Sony Tries To Push Right PSPgo Buttons With Retailers

Sony Corp. (SNE, 6758.TO) has to sell retailers as much as customers on its new PSPgo handheld game player.

Best Buy Co. (BBY) and Sony's other retail partners generate much of their videogame profits by selling games and accessories rather than the game players, and Sony's new $249 gadget only downloads games from the Internet.

As a result, Sony faces a tricky balancing act. It must keep its vast network of retailers happy, because they help sell the game consoles, but the company also has to adjust to the new reality and profits of delivering lower-priced games online.

Sony's solution: Game cards, which let retailers remain the middlemen in game sales. The cards are passes to download specific games from Sony's online bazaar called the PlayStation Network. The cards are in addition to prepaid ones retailers now sell that add funds to a PlayStation Network account.

Also, Amazon.com Inc. (AMZN) has in the last week become the first online retailer to provide access to the PlayStation Network by selling "access codes" to certain games. Sony's talking with other retailers about reaching the same arrangement, according to Peter Dille, Sony's senior vice president of marketing amd the PlayStation Network.

Retailers remain cautious. For example, a Dutch store chain refuses to sell the PSPgo. Others appear to be bowing to the realities of the day. "These developments have been anticipated for some time, and we're excited about the possibilities digital gaming presents to us and our customers," Best Buy senior vice president Chris Homeister said.

For its part, Sony has many reasons to move towards digital games, such as not paying retailers the typical 20% share for putting the games on their shelves. Also, so far, it is providing a halo effect on Sony portable player sales, which provides the company with another argument for retailers to sell the new game player. Since the PSPgo's introduction, Sony retail partners say sales of all PlayStation portables jumped 300% from the week before.

The PSPgo isn't expected to be much of a revenue driver yet, as reflected in the price of Sony shares traded in North America. They fell 50 cents to $28.20 during the first week of PSPgo sales. The collective yawn is understandable: Analysts see sales of PSPgo as merely a blip for a company with annual revenue of $79 billion.

Rather, the PSPgo's value to Sony is in adjusting Sony to the slow motion process of digitizing videogames.

"Digital distribution will continue to grow, probably for next 10 years," said Jesse Divnich, analyst for digital entertainment research firm Electronic Entertainment Design and Research. "It's in the best interest to try to take advantage of these trends now."

-By Ben Charny, Dow Jones Newswires; 415-765-8230; [e-mail]