VR Late Starter Sony Outsells Competitors

VR Late Starter Sony Outsells Competitors
September 1, 2016

Shuhei Yoshida has reason to celebrate. The head of Sony Corp.'s games development is six weeks away from the introduction of its first virtual-reality headset and demand seems promising. The $399 headset is sold out at retailers around the world, even though most customers haven't been able to try it out.

But on a rainy evening in Tokyo, the 52-year-old is openly fretting. He says it's almost impossible to predict how customers will react to the new technology because it's so different than anything that's come before it. The closest parallel he can think of is when he helped introduced the first PlayStation game console more than two decades ago.

"To be honest, we don't know what demand will be," said Yoshida, sitting in a conference room at Sony headquarters beside a high-powered demo set for the new devices. 'In terms of disruption, this is the most since PS1 and perhaps even greater than that."

Virtual reality has caught the attention of everyone from Facebook Inc.'s Mark Zuckerberg to President Barack Obama, but it's commercial viability is still an open question. Facebook and Taiwan's HTC Corp. came out with headsets earlier this year and sales have been modest.

Yoshida is determined to create the first breakout hit. Sony is pricing its hardware well below rivals' and can build an initial user base from the more than 40 million PlayStation 4 owners. The company is also planning to go far beyond games - into music, sporting events, even medicine and virtual education.

Yoshida's caution is understandable though. Chief Executive Officer Kazuo Hirai is increasingly relying on the games division to turn around Sony, which last year posted its biggest net profit since 2008. Yoshida has to strike a balance between producing enough VR headsets for the anticipated demand without overshooting and blasting a hole in the group's finances with unsold inventory.

Analysts are optimistic. Goldman Sachs Group Inc. estimates Sony will sell at least 1.5 million headsets this year, well ahead of its primary competitors despite starting months behind. Next year, Sony is projected to hit 3 million devices, three times as many as HTC's Vive and six times Facebook's Oculus.

The analysts cite "attractive pricing vs. peers and also the availability of various exclusive content" as reasons for Sony's anticipated edge.

The demo at Sony's headquarters gives a glimpse of the future. In `London Heist,' the user plays a gangster in the passenger seat of a car racing away from a crime scene. As a square-jawed driver chatters in a thick Cockney accent, the player can open the car door or toss soda cans out the window.

Then an enemy gang on motorcycles roars up behind the car. The player grabs an Uzi to fight back and reloads by jamming an ammo clip in one hand into the gun held in the other. The sensation is far more realistic than current games.

Heart-thumping action is Yoshida's specialty, but he's eager to talk about the potential beyond first-person shooters and simulated racing. The headsets could be used for virtual education, where students unable to physically attend can see their teacher and classmates as if they were in the same room.

They may be rolled out in the music industry to let fans on stage with U2 or AKB48. By the time the Olympics come to Tokyo in four years, they could offer a glimpse off the 10-meter diving board or the goalkeeper's perspective during the soccer finals. "By 2020, everyone will already be using VR in some way or another," said Yoshida.

He also sees promise in letting people unwind by transporting them to exotic locations or digital bars. In the London game, the British gangster can stop into a local pub, have a drink and then a smoke. "If you bring the cigar to your face, you'll see smoke come out. And even if we're playing at the office, everyone always goes like this," said Yoshida, laughing as he leans back in his chair and pretends to leisurely puff a stogie. "You forget where you are and you can really relax."

Such features may alleviate worries that buyers could exhaust the initial supply of gaming content. Sony has said there will be 50 VR titles by year end - including offerings from the Star Wars, Batman, and Final Fantasy franchises. But Yoshida said most experiences will be shorter than traditional games.

So far, consumers are showing little hesitation. The hardware goes on sale on October 13 and pre-orders are already sold out on popular consumer sites, such as Amazon.com Inc.'s portals in the U.S. and Japan. Yoshida said demand has been "within or above expectations" and his team is working to boost supply.

Yoshida's ambitions put him on a collision course with rivals like Facebook.

When Zuckerberg announced the deal to buy Oculus VR for $2 billion in March 2014, he invited consumers to "imagine enjoying a court side seat at a game" and "studying in a classroom of students and teachers all over the world." Facebook didn't provide comment for this story. The company hasn't disclosed sales figures for its Oculus headset, which went on sale in March.
"Sony's DNA and strength should not be underestimated," said Thomas Husson, an analyst at Forrester Research. "They're well positioned to capitalize on the trend."

When asked about how long the headset can stay competitive against newer products expected from rivals, Yoshida says PSVR is ?future proof? and the design allows developers to keep squeezing more out of the system for years to come. He also dismisses speculation Sony will release a more powerful headset next year.

Despite confidence in the hardware, Yoshida says the uncertainty of how players will respond to the new machine is bringing back memories of the original Playstation. That device broke ground by introducing 3D graphics to home consoles and popularizing game content for adults.
"As I work on VR, I'm tremendously reminded of that time 20 years ago," said Yoshida. "The feeling now is similar. VR is completely different from existing games."

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