Sony chief sees smartphones overhauling handheld gaming devices

Company has not updated Vita portable player as it turns to products and services for the home

Nintendo on January 13 unveiled its new Switch game console, which works both at home and on-the-go, as it looks to offset disappointing Wii U sales and go head to head with rival Sony's hugely popular PlayStation 4. Kazuhiro NOGI/AFPShow less

Sony’s gaming chief Andrew House sees limited global potential for handheld gaming in the age of smartphones, saying that the company does not have any concrete plans to take on Nintendo’s Switch.

“The Nintendo device is a hybrid device and that’s a different approach and strategy,” Mr House said at last week’s Tokyo Game Show. “We have not seen that as being a huge market opportunity,” he said, referring to handheld gaming outside of Japan and Asia, where Sony still sells the Vita portable device.

Sony’s focus for now is to deliver more products and services for the living room, including virtual-reality and non-gaming entertainment such as TV shows and music, with the PlayStation 4 console serving as a key digital entertainment hub.

Although Sony has been selling portable gaming machines for more than a decade, they have not caught on and no updates for the Vita were announced at the show. Since taking the helm in 2012, the chief executive Kazuo Hirai has pushed the Tokyo-based company to be more focused on fewer products.

“The Vita experience was that outside of Japan and Asia, there was not a huge demand,” Mr House says. “The lifestyle shift toward the dominance of smartphones as the single key device that is always with you, was the determining factor.”

Some game developers had been anticipating a new Vita device, the latest iteration of the PlayStation PSP handheld gaming machine that was introduced in 2004. While the PSP has sold well, shipments of portable machines have been steadily declining, according to data from Sony and Vgchartz.

“Developers who create games for PS4 and Vita will stop working on Vita” without an update, says Hideki Yasuda, an analyst at Ace Research Institute. “Then they’ll develop for the PS4 and Switch.”

Konami, Square Enix. and other large publishers prefer to create games for multiple platforms, so that they have a larger potential market of buyers regardless of whether they own the PlayStation, Microsoft’s Xbox or personal computers.

“Naturally, to reach as many people as possible, we’d prefer to release our products on various devices,” says Takayuki Kurumada, a spokesman for Konami’s video games subsidiary. “Games are becoming multifaceted and being played in various ways at various places.”

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Mr House is essentially betting that smartphones are well on their way to becoming the main portable gaming platform for most people. That is why Sony last year established its own studio to create mobile games. The unit, called ForwardWorks, is doing “fantastic”, Mr House says.

With the Switch, which debuted in March, Nintendo is betting that there is going to be a robust market for a hybrid console-portable gadget that lets people play games in their living rooms or on the go. So far, it has been a success, with sales on track with the Kyoto-based company’s forecasts and helping to add about US$21 billion to its market value this year.

Sony shares are up 25 per cent this year, while Nintendo has surged 64 per cent. The TOPIX Index has climbed 10 per cent.

Still, the verdict is out on whether the Switch will become a mainstream device. Tsunekazu Ishiharu, the head of Pokemon and one of Nintendo’s closest partners, says the device, although an important platform, still has to prove that it can last.

So far, though, Mr House says he has not seen any signs of the Switch having an impact on Sony’s sales of content or hardware.

“That draws me to the conclusion that they’ve really been additive to the business in the last year or so,” Mr House says. “The folks at Nintendo have their strategy and that’s great. We remain focused around a highly connected gaming experience and also coupled with having a great range of other entertainment experiences so you can reach multiple people on the big screen in the household.”

Mr House says the virtual reality (VR) gaming market, however, needs more competition to drive adoption of the technology and spur software development, adding the sheer size of Sony's lead over rivals is cause for discomfort.

Sony's VR headset has built a dominant position in the nascent market since going on sale last year, undercutting competitors on price and drawing on its sales of 60 million PlayStation 4 consoles, to which the headset is tethered.

"I'm not entirely comfortable being the market leader in VR by such a margin that seems to be happening right now," Mr House says.

"With such a brand new category you want a variety of platforms all doing well to create that rising tide and create the audience."

Sony has sold more than 500,000 headsets in the three months through June, data from IDC show, giving it an "unmatched" lead over rivals such Facebook's Oculus Rift and HTC's Vive, the researcher says.

Vive faces a tough battle against the likes of Samsung and Sony, which control half the $2bn global AR (augmented reality) and VR headset market.

HTC saw flat second-quarter growth, and had 4.4 per cent market share after a price reduction.

"Vive remains in the red; free cash flow is negative; book value is eroding; and sales growth is decelerating," JP Morgan analyst Narci Chang said after HTC was HTC revealed on Thursday it was shifting around 2,000 staff, mainly handset engineers, to Alphabet's Google in a $1.1bn deal that casts doubts over the company's longer-term future..

"Nevertheless," Mr Chang said, "we think HTC might narrow the loss considerably ... enough to keep the business afloat and beat the [market] consensus for the next few quarters."

For now, no major VR overhaul has trickled down to staff.

"Google's investment could be a good thing, but it's business as usual," one Vive employee told Reuters.

David Dai, an analyst at Sanford C Bernstein said the company's shift away from smartphones was probably a good move. "If it focuses on virtual reality and augmented reality, there's a much more concrete chance the company turns things around."

Sony's gaming business has been a driving force in helping the Japanese conglomerate rebound from years of losses in consumer electronics.

The unit expects to post its highest-ever operating profit of $1.6bn in this financial year through March - a forecast House reaffirmed.

House also said Sony is not seeing any impact on PlayStation sales from the arrival this year of Nintendo's hybrid handheld-and-home Switch.

with agencies