Sony says cloud gaming could be a future threat to its business, but it's confident people will keep gaming on the PlayStation

Sony Corp. Chief Financial Officer Hiroki Totoki meets the press in Tokyo on Feb. 1, 2019, to discuss Sony's earnings estimate for the 2018 fiscal year.Kyodo News/Getty Images

  • Discussing Sony's FY2018 Q3 earnings, chief financial officer Hiroki Totoki said the movement toward cloud gaming and video game streaming services could be a potential threat to the company's PlayStation gaming brand.
  • Sony's PlayStation 4 is still the most popular video game console of this generation, with more than 90 consoles sold worldwide.
  • The large install base has allowed PlayStation to steadily increase earnings from digital games, movies, and subscriptions, even as console sales have started to decline.

While its competitors at Microsoft, Amazon, and Google are diving head first into new streaming technology for video games, Sony sees the rise of cloud gaming services as a potential risk.

During its FY2018 Q3 earnings call, Sony CFO Hiroki Totoki said "games going to the cloud" could be a future threat to Sony's business, and the company will continue to lean on the success of the PlayStation 4 while exploring ways to embrace the cloud gaming trend.

Sony's PlayStation 4 is the leading video game console on the market, having shipped more than 90 million units worldwide since its launch in 2013. But sales of the console have steadily declined in the past year, suggesting that the industry is ready for a new generation of console hardware to arrive. However, new technology associated with cloud gaming could remove the need for video game hardware entirely.
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Cloud gaming could remove the need for an expensive video game console.

Cloud gaming could remove the need for an expensive video game console.

Cloud gaming uses remote servers to stream video games directly to the player. This allows the user to play the game remotely on their choice of computer or mobile device, so long as they have a strong, stable internet connection to stream games properly. Players could pay a subscription fee to access games that previously required a $300 PlayStation 4.

Read more: Google's new video-game streaming service could mark the beginning of the end for gaming consoles

Totoki said he thinks it will be some time before the video game industry can fully adopt a cloud-based model. He said cloud gaming would take a significant amount of time to implement, and digital content stores like the PlayStation Network would need to renegotiate rates for distribution.

"For example, take an extreme example, people not be using hardware," Totoki said on Sony's recent earnings call with analysts. "Hardware will become unnecessary, some would argue. But on this point, I think that would take a much the longer the time required for games going to the cloud, it would take much long time, much overtime and also the platforms trying to reduce the revenue share percentage."

Sony believes its PlayStation hardware will keep players invested.

Sony believes its PlayStation hardware will keep players invested.

Like Apple and Google, Sony profits from each transaction in the PlayStation store, which includes games, movies, and music. The company is confident that third-party developers appreciate their user base of more than 90 million and Sony plans to continue relying on PlayStation hardware to keep users invested in their platform. Several rumors have pointed toward a new PlayStation console already in development, but the company has not publicly hinted at a new device.

With cloud gaming, popular games like "Assassin's Creed Odyssey" will be easier to play.

With cloud gaming, popular games like "Assassin's Creed Odyssey" will be easier to play.

Sony, Microsoft, and Nintendo have dominated the video game hardware market for about 20 years with little competition, but shifting to the cloud will change the nature of the competition. Cloud gaming would require a major investment in servers and infrastructure management, areas where competing tech companies can overtake Sony. Google, Amazon, Verizon, Apple, and Electronic Arts are all developing their own video game streaming services; Google's ProjectStream began its first beta test in Fall 2018.

Sony already has a game streaming service available in a dozen countries.

Sony already has a game streaming service available in a dozen countries.

Sony currently offers a cloud-based video game streaming service called PlayStation Now in 12 countries, with eight new European regions being added to a beta test. Subscribers pay $20 a month to stream a collection of more than 700 PlayStation 2, 3, and 4 games to their PC or PlayStation 4. PlayStation Now does not allow players to choose from the full library of PlayStation 4 games, and players cannot access new releases.

Microsoft, Sony's largest competitor, plans to start public beta testing for its own streaming service, Project xCloud, later this year. The company also revealed that their Xbox Live online services will be adapted for the Nintendo Switch, iOS, and Android devices. Along with the launch of their Netflix-style Xbox Game Pass program last year, Microsoft seems ready to embrace a subscription-based cloud gaming model.

Until companies can find a business model that works for cloud gaming, dedicated consoles like the PlayStation will still be the easiest way to play video games.

Until companies can find a business model that works for cloud gaming, dedicated consoles like the PlayStation will still be the easiest way to play video games.

The rapid growth and profitability of mobile games has developers craving ways to engage with a new audience of gamers, and removing the barrier of an expensive console makes it easier to get games to more players. The next challenge is building a business model that can deliver those games at their best quality with a reasonable price point.

For now, Sony is happy to rely on their tried and true PlayStation hardware, even if the future of the industry lies in the cloud.

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