Will Sony Ever Learn?

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I'm starting to think that Sony (NYS: SNE) wants its newest portable game console, the PlayStation Vita, to fail. In addition to the problems fellow Fool Rick Munarriz previously noted, the company has now saddled the console with yet another of Sony's expensive, proprietary memory formats.

Another day, another dead format
I get the logic behind Sony's addiction to making devices that store data on widgets it's invented in-house. Owning the format can create an extra revenue stream, while helping to lock customers into your products. For example, during the early days of Apple's (NAS: AAPL) iTunes Store, you could only listen to your purchased music through iTunes or on an iPod. If you wanted to switch to another mp3 player, you had to burn your music collection to audio discs, then rip them using another format, find some quasi-legal software that did the same thing, or buy the music again.

Unfortunately, Sony can't seem to get anyone else to adopt the storage formats it launches. We've already seen its Betamax videotapes, Minidiscs, Memory Sticks, and pint-sized Universal Media Discs (or UMDs) fail. The company has found some success with compact discs and Blu-rays -- but it jointly developed those formats with Philips and Pioneer, respectively.

Behind the times
Beyond Sony's history of failures, I see a bigger issue. Requiring consumers to purchase expensive memory packs for their consoles has become outdated. Nintendo's (OTC BB: NTDOY.PK) 3DS ships with a 2GB memory card in the widely used SD format, and Microsoft (NAS: MSFT) now allows gamers to supplement the Xbox 360's storage with standard USB flash drives -- although it recommends that gamers buy SanDisk's (NAS: SNDK) special Xbox drive.

Designing your device around an already popular memory format allows users to increase the value of their devices without having to shell out too much extra money. Many gamers probably already have a spare flash drive or SD card lying around. Even if they have to go out and purchase a new SD card, it will still cost significantly less than Sony's memory.

Card Size

Sony Memory

Sandisk SD

4GB

$29

$6.38

8GB

$42

$11.66

16GB

$71

$21.95

32GB

$124

$52.47

 

Sony also didn't give the Vita any built-in memory. Want to download music and games? You'll have to buy one of Sony's cards. This essentially raises the price of the Vita by a minimum of $30. Given that Nintendo had to lower the price of the 3DS from $250 -- which is what the Wi-Fi Vita will sell for -- to $170, it seems unlikely that many consumers beyond the hardest of hardcore gamers will bite for Sony's pricier gizmo.

A shrinking market
I'm not the first Fool to say this, but I think Vita will fail. I'll admit that it looks like a nifty piece of hardware, but I believe that tablets and smartphones will eventually swallow the portable gaming market. The casual games available on the platforms are good enough to satisfy most consumers, and cloud gaming services like OnLive and GameStop's (NYS: GME) Spawn will win over core gamers. In the end, there'll be no room for handheld game consoles -- especially if they're shackled to overpriced storage formats that no one wants to buy.

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At the time this article was published Fool contributor Patrick Martin does not own shares of any of the companies mentioned here. You can follow him on twitter @TMFpcmart03. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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