Tokyoites
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Tokyoites

Game-Streaming

SONY faces a tough challenge from tech giants

One minute walk from the exit of Akihabara Station, a town of gamers, a new office tower welcomed ambitious business professionals in Tokyo. Among them, young management consultants joined a fast-pitch class of CICOM Brains, a private learning center offering corporate training courses. The hard program was led by an English man, Nigel Denscombe, a Harvard MBA. The class was full of excitement, generating energy of discussion to formulate corporate strategy of the company of your choice. The theme ranged from Uniqlo’s geographical expansion to Sharp’s revival from the price competition. At the end of the fifteen week course, Mr. Denscombe concluded it with a remark, “Guys, I wanted to work for SONY for a long time, why didn’t anybody pick it up?”

SONY had been a Japanese electronic giant for years, standing as the most sought-after post-graduate target of Tokyoites until mid-2000. Since then, the firm had reported nine consecutive years of loss, a stunning result for once-a-world-class engineering arm of Japan Inc. Very few people can identify the consumer electronics of SONY any more at mega-store of household appliances such as Yodobashi Camera. Zealous gamers follow the console-maker and own PlayStation as a captive cult. I have forgotten about SONY for a long time until the news of console rivals and growing game-streaming market last November.

A Japanese console-manufacturer reported the business results on October 28th. The results show that the video-gaming division contributed to a growth of 11.5% year-on-year and 61% surge in operating profits. The firm’s tough contender, Microsoft, saw its revenue jump by 30% to expand across the industry. Mr. Tony Habschmidt, a boss of Newzoo, a game-industry analytics firm, says the latest figure of revenue boost by $17bn, a upward revision from $2bn when his company forecast the industry revenue pie at the beginning of pandemic.

Game-streaming providers observed a rise in demand for both PlayStation and Xbox. SONY directs a watchful eye to tech giants, Amazon, Facebook, and Google with streaming alternatives. New competitors in gaming business signal an advantageous flag to SONY which fell behind a race of cloud-computing, fast broadband, and 5G mobile telephony. Tokyo game fans with controllers didn’t support SONY with limited streaming experience for decades. How does SONY observe the situation?

SONY has two strategies, releasing a new series to win console battle for revenues and focusing on existing loyal owners. The sales record of SONY game division unveils that PlayStation 4S was sold over 100m sets and 1bn games in volume, making the division the star performer to the list of largest one. SONY committed fans see the firm as gaming giant. The division sold 5m PlayStation 5 since the release. Brand loyalty is a strong force among game owners. They don’t switch to the rival’s machine for alternate purchase. Seemingly the current analysis by both SONY’s executives and industry analysts are right on these projections.

But there are three forces to drive a possible shift to game-streaming on mobile networks. First, tech titans are starting to offer their video-gaming service for remote gamers. Google launched “Stadia” in 2019. Amazon declared “Luna” on its service line in September. Facebook joined the market with “Facebook Gaming” last October. None of them is a console maker.

Microsoft thinks that the shift to streaming should not be ignored. It promotes “Game Pass”, a subscription line customers can access to hundreds of games in its library for $15 a month. The Seattle-based firm offers xCloud for mobile owners to run games remotely without hardware wheels. It is connected with distant data centers to retrieve the game record for each user. SONY offers “PSNow” for streaming adaptable for old games.

Thirdly, the feasibility of streaming in the gaming market comes into play for the hunt. Mr. Michael Pachter, an analyst of Wedbush Securities, remarks that “if you can make streaming work, you could grow the gaming market ten-fold”. Controller-committed gamers may shift their attention during the gaming time.

In a chilly Saturday afternoon, my memory of impressive management class of CICOM Brains is fading a bit. But Nigel was right in the class room fifteen years ago. Japanese business should pay attention to electronics establishment in the game industry. The battle of gaming is likely to shift to another phase.

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Hiroshi Hatano

Hiroshi Hatano

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Taught marketing @ universities in Tokyo, ex-I-banker @ UBS & mgmt consultant @ Kurt Salmon (Accenture Strategy now), Utah, Michigan + Georgia Tech educated