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Sony PS5 aims to beat cloud gaming to the punch by keeping users

Console and subscription model will combat US game rivals focused on 5G advances

Sony plans a sequel to the action game "Marvel's Spider-Man" for the PS5.

TOKYO -- Sony unveiled its upcoming PlayStation 5 gaming console Friday, touting advanced processing capacity along with a Spider-Man sequel and 27 other games for the machine set to be released in time for the year-end shopping season.

The Japanese entertainment company hopes to corral PS4 users and video game players before Google and other American technology giants attract them to cloud gaming when fifth-generation mobile communication services, boasting high speeds and huge capacity, enter widespread use.

"PlayStation 5 marks the biggest generational transition our industry has yet seen," Jim Ryan, president and CEO of Sony Interactive Entertainment, said during an online event to reveal the PS5. The event shown on YouTube was watched simultaneously by 2.5 million people worldwide, reflecting strong interest in the new console.

Sony has unveiled key details of the PS5 -- including its look.   © Sony

The PS5 reads in data 100 times faster than its predecessor, letting players change scenes in a blink and devote themselves more readily to games. Sony also highlighted upcoming game titles during the event.

Sony intends major changes to its console marketing strategy for the PS5. When releasing a new console with games for the machine in the past, titles for old models could not be played on the new one, part of Sony's plan to stimulate replacement demand. But most games for the PS4 will be playable on the PS5.

The new strategy also relates to Sony's creation of a subscription-based business model. The 41.5 million subscribers to its service can play online matches and other games for 850 yen ($7.95) per month. The compatibility between the two consoles is designed to let the PS5 take over players from the PS4.

Sony has sold more than 100 million units of the PS4 worldwide. If the PS5 also establishes a huge customer base, the company can draw revenue not only from the sale of hardware, but also from subscription fees.

Subscription fees for video games have shored up Sony's earnings amid the coronavirus pandemic. The company's gaming business is its biggest cash cow, producing 30% of consolidated operating profit for fiscal 2019 ended in March.

But the emergence of cloud gaming, with streaming of games across the internet, threatens to upset the importance of consoles.

Devices such as consoles or personal computers designed for video games and other hardware with high processing capacities have been needed to play high-definition games. But cloud gaming can sidestep the need for such machines. If 5G mobile technology becomes widely used, people will be able to enjoy high-definition games on their smartphones or standard PCs.

Google entered the cloud gaming market in 2019, allowing subscribers to play multiple games on smartphones and PCs via its Chrome browser for fixed fees.

Sony offers 400 PS3 and PS4 titles for its cloud gaming service, which started in 2014. The company had 2.2 million subscribers as of the end of April, more than double the total in October 2019 when it halved subscription fees along with rivals like Google.

As Sony lacks its own data center, the company decided in May 2019 to tie up with Microsoft in the cloud gaming market, though the American technology company will release a new console in its Xbox series for the year-end shopping season in competition with the PS5.

Yet Sony will focus on the console market for now because, as one of its executives said, "Technological hurdles are high for cloud gaming."

Processing games on the cloud demands the exchange of massive amounts of data with a server, which often causes latency after maneuvering by players. This renders the system unsuitable for action, shooting and other games that require instantaneous reaction, an area of Sony's specialty.

The 5G technology may resolve the bottleneck. It is 100 times faster than 4G, and so can download a two-hour movie in a few seconds, experts say.

The racing game Gran Turismo will be more realistic on the PS5.

In Japan, 5G-based services debuted this spring. Though 5G is considered faster than fiber optics used for the Wi-Fi network protocol, combined use of 5G and Wi-Fi is expected down the road. In the future, however, 5G may be used at homes as well.

Japanese mobile carrier NTT Docomo began cloud gaming services for 5G smartphones in March. Consoles may lose some of their advantage if high-speed 5G mobile overcomes technological hurdles.

Cloud gaming will help the U.S. technology giants collectively known as GAFAM -- for Google, Amazon, Facebook, Apple and Microsoft -- reinforce their competitive edge. The format does not need the production of consoles, and it lets these companies make use of their massive investment in data centers around the world.

The IT giants are much larger than Sony in market capitalization, with some around $1 trillion. Alphabet, the parent company of Google, and Microsoft have market values of 100 trillion yen and 150 trillion yen, respectively, compared with less than 10 trillion yen for Sony.

Though the Japanese company is strong at developing video games, it surely will feel threatened if these rivals promote game development using their huge financial edge.

Cloud gaming is expected to hinge on community and exclusive software. New titles increasingly involve multiple individuals, such as esports and game commentaries. Given favorable compatibility with subscribers, cloud gaming services are expected to chalk up stable earnings if they successfully corral players.

A key issue in this respect is whether cloud gaming services can secure popular titles. Nintendo sold 11.77 million units of its Animal Crossing: New Horizons life simulation game in the first 12 days after release in March. The strong debut helped the company set a new high in sales of its Switch console in fiscal 2019, even though the machine hit the market three years ago.

The importance of popular software becomes clear as people stay home amid the coronavirus pandemic.

Sony is set for groupwide efforts to promote the PS5, as the company has acquired a developer that produced the Spider-Man game for the PS4 in 2019.

A quarter of a century has passed since the company released the first PlayStation in 1994. Sony, which has led the market for home consoles together with Nintendo, will be tested on how and whether the company retains its brand power and customers as well as a leading position in a game market valued at an estimated 5 trillion yen. The PS5, to be released before the widespread use of 5G, will offer clues.

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