Sony Puts Faith in Video Game Consoles

Chris Nuttall in San Francisco and Jonathan Soble in Tokyo

The Vita Hill Social Club, which opened recently on the corner of Gough and Union, in the quiet Cow Hollow district of San Francisco, has the air of an exclusive gentlemen’s club, with its green leather chesterfield sofas, potted ferns and bar.

In a way, that is what it is. The “pop-up” club has been set up by Sony , as part of the promotional campaign for its new PlayStation Vita handheld video game console. Like the Vita itself, it caters to an elite group of gamers: those who still cherish buttons, pads and joysticks on their handheld gaming devices.

In a world full of iPhones and iPads, carrying a separate gadget just for games can seem anachronistic. Sales of game hardware, packaged software and accessories fell 21 percent year on year in the U.S. in December, driven in part by a consumer shift from specialized devices to smartphones and tablets. The latter feature touchscreen and motion-based play, and cheaper games — in addition to the ability to make phone calls or browse the web.

Although the Vita has been well-reviewed since its launch in Japan at the end of last year — it went on sale in the U.S. and Europe last week — some experts think it could be the last device of its kind.

“We’re near the pinnacle of portable gaming,” said the Verge personal tech blog, adding: “This feels like the tipping point. The last great gadget to compete with pocket space ... I can’t shake the feeling that this is the beginning of the end for dedicated handheld gaming platforms.”

Nervousness about the future of mobile gaming is especially acute in Japan, home to Sony and its main game-hardware rival, Nintendo . A year ago Nintendo introduced its latest portable console, the 3DS, an update of its popular DS range that includes new features such as a 3D screen. But sales have fallen short of projections, helping to push the company into what it warns will be a Y65 billion ($800 million) net loss in the year ending in March — the first time it will fail to earn a profit since it started publishing its consolidated earnings in 1981.

“Dedicated handhelds have a problem,” says Michael Pachter, a video game analyst at Wedbush Securities. The “all-in” cost of a portable console and three games can be about $400, he notes, a level that limits their appeal to hardcore gamers. “They’re not going away, but it’s not a growth business."

Sony has not been blind to the trend. Last year it unveiled the Xperia Play, a smartphone based on Google’s Android operating system that sports slide-out controllers similar to those on its specialized PlayStation devices. Its full buy-out of the Sony Ericsson mobile phone business, from its former partner Ericsson of Sweden, was designed to speed up integration of phones, non-phone hardware and software — an area where critics say it has moved too slowly to challenge the likes of Apple.

Kazuo Hirai, the Sony game-division veteran who is to become the company’s chief executive in April, has talked of transforming PlayStation from a line of gaming devices to a wide-ranging hardware and software brand. As a first step, he announced in January last year that Sony would enable versions of many of its games to be played on “PlayStation-certified” devices from other manufacturers.

Yet Sony is not ready to give up on portable gaming gear. Compared with Nintendo, which succeeded wildly in the mid-2000s by targeting occasional gamers with novel, easy-to-use systems such as the wand-controlled Wii, it has been less focused on the “casual” market, and executives believe the new Vita will be less vulnerable to competition from iPhones and the like than the 3DS.

To maximize the Vita’s appeal, Sony has combined popular smartphone features such as touchscreen and motion sensitivity with the analogue controls and larger, high-resolution screen favored by game addicts. The company also argues that playing games on tablets and smartphones encourages new gamers to migrate to dedicated handheld devices.

The Vita Hill Social Club, and seven others like it in cities around the U.S., are part of a campaign to put the machine into the hands of as many hardcore gamers as possible, in the hope that they can be convinced of its superiority.

Lewis Ward, an expert on the game industry at IDC, the market research company, says dedicated hardware will be around for a while yet, even if the focus of the industry shifts to multipurpose devices. Given the popularity of smartphones, particularly among the young people who form the core gaming audience, “the rate of erosion of this market is actually quite slow”, he says.

Although the more distant future remains uncertain, he projects that industry revenue from dedicated handheld hardware and software will rise by 20 percent this year, rebounding from a weak 2011, thanks in large part to the introduction of the premium Vita. “If they love the franchise and the quality is there and the games are getting good reviews, then [gamers] are willing to spend the cash.”