A Deep Look at Sony’s PlayStation 4

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As expected, Gaikai streaming functionality will be integrated into the PS4. In July 2012, Sony announced an agreement to acquire the cloud-based gaming company Gaikai for ≈ $380 million. Gaikai will allow exploration of any game on the PlayStation Store, with gamers able to try, share,  and buy. Eventually, gamers will have the ability to play PS4 games remotely using the PlayStation Vita handheld device and other companion devices. Long-term, every PS4 game will be playable on Vita with reduced transmission times. Gaikai functionality will also provide PS4 gamers with more spectating tools and the ability to transfer gameplay to another gamer on the PlayStation Network (“PSN”). Gaikai and Sony are building the fastest video game network ever, with one of the goals being the ability to download digital content instantly.

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Gamers will also be provided with a number of multimedia applications, including Music Unlimited, Video Unlimited, Netflix (NASDAQ:NFLX), and Hulu Plus, among many others. Long-term, as Gaikai unveils its cloud in stages, gamers will be able to play PS3 and mobile games on the PS4. However, the PS4 will not be natively backwards compatible, meaning that gamers will not be able to play discs from earlier PlayStations on the PS4; instead, they will eventually be able to stream them.

The PS4 will be a much more social console than current generation devices. The “share” button on the PS4’s controller, video compression and decompression hardware, Gaikai functionality, and partnerships with  Facebook (NASDAQ:FB) and Ustream will provide gamers with a more connected experience that should rival that offered by smartphones and tablets. Through Facebook, gamers will likely be able to share their likes and potentially show in-game multimedia. Ustream allows the gamer to “show off” through in-game clips.

Michael Pachter is an analyst at Wedbush Securities. 

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