Sony reveals PlayStation 3 online plans
Free model will compete with Microsoft's Xbox Live, but analysts aren't impressed.
By Chris Morris, CNNMoney.com staff writer

SAN JOSE (CNNMoney.com) - Sony is taking pains to ensure that criticisms about its PlayStation 2 online strategy won't be repeated when the PlayStation 3 is released this November. The company on Wednesday gave details about the PS3's online network and said it hopes to make digital downloading -- including games, movies and music -- a high priority in the next generation.

Saying he saw the industry moving from the "product era" to the "service era," Phil Harrison, president of Sony Computer Entertainment Worldwide Studios, said the company plans to offer publishers the capability to produce episodic content and hopes to be able to offer other entertainment programming such as movies, music and television shows.

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The service (dubbed the PlayStation Network Platform) will debut with the PS3's launch. Initially, at least, it will have much in common with Microsoft's (Research) Xbox Live -- allowing players to compete against each other, assemble friends lists and chat using text, audio and video. Microsoft offers a free online service, but in order for players to be able to compete against each other, it charges an annual fee.

Harrison discussed several new revenue streams that could help supplement the industry, including sanctioned auctions of in-game auctions (unsanctioned auctions are big business on eBay), subscription-based games (which have proven very profitable for PC game makers), in-game advertising and better merchandising of popular games (following the model established by the film industry).

Wednesday's announcement was the first time Sony (Research) has confirmed what the gaming industry has long suspected. Analysts, however, were not impressed with Sony's presentation, noting that the company set a high bar, but did not announce plans to help lead the industry towards the goals it set.

"Sony set the stage for some bountiful expectations," said P.J. McNealy, an analyst with American Technology Research. "There's hope for greater revenues down the road, but there's an unmet promise that Sony needs to deliver on."

Other than Electronic Arts (Research), the industry's leading third-party publisher, it's unlikely that many, if any, game makers will be able to quickly follow-through on the ideas Harrison proposed, as the cost of making next generation games is expected to rise dramatically in the coming years -- with typical budgets likely ranging from $15 million to $20 million per game.

Harrison stopped short of saying non-game content, such as music or television shows, would be downloadable when the PS3 launches, but said Sony was very interested in incorporating it.

"We want to be able to download episodic content -- whether it be games, linear programming, music, movies, television," he said. "The possibilities are endless."

Harrison echoed several of the announcements that came from Sony last week, including plans to simultaneously launch the system in North America, Asia, Europe, Japan and Australia in November. He also confirmed that a redesigned PS3 controller would be unveiled at E3 (the gaming industry trade show) in May. Gamers were highly critical of the prototype controller shown last year.

As for the competition, Harrison said Sony is not at all concerned with the one year headstart Microsoft's Xbox 360 has had.

"It doesn't put us at a competitive disadvantage at all," he said. "I have no concerns about the competition."

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.