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E3 2013: Sony gains upper hand over Microsoft

Microsoft Corporation (Microsoft) and Sony Corporation (Sony) took to the stage yesterday for their E3 2013 press conferences, with Microsoft focusing on exclusive games, and Sony focusing on the PlayStation 4 itself. In terms of strategy, Sony has opted for a value, gamer focused proposition, which gives it an advantage, while Microsoft’s console will retail at a higher price point, but will include a Kinect sensor. Online services will continue to see a greater focus in the next generation, but digital rights management (DRM) strategy may become the main differentiator between the two consoles in the eyes of consumers. This is another area where Sony currently holds the advantage.

Microsoft and Sony mirror each other’s reveal strategies:

Interestingly, when Sony first revealed the PlayStation 4 (PS4) at a launch event in February, the console itself was not on show: instead, the company focused on the gaming experiences on offer. By way of contrast, Microsoft’s first unveiling of the Xbox One in May directly showcased the console itself, and focused on multimedia entertainment rather than videogames.

At E3, however, this was flipped, as Microsoft focused on videogames, whereas Sony revealed the physical PS4 for the first time, and drew attention to its ability to play multimedia content.

Notably, Microsoft’s E3 press conference revealed no less than 15 exclusive gaming titles for its next generation machine, whereas most of the games shown by Sony had already been revealed at its earlier event in February. The result of this is that, following the two companies’ E3 conferences, Microsoft has been able to showcase its machine as a games console, and the number of exclusives it has on offer strengthens its position in the face of stiff competition from Sony, and may persuade some consumers to choose Xbox One over the PS4.

Pricing a key differentiator:

What was, however, an aspect of both companies’ conferences was the announcement of pricing and release date of their new consoles. Microsoft revealed that the Xbox One would launch in November 2013 in 21 territories, including the US and the UK. Similarly, Sony announced that its PS4 will release “Holiday Season” 2013, in the US and Europe.

In terms of computing power, both the Xbox One and PlayStation 4 (PS4) are fairly similarly matched, and similar release dates further place the two on common ground. However, when pricing is taken into consideration, it becomes a whole different ball game.

The Xbox One will retail at $499, €499 and £429 in the US, Europe and the UK respectively upon launch. However, the PS4 will retail in the same markets for $399, €399 and £349 upon its launch later this year. This price difference is remarkable, considering that the PlayStation 3 (PS3) retailed at a substantially higher price than the Xbox 360 upon launch.

Evidently, Sony is employing a low cost strategy in order to entice potential buyers. This will be a key factor regarding Sony’s attempt at cementing a strong customer base early in the PS4’s life cycle, but is likely to negatively impact profitability. Furthermore, the Xbox One will come bundled with a next generation Kinect sensor, whereas the PlayStation Eye, Sony’s equivalent to Kinect, will retail separately for an additional $60.

This is, however, not overly important: Microsoft has garnered criticism regarding the “always on” nature of the next Kinect, with gamers expressing concerns over privacy. The omission of the need for the PlayStation Eye to be connected to the PS4 is therefore likely to become a key selling point amongst hardcore gamers. This, combined with a lower selling point, could tip the scales in Sony’s favor.

Online services a key area of competition:

Both consoles will offer online gaming services through Xbox Live Gold and Sony PlayStation Network. However, consumers wishing to play online multiplayer on PS4, which was free on PS3, will now have to pay for a PlayStation Plus subscription. However, this service does allow players to download certain games free of charge, and is already available on PS3.

Microsoft, meanwhile, will continue to offer Xbox Live on a paid subscription basis, but the company has strengthened its proposition. Xbox Live Gold subscribers will receive two free game downloads a month, mirroring Sony’s offering, and will also be able to share online gaming ability with family members on their console without the need to purchase additional subscriptions. The two are, therefore, on equal footing in terms of online gameplay. However, concerns remain amongst consumers regarding the safety of Sony’s online service, following the difficulties it has had in the past due to recurrent security breaches.

Digital rights management crucial factor:

Pricing and online services aside, the main bone of contention surrounding E3 is the issue of digital rights management (DRM). As part of its Xbox One strategy, Microsoft has imposed strict online checks into the consoles infrastructure, with it needed to connect to the internet to authenticate once every 24 hours. This means that, without an internet connection, games will not play on the Xbox One, regardless of whether they have been digitally downloaded or purchased as physical discs. Furthermore, restrictions will be in place regarding the lending of games to friends, as well as resale through the pre-owned games market. This has been very badly received by consumers.

However, Sony has taken a completely opposite stance with the PS4: it is almost aggressively promoting the fact that its next console will not feature any kind of Internet based DRM, and states its intentions to promote “true consumer ownership and consumer trust”. Notably, consumers will also be able to lend and trade-in games without restriction on PS4.

This can be seen as a direct response to Microsoft’s strategy on the issue, and may actually become the greatest selling point of the PS4 console itself. Ironically, what will potentially draw consumers towards the PS4 is the fact that it has not changed anything: gamers will be able to consume content in the way that they are used to, whereas Microsoft are trying to change the way consumers use their games console. This is a key area that Microsoft will need to keep on top of if it is to avoid getting pipped to the post by Sony this generation.

You can read more about Microsoft’s challenge to Sony in the videogame console market in our case study – Microsoft Xbox: How Microsoft challenged the dominance of Nintendo and Sony. You may also check out our Buy Reports section for thousands of company, industry & country analysis reports.

For more updates on the technology and telecoms sectors, follow me on Twitter: @Matt_MarketLine

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