The word has been out earlier and today, Sony unveiled a working model of the PSP, their new handheld entrant into the genre. During the conference, Sony got a hand from Electronic Arts who promised no less than four titles for the PSP launch in Q1 2005 with a Japanese rollout by the end of Q4 2004. Many PSP games were shown, including a Metal Gear title. Featuring a 16:9 screen and true 3D graphics, the PSP hopes to bring Playstation style gameplay to the mobile gaming scene.

Some of the interesting things about Sony’s PSP are its connectivity options. Notable PC standards like USB 2.0 and Wi-Fi are among them. Why is that? Sony envisions the PSP as a portable audio-video player in addition to being a game machine. It will be able to play movies as well as enhanced music tracks (with video or interactive features). Those demonstrated at the show included a short music clip from Incubus, a trailer from Square-Enix and a preview of the sequel to Spider-Man.

In order to do this, Sony had to invest in media known as the UMD or Universal Media Disc. The UMD is a small optical disc that can store up to three times the amount of memory as a conventional CD. Initially, it will be used for distributing games, although Sony hinted that its partners (currently its media subsidiaries) will jump in with content available soon.

Much of Sony’s talk involved building the Playstation brand and building on its market leader presence. But Sony wants to do this by extending the product lifecycle and pricing accordingly, not pricing out of the market. The expected useful life for the Playstation 2 is ten years. Sony’s rationale: it wasn’t until after the Playstation 2 was released that many of the PS One sales were made (by volume). At the end of the lifecycle, the interest is generated by the casual gamer. The early adopters have all been exhausted.

To address this, a price drop of $149.99 US will entice casual gamers to begin picking up the Playstation 2. Furthermore, expanding on items like the EyeToy will appeal to a greater chunk of the casual gaming audience.

Online gameplay is also an integral part of Playstation 2. It increasingly seems like whatever Sony suggests, Microsoft does the opposite or vice versa. However, both companies agree on one thing. They want to make online easier.

Thus, Sony, which lacks a unified service, will be focusing on technologies like single-sign on (SSO), unified community services and billing options for consumers. To make the leap to online gaming less intimidating, they want to make the content more accessible. Ratchet and Clank: Up Your Arsenal is one such product coming to Playstation 2 that should give online gamers lighter fare to munch on.

The other online strategy for Sony is to discard any flat rate subscriptions (except for persistent worlds) and opt for a micro-payment business model. How does micro-payment work? Here are a few examples. If you were to go download music from your PC, you can transfer the tracks to your PSP. If you wanted new levels or to buy saved Grand Turismo cars, you could do so on the Playstation 2. Sony’s strategy is to make Playstation, PSP and the PC interoperable with a pricing structure much like Internet auction giant eBay. No doubt in the realm of music, Sony has a potential iPod killer on its hands.

While there was no concrete evidence that a third iteration of the Playstation is hidden away at the E3 show, Sony did elaborate vaguely on what it envisions the future of games to be. One of the things it aims to do is to get away from the Wintel platform for gaming completely by moving to what they call a Cell based processor, a project jointly developed with IBM. In the works now is a prototype for a workstation that would solely be geared toward developing games. IBM handles the application and middle tiers, while Sony collaborates on the low and high ends with their gaming expertise. And of course the best system to run these Cell produced games would, one will essay, undoubtedly be Cell based as well.

Many analysts in the industry have recognized that Sony’s sheer volume shipped is hard to beat. However, in select spaces, like online and portable gaming, the gap is narrower. Is Sony a giant on the defensive? According to them, they’re on the offensive and hungry to get more people living in the world to play in theirs.