Don't count Sony out over the long haul, says analyst

Lazard Capital Markets analyst Colin Sebastian, who recently hosted investors on a visit to videogame companies in the San Francisco area, warns against counting Sony out over the long haul.

"Despite ongoing modest sales trends for PS3 hardware in North America, we believe the platform may benefit from an improving software lineup - MGS 4, LittleBigPlanet, Resistance 2 - and the late 2008 rollout of more robust online services," he wrote in a note to investors.

Sebastian also thinks that the PS3 could benefit from the Blu-ray format victory, a prolonged console cycle and the potential migration of the large PS2 installed base. He does not think a PS3 price cut is likely this year, however, as Sony focuses on achieving segment profitability.

The analyst continues to expect solid 17 - 18 per cent growth in videogame software sales in 2008, believing that publishers will benefit from an expanding consumer base and the increasing popularity of social and community games.

"Retailer interest continues to build for videogame products," Sebastian wrote.

"As a result of positive industry trends, software publishers are noting increasing interest from a cross-section of retailers, a number of which are allocating more shelf space to the videogame category.

"Additionally, while online distribution is still a limited market at this point, we expect software publishers will shift an increasing portion of content to online distribution channels over the next 3-5 years."

Finally, Sebastian noted that handheld game platforms have become an increasingly important part of the industry's growth. He expects further innovation in the handheld market, with the Apple iPhone and Google Android expanding the market for media-enabled smart phones.

He also thinks that Nintendo and Sony will "refresh" their respective handheld platforms - although he did not specifically indicate if this meant adding additional features or releasing entirely new SKUs.