Videogame Consoles Emerge as Pay-TV Threat

Sony Corp. has agreed to offer on-demand access to HBO programming through its PlayStation 3, the latest example of a videogame console maker aiming for a bigger role in the digital living room.

Sony and its chief competitors in the videogame console market, Microsoft Corp. and Nintendo Co., have agreed a series of distribution deals recently with leading media providers, including cable networks, major film studios, Netflix Inc. and Major League Baseball. The agreements position the console makers to challenge pay-TV service providers like cable and satellite companies.

"The game console as a set-top box does have legs," said Ben Piper, analyst with market research firm Strategy Analytics. "From a revenue perspective, it represents just a sliver at this point, but cable companies and other pay-TV operators would be ill-advised to ignore this as a threat."

Owners of Playstation 3 consoles, known as PS3s, will be able to pay to download episodes from 11 HBO series, including "Big Love," "Curb Your Enthusiasm," and "Entourage," as soon as they become available for sale in the DVD format, roughly 11 months after premiering on the network. Sony plans to add new HBO material every Tuesday to expand the offering.

"We can use this platform to reinforce the premium positioning for HBO," said HBO Home Entertainment President Henry McGee.

A single episode of the HBO series "True Blood" will be available for download through the PS3 for $2.99, while episodes from most TV dramas on the PlayStation are priced at 99 cents per episode, Mr. McGee added.

NPD Group reports that in the U.S. Sony has sold 12.3 million PS3 units, while Microsoft has sold 20 million of its Xbox units and Nintendo has sold 28.8 million Wii consoles. Xbox led the console makers into the broader media business, landing the industry's first deal with Netflix. But Sony's recent deals with MLB.TV and HBO have yet to be matched by Microsoft.

"We're offering media companies another place to monetize their content with an attractive audience that is growing fast, and it all fits within their existing business mode," said Sony PlayStation chief executive Jack Tretton.

"This medium is here to stay," Mr. Tretton said. "[Media companies] can either find a way to monetize it or bang their heads against a wall and hope it goes away. The smarter companies are going with the former option."

Representatives from several major pay-TV providers declined to comment for this story. Cable and satellite TV providers have bulked up their own on-demand video menus and are adding interactive features, including videogames.

The threat of consumers dropping cable or satellite TV service in favor of a broadband-only subscription—known as cord-cutting-- has yet to materialize in a substantial way. Sanford C. Bernstein & Co. recently noted that overall pay-TV subscriptions for cable operators, satellite companies and telecom providers grew by 667,000 in the first quarter of 2010, calling cord-cutting "perhaps the most over-hyped and over-anticipated phenomenon in tech history."

Some observers, however, say it's only a matter of time before cord-cutting gains traction. Strategy Analytics estimates that 10% to 15% of all U.S. households will "cut the cord" by the end of this year.

"We see the battle for the living room as closing in towards an inflection point, with mainstream consumers finally seeking better access to the Internet on their televisions," said Colin Sebastian, analyst with Lazard Capital.

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