Sony Sets Portable Game-Player Rollout

Updated from 4:30 p.m. EST

Sony ( SNE) released some more details Thursday on what it hopes will be its Next Big Thing: its new PlayStation Portable game system.

The new handheld device will make its debut in the U.S. and Canada on March 24 at a price of about $250, the company announced on Thursday. Sony will offer the device as part of a "value pack" that includes a memory stick, headphones and battery pack.

By the end of the company's fiscal year on March 31, Sony plans to have manufactured 1 million of the devices for the North American market. However, a Sony representative did not know how many of those the company will have shipped by the launch date or by the end of the company's fiscal year.

The PSP represents Sony's first foray into the handheld gaming market. Although the company displaced Nintendo as the dominant video-game console maker a decade ago, Nintendo has continued to rule the portable gaming market with its GameBoy.

But the PSP is more than just an effort to dislodge Nintendo. Struggling in other areas of its business, such as its digital audio devices and video cameras, Sony is looking for a hit product to revive its fortunes.

Meanwhile, gaming industry representatives and investors are hoping that the PSP and Nintendo's new DS will help buoy the industry as it undergoes one of its periodic console transitions. Analysts expect Sony, Nintendo and Microsoft ( MSFT) to roll out their new consoles over the next two years.

Typically, console transitions have been disruptive times for video-game software companies, leading to flat or declining revenue, increased capital expenditures and deteriorating bottom lines. But game companies are hoping that revenue from the new handhelds will help shore up top and bottom lines while they prepare for the next generation of consoles.

Despite the PSP's initial success in Japan, some analysts have worried about the overall potential for the PSP, noting that industry leader Nintendo is targeting the same 18-to-34-year-old audience as Sony with its DS and is charging less for its device than Sony is for the PSP.

Ironically, the more successful the PSP is, at least initially, the more Sony could lose on it. One analyst has estimated, for instance, that Sony is losing about $50 on every PSP that it sells.

Company spokeswoman Janette Barrios declined to talk about the specific economics of the PSP, but likened the dymanic to "razors and razorblades," where any negative impact would be offset by royalties.

Barrios noted that Sony used a similar business model with its PlayStation consoles. Despite the subsidy on its consoles, Sony's PlayStation division has consistently posted profits, Barrios noted.

"We're not concerned about that at all," she said.

The company plans to sell the devices in Europe also, but has not yet given out details on when it will debut the device there or at what price.

The U.S. price may surprise some analysts and consumers. In Japan, Sony is charging the equivalent of less than $200 for the PSP.

But Barrios noted that the company offered two different PSP packages in Japan. One was a value pack similar to that offered in North America, but for the equivalent of about $240. The version offered for less than $200 was a stand-alone package that did not include a battery pack, AC adapter, memory stick or headphones, she said.

In the North American launch, Sony does not initially plan to offer a stand-alone version of the PSP, Barrios said.

"What we found was that the value pack was much more in demand than the stand-alone," Barrios said. With the value package, there's no confusion about what people are or aren't getting."

By the end of March, some 24 titles should be available for the PSP. Among the recent hits that will be available for the device are FIFA 2005 and NFL Street 2 Unleashed from Electronic Arts ( ERTS) and Activision's ( ATVI) Spider-Man 2.

Sony's ADRs closed lower by 4 cents a share, or 0.92%, to $36.65 on the NYSE Thursday.

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