Is Sony’s Gaikai Acquisition a Winning Strategy?

Sony Playstation VitaSony’s $380 million acquisition of streaming game company Gaikai holds the promise of creating the iTunes of the gaming world – and to speed up the demise of the gaming console.

“By combining Gaikai’s resources, including its technological strength and engineering talent, with Sony’s extensive game platform knowledge and experience … Sony will deliver a world-class cloud-streaming service that allows users to instantly enjoy a broad array of content ranging from immersive core games with rich graphics to casual content anytime, anywhere on a variety of Internet-connected devices,” said Andrew House, president and group CEO of Sony Computer Entertainment.

Sony posted a $5.7 billion loss for its most recent fiscal year, and CEO Kazuo Hirai’s turnaround plan focuses on gaming, digital imaging products such as cameras, and mobile devices including smartphones. Oh, and it’s eliminating 10,000 jobs.

Yet Hirai described the entertainment division as stable and poised for growth, even though its PlayStation platform has struggled for software dominance against rivals such as Microsoft’s Xbox. That’s where Gaikai comes in.

  • Gaikai allows more than 40 game makers including Electronic Arts and Ubisoft to stream to PCs, laptops, tablets and now Smart TVs.
  • It focuses on providing game demos, a service that makes money from ads and from purchase referrals with partners such as Walmart.
  • It signed deals this year with LG and Samsung to manage game services that won’t require them to build consoles.
  • It offers its global cloud streaming network as a fully managed service. “We are like AT&T,” said CEO David Perry, who described the company as not being involved in the content-creation side.
  • Its Java-based Web network means no downloadable programs are required.

Gaikai, with a staff of 80, has 20 open positions, including senior online programmer, senior gameplay programmer and principal compiler engineer. The PlayStation unit of Sony Computer Entertainment has 23 open engineering positions. Neither company has responded to inquiries about how the acquisition will affect hiring.

Game-company hiring surged in March and has held stead in April and May after several months of declines.

No date has been announced for Sony to launch a streaming game service. There’s also no word on whether Sony will honor Gaikai’s partnership agreements.

In February, Sony released its handheld PS Vita in the U.S. and has been increasing services on its PlayStation Suite, which allows downloading games to Android devices. The Gaikai acquisition is seen as a solution that allows backward compatibility for old games and a way to fend off competition from low-cost set-top boxes, such as those offered by Apple TV and Roku.

Though streaming through cellular services have shown some success, that market is due for some major upgrades. Rival Microsoft and others are looking for similar services, so Sony’s timing could be just right if it gives the service the financial backing it needs.

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