, Used games are killing the industry? I for one believe this to be so. Yes games do cost $60 bucks a pop when bought new, but the cost and man power to make a game is a very large amount. Developers are depending on the game to sale well and for that to happen is through the sales of new games, where the profits goes to the developer. It good and dandy when you buy a used game for $5 cheaper, but in the long run the developer who made that game for you to play will soon go out of business. When developers goes out of business then there wont be any more games. I do not buy used games, but I do not buy new games when they come out either. I wait until the new games are on sale and buy them that way the developers get the money they deserve.
With the PS4 and xbox720 I think they should work out something with Used games retailers so that they do get some profit through the sale of used games. Honestly Gamestop is a rip off.

April 03 2012 at 1:40 PM Report abuse rate up rate down
Stuart W Allen

20 odd paragraphs for something that could have been said in one. I supposed it had to be long enough to make sure the advert and disclaimer at the bottom didn't stand out too much.

March 30 2012 at 12:32 PM Report abuse +1 rate up rate down Reply