Skip to main content

Delay Won't Zap Sony

A postponement of the PlayStation 3 isn't necessarily game over.

The possibility that



may delay the launch of its upcoming PlayStation 3 console is setting off alarm bells in the video-game industry.

But is it all much ado about nothing?

Reports out of Japan suggest that Sony could postpone the release of the new video-game system by as much as a year from its currently expected date of this spring, Merrill Lynch said in a research note late last week. The reports follow weeks' worth of rumors and rumblings to the same effect.



(MSFT) - Get Free Report

having launched the Xbox 360 last November and Sony predicting a "spring" launch for the PlayStation 3, many in the industry were hoping to see Sony's launch as early as March.

The chances of that happening now look slimmer. If the PlayStation 3 were really coming out next month, you'd expect to hear more about it from distributors and retailers -- not to mention Sony itself, analysts say.

"I don't see how they could possibly launch in any market prior to June, and even that's pushing it," says Michael Goodman, who covers the video-game industry as an analyst for the Yankee Group, a market research firm.

On the surface, that would seem to be bad news for Sony and for video-game publishers. A yearlong delay would give the Xbox 360 another holiday selling season to establish itself as the leading next-generation platform before Sony enters the market.

For the game publishers, which are already

struggling through a rough transition from old game technology to the new, the delay could further postpone the payoff for their investments in developing games for the new systems.

But some analysts and investors say worries about a delay are a bit overblown.

"At this point, it's premature to think that

a delay could have much of an impact," says James Lin, an industry analyst for the Simba Group, a consulting firm.

Of course, such a delay isn't even guaranteed. Sony hasn't given much detail about its plans, but at this point, the company is sticking by its previous forecast that the PlayStation 3 will come out this spring.

One buy-side analyst who follows the sector says his sources are telling him that there won't be any delay. We've heard this talk before, the analyst says. Before Microsoft launched the Xbox 360 last fall, rumors abounded that it would be postponed, but it launched on time.

"I don't think anyone knows," says the analyst, who asked not to be named and whose firm doesn't have any sector positions. The PlayStation 3 "might actually be delayed, but you should take

the rumors with several grains of salt."

But even if there is a delay, does it really matter that much? As long as the console is launched this year, it would still be on the shelves for the holiday season, when the lion's share of game hardware and software purchases are made. This means a slight delay wouldn't result in significant lost sales, especially with Microsoft still struggling with supply issues of its own with the Xbox 360.

And in Japan at least, the Xbox 360 has sold poorly so far and may not pose much of a threat to the PlayStation 3, no matter how long Sony waits. "Since Xbox 360 is possibly the worst-performing console in Japan ever, it's not like

Sony needs to hurry," says Joe Spiegel, a hedge fund manager at Dalek Capital. He doesn't have a stake in either Sony or Microsoft.

Software sales are largely tied to hardware sales. Even before the Merrill Lynch report, many in the industry had relatively modest expectations for sales of the PlayStation 3 this year. Extrapolating from that, sales expectations this year for games to be played on the PlayStation 3 were likely low to begin with and probably won't be hurt much by a delay.

"When a system first comes out, it has a limited install base

of customers. The software sales aren't that great

to begin with," says David Cole, an industry analyst with consulting firm DFC Intelligence. "There might not be a huge impact this year."

However, in North America, things could certainly get dicey if Sony delays the PlayStation 3 beyond this year.

Microsoft shipped a disappointing number of Xbox 360s this past holiday season, but the company should have its supply issues worked out by this year's season. And by then, game developers should be ready with some compelling titles that tap into the potential of the Xbox 360's platform, analysts say. Moreover, consumers may well decide that they have waited long enough for a next-generation system.

"Microsoft is going to have a chance to knock

Sony off their pedestal," says Goodman.

Meanwhile, such a delay would mean that game developers have to wait longer to recoup their investment in PlayStation 3 games. It also increases their near-term risk. Having more game systems on which to offer a title lets publishers spread their investment around without needing a game to be such a huge hit on any one of them in order to make money.

"Anything that delays or limits the growth of the install of next-generation

machines hurts the publishers," says Goodman. "It is going be harder

for publishers to break even on that development cost."

But others believe Sony may not be risking that much with a delay. Its PlayStation game machines have dominated the last two video-game console cycles. In the last console cycle, for instance, Sega released the Dreamcast more than a year before Sony released the PlayStation 2, notes the buy-side analyst. But that early lead meant little over the long term; by 2001, Sega was out of the video-game hardware market.

A delay by Sony would give Microsoft a better "opportunity," says the buy-side analyst, "But it doesn't mean they will succeed."

As for the publishers, a postponed launch of the PlayStation 3 would push back the expected jump in earnings that should come from mass adoption of the platform, acknowledges Simba Group's Lin. But it's only the timing that's affected, not the earnings jump itself.

"If it's two to three months later, so be it," he says.