Changing the lifecycle of gaming consoles

The threat is that customers will cease to see need for separate gaming devices

Sony released two new versions of its PlayStation 4 gaming consoles Wednesday: the PS4 Pro, a powerful device designed to run virtual reality games and display high-quality video, and a slimmer, more efficient version of the PS4, an incremental improvement on the original, which was first released in November 2013.

The PS4 Pro will go on sale November 10, for $399. The PS4 will cost $299 and will be available in most markets on September 15.

For most consumer electronics devices, it's not unusual to release updated versions after a three-year rest. But gaming consoles operate on their own rhythm. Seven years passed between the release of the PS3 and PS4. The devices unveiled Wednesday don't technically count as a new generation. But they do mark a shift toward a strategy of more frequent updates in the hopes that people will pony up for a new console more than once or twice a decade.

"We're adjusting and accelerating our innovation cadence," said Andrew House, chief executive officer of Sony Interactive Entertainment.

Microsoft, Sony's main rival, is taking a similar approach. It's already selling a powered-up, slimmed-down version of the Xbox One, called the Xbox One S. At the E3 gaming conference in June, Microsoft announced plans for a bigger update, which it is currently calling Project Scorpio. Microsoft says it will go on sale in late 2017, and will be more powerful than any other console.

There are a few factors pushing this shift to more frequent updates. Not many other products can be marketed as must-have devices even after they're a half-dozen years out of date. Meanwhile, a range of other options for playing video games - from high-powered PCs to inexpensive smartphones - are updated much more frequently.

In the past, after a console was out for several years, supply chain efficiency and the rapid progress of technology allowed Sony and Microsoft to chop the price of devices. But Sony and Microsoft can't rely on progress continuing at that pace, according to Damian Thong and Ansel Laudo of Macquarie. In particular, big advances in chip technology are increasingly expensive. "The 'end of Moore's law' changes the business model to one where Sony must 'un-train' consumers from expecting large console price declines, and encourage consumers to accept paying up for more performance," the analysts write.

One specific technological need has also driven the urgency to create higher-powered devices: virtual reality. In October, Sony will begin selling its VR headset. The games require more processing power than those that use standard television displays.

Xbox's strategy for VR remains cloudy, as do its exact plans for its PS4 Pro rival. But the new devices also create a challenge for Sony. Buying a console has always been simple. Basically, gamers had to make one choice: PlayStation or Xbox. That changes when there are three tiers of PS4 devices, says Joost Van Dreunen, CEO of SuperData Research. Sony also has to signal that purchasing a PS4 Pro is essentially an upgrade and reassure customers who bought the original version that they're not being left behind.

Ultimately, the main threat to both PlayStation and Xbox is that customers will cease to see the need to have a separate device for gaming. In the competition between the two, Sony is beating its rival. It has sold 43.4 million PS4 consoles worldwide, compared with 22.3 million for Xbox One, according to VGChartz. Sony expects to sell about 20 million PS4s in the 12 months ending March. Analysts expect that about one quarter of those will be PS4 Pro.

© Bloomberg