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In a week full of startling gaming news, from Microsoft’s virtual controller to Nintendo’s biometric add-on, Sony’s launch of a digital-download-only gaming system has the greatest potential to be a game changer for the industry.


The PSPgo is a slimmed down version of Sony’s Playstation Portable. The device, set to hit stores Oct. 1 for $249 in either black or white, slides apart to display its controls and features 16 GB of internal memory. But most importantly, it lacks any sort of drive to load or play games on. The original PSP uses small UMD discs to load games. The PSPgo will get all of its content digitally, via downloads.


This download-only approach to a gaming device will be the first time a major gaming hardware company has jumped entirely into the realm of digital downloads and could have serious implications for many facets of the industry, including the reselling of used games, game publishers’ reliance on retailer shelf space and piracy.


John Koller, director of hardware marketing for Sony Computer Entertainment of America, said Sony’s decision to launch the PSPgo was driven by consumers’ increased interest in digital content, like music, TV shows, movies and even games.


“It became very apparent over the past 18 months that the portable gaming consumer wanted larger, richer, deeper content available digitally” Koller said. “The PSPgo is the first and only handheld device to offer these larger, richer digital gaming experiences, and from our discussions with consumers, publishers and retailers, this was absolutely the right move to make at the exactly correct time.


“The launch serves as a lesson to the industry of the strength of digital distribution. PSPgo will address this market and help drive this trend forward.”


Billy Pidgeon, an analyst with Game Changer Research, says the move is huge for both Sony and the industry, making publishers less dependent on retailer shelf space and helping to cut down on the growing secondary market of used game sales, something publishers don’t earn any money from.


“Using a digital-download-only business model brings Sony in direct competition with Apple, and the Playstation Network is already in competition with Microsoft’s Xbox LIVE marketplace,” Pidgeon said. “The PSPgo’s download only design will help SCE transition its customers and its media delivery to online distribution. This will make Sony appear more cutting edge and will pave the way for future devices that are supplied by digital distribution.”


While the PSPgo and its download approach to gaming may be the future, that doesn’t mean the device doesn’t have some significant hurdles to overcome.


Koller says the biggest challenge will be ensuring that there is enough content by the time the system launches to make it attractive for gamers.


“The old saying that content is king is even more true with the PSPgo launch, and we’ll be meeting that challenge through the digital launch of virtually every title launching on UMD from now on, as well as converting over 300 catalog UMD titles to digital for the PSPgo launch,” Koller said. ” It is important to note though that we will not be walking away from the UMD business — in fact, we view the UMD as critical to the platform’s long-term success as there are still many consumers who prefer physical goods.”


Sony is also looking into a program to allow existing PSP owners to convert some of the UMD games they already own to digital versions playable on the PSPgo, though Koller declined to say how many games will be convertible.


Pidgeon thinks the biggest challenge will be convincing retailers to sell the device in their stores, because traditionally retailers make much more money from the sale of software than they do the sale of the hardware that plays it.


“Retailers stand to lose big if consumers buy handhelds and consoles but not software for those devices, and the secondary resale market goes away,” he said. “So it is going to be difficult to keep retailers as partners for hardware distribution if you cut them out on software.”


One middle ground, Pidgeon points out, is selling voucher codes for digital games in stores.


Koller says that Sony has already been in talks with retailers and that their reaction to the PSPgo has been “overwhelmingly positive.”


“With the dawn of the digital gaming age, particularly with the launch of the first full game digital platform in the PSPgo, retailers are becoming very creative in how they work to become a part of digital networks and sales,” he said. “And we’ve become creative in how we have crafted a new business model to meet how and what retailers sell.”


And Pidgeon thinks this is just the first step for Sony and its new PSPgo. He believes that the PSPgo will do quite well at retail, triggering a price drop to $200 as the company ramps up production. And while Sony says they will continue to sell the original PSP, Pidgeon thinks the PSPgo will slowly replace it and that there is even a successor to the PSPgo on the horizon, one that will include a touch screen and an integrated phone.


“The PSPgo will be a good way to bridge to a next generation download only device,” he said.


And could this lead to download only consoles?


Pidgeon thinks that home bandwidth limitations mean the next generation of consoles will still be disc-based, but that online deliver will become much more important down the line.


When asked if there was a download-only PS3 in our future, Koller remained tight lipped.


“Our consumer research shows that many people still continue to prefer purchasing games on tangible disc-based media, and we’ll continue to serve this segment of the market, while also providing digital content to the growing segment demanding this format,” he said. “We have nothing further to announce/discuss at this time.”


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Brian Crecente is managing editor of Kotaku.com, a video-game Web site owned by Gawker Media. Join in the discussion at kotaku.com/tag/well-played.

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