Sony has made its PlayStation Now streaming game service an important part of its offerings for this year and into the future, featuring it during the company's E3 presentation. The service has the potential to allow any PlayStation game (from the PS1 through the PS4) to stream to most any device – for that matter, games or other content from any PC or other device could also be streamed. Sony paid $357 million for Gaikai for this capability, and has doubtless spent many more millions in continuing to develop the technology in order to bring PlayStation games to a wide audience. The overall investment must be in the neighborhood of half a billion dollars, when you consider the servers, network investments, and development of hardware to be able to handle serving up thousands (and eventually, hundreds of thousands or millions) of game streams.
Yet Sony is apparently on the verge of losing that investment, if it continues on its current path – not because the technology isn't working (apparently it does work pretty well, with some caveats), but because of the business model. The service (dubbed PlayStation Now) is currently in beta, and recently Sony made a significant change to the beta by adding prices to the games, and requiring beta testers to start paying for trying out these streaming games.
Early reports from the beta say that the technology is functioning fairly well, as long as you have a high enough speed Internet connection. Sony is still recommending that users employ a wired connection instead of WiFi is possible, and keep others on the same Internet connection from using data-heavy applications.
The real problem for PlayStation Now is the business model that's emerging. According to beta testers, the cost of games is ridiculous. Prices to rent a title are greater than the cost to buy the game, especially if the game is a few years old. For example, buyingDeus Ex: Human Revolution or Final Fantasy XIII-2 on the PlayStation Store will cost $20, while renting it on PS Now for 90 days will cost $30. Sony stated in an email to PlayStation Now beta users that “these prices are ultimately decided on by the participating developers and publishers.”
A la carte rental has a terrific advantage for Sony: It's easy to implement. Let the publishers set the prices for the software, and all Sony has to do is take its cut and pass the rest along to the publisher. This minimizes the negotiations needed to get publishers to offer their games up on the platform.
Why is Sony doing PlayStation Now? What's the end goal? Clearly the possibility of selling more hardware because of the attraction of PlayStation games is important. Sony's TV line has been struggling for years, and adding PlayStation games to the TV line seems like a great unique feature to add. Bringing old PlayStation games to the PS4 or the PS Vita is also a potential sales booster.
Sony could also bring PlayStation Now to non-Sony devices; most any PC or mobile device or console could handle it, assuming there's a controller of some kind handy and sufficient bandwidth. A revenue stream from PlayStation games playing on millions of devices could be quite impressive.
The Achille's heel for PlayStation Now appears to be the business model, not the technology. Sony could easily kill this service before it even gets traction, merely by pricing it out of reasonability (and it makes no sense to pay more for a rental than for owning the game outright). A la carte pricing is a great way to make PlayStation Now another footnote in the history of technology.
Why has Netflix been growing rapidly, far faster than Apple's iTunes movies? While Netflix doesn't have the latest movies (mostly), it's one simple price monthly for whatever you want to watch. Sure, if you want the newest movie you'll have to rent it from Amazon or Apple or Google or your cable provider. But if you just want to watch a movie or a TV show, Netflix probably has something you'll enjoy. And you don't have to whip out your credit card to get it, once you've already subscribed.
Some suggested business models that would make more sense for Sony to consider:
Simple and straightforward, this is what most consumers probably expect from PlayStation Now. Pay a monthly fee of $9.95 or $14.95 (perhaps with a discount if I buy a year in advance), and play whatever games are provided by the service as often as you like. Perhaps this could be an add-on to PlayStation Plus (PlayStation Double Plus?), or if you really want to make the service popular, bundle it right into PlayStation Plus. You could always do that for a limited time, or perhaps with partial features, just to get the service going.
Subscription plus Premium
Perhaps you could charge a fee for premium games, like the latest PlayStation 4 games. Give people a large number of games that can be played for free, then they won't be as bothered by games they have to pay for.
The Rotating Menu
Your subscription provides you with a set of games to play every month, and some part of that list changes every month. Or perhaps, like PlayStation Plus, there are some games you get for free each month, but those switch out every month for new ones.
Sony PS Now with Premium Store
Offer the subscription for games Sony owns, and give publishers a place to put games up for rental. Sony could let publishers set prices, but far better would be setting the prices to a uniform low cost, much as Apple did with the iTunes Store (over the outraged howls of music publishers). As long as Sony can keep a good selection of games available, the subscription price would represent a good value. Customers should be able to avoid the subscription and just use PlayStation Now for premium games if they choose.
One way to keep content available while still providing a revenue stream for the publishers is to use advertising support. Find a way to let players watch a video in return for an hour of game time, or perhaps put some branding on a free game stream. Publishers might well want to support a free stream of a game in order to generate awareness and interest and sales, even if for a limited time. This may be advertising or sponsorship.
Sony should keep in mind some key features for PlayStation Now. It should be possible to keep your save games and other data as long as you maintain a subscription, and transfer that information if you buy a game. Sony should look at PS Now both as a service in itself and as a way to sell more games.
There's still time for Sony to fix the business model. Everything is listed as tentative, and there's still some time before Sony fixes all the technical issues. But it's important to get out in front of the issue right now, when a bad image is beginning to be attached to PlayStation Now. Sony should not let this early misstep color impressions of the service going forward. Charging beta customers outrageous prices should stop, and swiftly, along with some statements from Sony discussing some more reasonable business models that the company is considering. If not, fixing the technical issues of PlayStation Now won't matter, because Sony will find itself with very few customers.