We certainly have no problem getting caught up in the fun of playing games, but the people who create them have their pocketbooks to worry about, too. In this column, finance expert and GameSpy contributor Chris Morris guides you through the tricky corridors the gaming industry's financial side, touching on big-time business decisions and how they matter to the common gamer.



It Only Does... What, Exactly?

If the latest whispers are correct, we should get our first official look at Sony's PlayStation Portable 2 before the end of the month. Sony, it's said, has scheduled a meeting with select press outlets in Japan for January 27, 2011 to make the announcement. Regardless of the veracity of these particular rumors, we can all agree on one thing: The PSP2 is coming, and probably before the end of the year. And while I'll give Sony credit for timing this announcement so it's not caught in the blast zone of the 3DS launch coverage, something about this product has me concerned.

If we've learned anything from the iPhone's success, it's that the days of single-function devices are rapidly coming to an end -- and products that don't evolve are doomed. We don't know anything about the PSP2 yet, other than vague talk about performance and graphical improvements. But amidst all the chatter (much of which has been coming from developers working with the systems), we haven't heard any talk about non-gaming functionality.


That has some analysts worried.

"We're getting to the point where devices that are dedicated to playing game are going to be increasingly challenged by convergent media devices," says Billy Pidgeon, senior analyst for M2 Research. "It's like while [game companies] are doing this, smartphones are doing push-ups. They've got 3D. They've got Tegra. They're designed for upgrades on an 18-month cycle. We're just seeing a lot of innovation there."

Nintendo, of course, faces some of the same challenges with the 3DS. And it's always possible that both companies have some tricks hidden up their sleeves. With Sony, the PSP Phone chatter is growing louder -- and Sony has all-but-confirmed that it's in the works as well. Announcing that the two are one and the same would quickly quiet any criticism, and could be a viable contender against the iPhone.

That doesn't seem likely at this point, though. In fact, the more plausible scenario is that Sony will leverage the PSP2 as another outlet for its Qriocity Music Unlimited service, a new streaming music program that combines qualities from Pandora, Zune, and iTunes. Sony's making a big push with the service, including it on the PlayStation 3 and all new connected Bravia TVs and Blu-ray players, so the PSP2 seems a natural destination as well.

That will give the device a little diversity, which will certainly help it avoid the "one-function" label -- but even if Qriocity is firmly integrated into the PSP2, will that be enough to push it beyond the "also-ran" status of its predecessors?


Let's look at history. The PSP was hardly a failure, but it certainly didn't set the world on fire, as many expected it would upon its introduction in 2003. The reason for that is one of the gaming world's biggest unsolved mysteries. It had the games (eventually); it wasn't prohibitively expensive; it even let you watch movies when you weren't in the mood to play. On paper, it was one hell of a handheld device. But in the real world, it never measured up to Nintendo.

The PSP Go was a clever experiment, but Sony's greed got the best of it -- and the company priced the portable console entirely too high. The back-and-forth over whether classic PSP owners could transfer rights to their games scared potential buyers away.


The point is, Sony has created some historical hurdles for the PSP2, and it needs to provide a big "wow" factor with the device in order to stand out from the increasing competition.

"If Sony gets together with the rest of their online partners, there's the potential that they could be giving people something with a lot of choices," says Pidgeon. "For example, they could get music [from Qriocity], they could take video from Sony or Netflix or Hulu. The fact that they're lining up all these partners on the same network is very positive. That's how they get away from [the PSP2] being a single-function device -- but that really depends on them getting the network side together. Ideally, what you want to come out with is something that's ready for hyper-connectivity [in the future], but they need to find a way to be ready for that business model."

The portable gaming space still has a lot of life left in it; moving forward, it might actually be one of the most important categories for the industry. More frequently, though, traditional gaming companies are walking a dangerous line between "industry tradition" and "archaic business practices."


The gaming audience is increasingly split, and while dedicated devices may never go away entirely, they're going to be fighting against smartphones and tablets that offer "good enough" gaming -- entertainment diversions that may lack the graphical quality and depth of, say, God of War, but are fun enough that the masses don't mind. That means the dedicated handheld gaming market could be turning into a niche... and that could have a big impact on the bottom line at both Sony and Nintendo.



Chris Morris has covered the video game industry since 1996, offering analysis of news and trends, and breaking several major stories, including the existence of the Game Boy Advance and the first details on Half-Life 2.