Sony – Free gift

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Sony is gifting Microsoft a big opportunity.

• Sony does not seem to have learned from the destruction of its personal music player business at the hands of Apple and looks to be more than happy to repeat it with its massively successful gaming business.
• There is no question that Sony has utterly dominated the current generation of gaming consoles.
• It did a masterful job of capitalising on a series of gaffes made by Microsoft in how it managed its relationship with its users, pricing and how it dealt with second hand games.
• The result was that Sony had a slightly superior gaming machine at a slightly lower price that outsold Xbox by a factor of 2 to 1.
• This still plays out today where there are around double the number of PlayStation Network members than there are members of Xbox Live.
• Furthermore at E3, it successfully answered a strong showing by Microsoft with great offerings from its first party games development effort.
• The net result was the biggest installed base of gamers being offered, arguably, the largest and best range of exclusive games.
• This is all stuff that Sony knows how to do but as usual it was its understanding of the network effect and the ecosystem where it came completely unstuck.
• One of the biggest multiplayer games out there at the moment is Fortnite from Epic Games.
• This game is now so popular that it has become an esports category on its own and accounted for over 33% of all video game streams in May 2018.
• The game currently has 125m players and generated revenues of $300m in the month of April alone (SuperData Research).
• On RFM’s metrics, this makes it big enough to be a digital ecosystem in its own right.
• In my opinion this makes Fortnite, by far the most important game in the industry today.
• However, in order to protect its walled garden, Sony has decided not to allow PSN players to able to play with players on other platforms (Xbox, PC, Nintendo Switch, iOS).
• Sony has even taken this one step further and prevented the Epic Games accounts created on PlayStation from being used on other platforms, further infuriating its users (see here).
• This is exactly the mindset that allowed Apple to come from nowhere in personal music players and steal an entire market from right out from under Sony’s nose.
• The problem is that Sony has very little understanding of its users and does not consider it important to develop a relationship with them.
• Instead, it thinks that locking its users in is the best way to keep them which will only work until the time comes to buy a new console.
• Hence, I think that Sony is gifting Microsoft an opportunity to turn the tables in the next generation.
• The next generation is going to as much about ancillary services, multiplayer and the ecosystem as it is about the games themselves and in this area, Microsoft has a much better idea of what it should be doing.
• This is a mindset that Sony has been unable to shake despite a series of management changes and high-profile disasters.
• Sony’s stock is reflecting a long-term continuation of the current recovery.
• I fear that Sony’s culture makes this assumption far from a given.