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Sony slim PlayStation 4 and Pro consoles point to major shift in the gaming industry

Sony has unveiled two new versions of the PlayStation 4 console in an unprecedented move that points to console makers' increasing focus on software and services.

The slimmer PS4 and PS4 Pro were unveiled at an event on Wednesday. It comes just three years after the original PS4 was released and marks a major departure from the typically longer refresh cycles for consoles. Microsoft has also released a mid-cycle refresh console called the Xbox One S and is planning a higher spec product next year named "Project Scorpio".

Gaming has been a major success for Sony and one that is becoming increasingly important to the business as areas such as smartphones struggle. The PlayStation 4 is the top-selling console with an install base of over 40 million.

"Consoles are not only seeing pressure just from mobile gaming, but also PC gaming," George Jijiashvili, analyst at CCS Insight, told CNBC by phone on Thursday.

"So the requirements for the latest games in terms of graphics and processors are growing exponentially and in order to deliver the latest gaming experiences, Microsoft and Sony have felt they needed to keep up with the latest developments and deliver hardware that can deliver this content."



First mover advantage versus Xbox?

The slimmer PS4 will cost $299 when it is released next week. The PlayStation 4 Pro will cost $399 and will be available in November. The thinner PS4 has a new design and its internal system is faster. But it's the PS4 Pro where most of the upgrades can be seen with its ability to support 4K images. Sony said that all PS4 consoles will support high dynamic range (HDR) content via a system software update.

Images shot in HDR essentially make the contrast between light and dark colors even more prominent so the white highlights are even brighter. The purpose is to make the image on screen look more realistic.


The new Sony Playstation 4 and Playstation 4 Pro are unveiled at the Playstation Theater on September 7, 2016 in New York.
Bryan R. Smith | AFP | Getty Images
The new Sony Playstation 4 and Playstation 4 Pro are unveiled at the Playstation Theater on September 7, 2016 in New York.

Sony's slim PS4 matches the Xbox One S in price, so the two are competing directly. But Sony has released the Pro version ahead of Microsoft's "Project Scorpio" – a higher spec console and this could give the Japanese firm a head start.

"They have taken the opportunity to move first and that gives it a chance to maintain that momentum," Piers Harding-Rolls, head of games at IHS, told CNBC by phone.


‘Gaming as a service’

The mid-cycle release of the consoles also points to a major shift happening in the gaming industry. Instead of companies relying on revenue from just hardware sales and game sales, they are trying to use the consoles as a hub to sell users more services, something one analyst describes as the "gaming as a service" (GAAS) model.

Sony's network revenues grew 36.7 percent year-on-year in the three months ended June 30. This relates to game, music and movie sales it makes. It has its own online store on the PlayStation for people to buy games, runs a TV streaming service called PlayStation Vue, and has a product called PlayStation Now which lets users stream games on the PS4 or Windows PC.


The strategy has been to open up its assets across multiple platforms, so as well as hardware sales contributing revenue, the software side of the business also is able to scale.

"The move to software as a service is a subscription of a service covering hosting and infrastructure service along with the rights to use the software. Software as a service providers (Salesforce.com the best example) maintain the hardware, perform upgrades, backup, and otherwise perform all of the utility services and activities required to keep the software running. Gaming could evolve the same way. Imagine the potential for GAAS companies in the future?," Neil Campling, senior research analyst at Northern Trust Capital Markets, told CNBC by email on Thursday.

(CORRECTION: The PlayStation 4 consoles were revealed on Wednesday, Sept. 7.The date was misstated in an earlier version of this article.)