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Sony beat market expectations by selling more than 1m PlayStation 4 consoles within 24 hours of its US launch on Friday, but the challenge of making money from the gaming platform has just begun.
As it accelerates production of the device, the Japanese electronics group is selling each $399 console at a loss, which it plans to recoup when volumes increase and compatible games are sold.
However, much in the world of gaming has changed since Sony's 2006 launch of its previous console, the PlayStation 3.
The growing popularity of gaming on smartphones has made it harder to woo the casual gamers who make up a large portion of the market, which is reflected in sales expectations for the console.
Analysts have pencilled in sales of 49m PS4 devices over the next five years – suggesting a roughly flat market given that PS3 sales were 80m over seven years.
Both are a far cry from the 158m PlayStation 2 consoles sold since its launch in 2000.
Andrew House, president of Sony Computer Entertainment, has previously said that the group was confident of selling at least 5m PS4 consoles by the end of March.
The attraction of ancillary console services such as access to movies or TV programming has also been diminished, given the availability of cheaper products that offer similar features such as Apple TV.
"Attracting [casual] game users is the highest hurdle compared with historical launches," said Koki Shiraishi, SMBC Nikko Securities analyst.
Analysts suggest that its console business is too small to have a significant impact on the company's sprawling electronics and media empire. In the second quarter to September 30, Sony's gaming division reported revenues of Y155.7bn – its second smallest business segment by sales.
However, the overall global market for video games is growing.
The size of the global traditional video game market – including mobile games on smartphones and tablets – is expected to hit $66bn this year, up from $63bn in 2012. This is expected to grow to $78bn in 2017, according to data from DFC Intelligence, the gaming research group.
For Sony, the success and future profitability of the PS4 is particularly important. Last month it issued a profit warning, swinging into the red for its second quarter and slashing its full-year net profit forecast by 40 per cent.
The group continues to restructure the consumer electronics business, many of whose divisions, such as its TV production, are lossmaking. The PS4 console and its Xperia line of smartphones are the two key growth products for Sony over the crucial Christmas shopping season.
On the plus side, say analysts, is the fact Sony has avoided a repeat of the production hurdles that made the PS3's hardware particularly unprofitable.
The previous console used a processor and type of disc reader that were difficult and expensive to produce. The new model uses standard and cheaper components, limiting Sony's losses on each device and ensuring that it avoids the supply shortages that hurt early sales of the PS4's predecessor.
Sony has fixed those production problems and is working more closely with game developers to ensure an attractive line-up of software for consumers. But the challenge remains, says Kota Ezawa, Citi analyst, that the PS4 is not launching into a growing market.
A survey conducted by Mr Ezawa's team found that the number of US consumers that own consoles is declining – down from 54 per cent in 2011 to 49 per cent this year – and a "disappointing" 8 per cent said that they planned to buy a new console next year.
"If there is any risk, there's the massive risk with PS4 that the entire console game market . . . could be smaller than the previous cycle because people are more curious about casual games on smartphone or tablet platforms," said Mr Ezawa.
Sony and other console makers are aware of that challenge, analysts point out, and new features reflect these wider changes, such as a companion app that allows a smartphone to act as a second screen for games.
Sony's rival Nintendo has also turned its attention to smartphones. Last week, Nintendo's shares got a fillip when it took a 1.5 per cent stake in fellow Japanese group Dwango, which provides content to mobile phones.
Some investors have been keen for Nintendo, inventor of classic video games characters such as Mario, to license that content to other game makers – a position that Nintendo has resisted in order to protect its console business.
Nintendo has not yet revealed what strategic partnership or licensing deal it could do with Dwango. However, Atul Goyalm, analyst at Jefferies, said: "Nintendo has rarely (if ever) invested in other companies and as far as we know, has never invested without a strategic rationale."
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