Sony's PSP business has been a bit challenged in the U.S. but it's fared quite well in Japan. The PSP2 is clearly already in the hands of developers, but will Sony be taking the right direction overall with its portable business? In a recent op-ed, IndustryGamers strongly suggested that Sony should get into true mobile gaming with a PlayStation Phone that offers 3G access through a wireless carrier.

As it turns out, most of the prominent game industry analysts agree with our sentiment. We polled several analysts about their thoughts on the PSP business and how it could be "fixed." Most of them independently answered that Sony should indeed turn to the PlayStation Phone idea, possibly by teaming with a strong competitor like Google and its Droid devices. 

Here's the summary of our roundtable:

Mike Hickey, Janco Partners

Sony should team up with Google, for a PSP-Droid device.  

Billy Pidgeon, M2 Research

Put me in the PlayStation Phone camp.  Personally, my preferred portable gaming experience is on PSP and DSi.  Today, however, portables that are not primarily designed for gaming can support quality games.  Currently there are at least three platforms (I'm thinking iOS, Android and Windows Phone 7) that are capable of supporting quality games for phones and convergent portable devices in the palmtop and tablet categories.  Competition between these platforms will drive better user experience, not only for games.  Frankly, I think it's going to be very difficult for Sony to build a profitable business based on dedicated gaming handheld hardware going forward.  Sony did better than many expected with the PSP hardware, but attach rates for first or third party software haven't panned out.  Nintendo will likely do well with 3DS because they practically invented the dedicated gaming handheld market, but even Nintendo's days on gaming-only portables are numbered.    

With backgrounds in the packaged software "razor blade" business model, neither Sony nor Nintendo have been successful in exploiting the real opportunity inherent in mobile device-based digital distribution.  I think both companies had better get out on top of the device-based application store model with Microsoft on the way in.  The carriers and Apple consider games a low value commodity and are driving the market away from high value high quality software, and it's going to be increasingly difficult to maintain a business for portable games that are priced at $15.99 to $39.99 in the U.S. market.  I believe there is a sweet spot between these extremes for a portable gaming market that will provide gaming enthusiasts with great experiences and will be profitable for publishers and distributors.  

Sony has the opportunity to redefine the portable games category.  I think the best move would be to get out in front of Microsoft's inevitable Xbox LIVE Arcade Mobile and take on the App Store and carrier deck portals.  I'd suggest moving completely away from packaged goods and dedicated handhelds and go directly to a network-based software distribution system that drives convergent portable devices on an 18-month upgrade cycle.  They could put out a proper PlayStation Phone (and a PlayStation Pad) but these should compete with smartphones and tablets, not dedicated gaming devices.  To do this quickly, Sony could partner with Google and take advantage of Android's considerable momentum.  

David Cole, DFC Intelligence

I think the PSP has been too narrowly targeted from the get go.  It was basically targeted at core console consumers that wanted to have their games with them on the go.  As Jack Tretton said, they didn't want the kids who kick the back of your seat on the airplane while playing their Nintendo DS.

Unfortunately that was leaving a huge demographic on the table.  Also they were forgetting about the 30 and older crowd that still like games but aren't as so much into squinting to see a graphically intense experience on a small screen.  Nintendo with the DS did a great job appealing to that crowd as well.

Of course, there is what Apple did.  There is all kinds of talk about smartphone gaming, but it should also be noted that with the iPod Touch, Apple offered a product for a younger audience whose parents weren't going to spring for an iPhone.

However, it should be remembered that overall mobile phone gaming is still somewhat overrated.  Sure everyone has a phone, but lifecycles for phones are short and there is still a substantial audience willing to have multiple devices.  But once again ignoring the audience that only wants one device (a phone) is another issue.

In terms of strategy I see a huge opportunity for Sony to take the lead in offering a complete portable solution to everyone.  Apple has decent market share, but mainly because other manufacturers are relatively clueless in how to handle content.  There is a huge opportunity for Sony to come out with a PSP branded phone that offers everything Apple doesn't and allows for a more appealing business model to content creators.  They really don't even need to directly compete with Apple, they just need to offer a non-Apple solution. 

This would not be eliminating other PSP devices.  Once again I think the PSP has been incredibly narrowly  targeted.  Why wouldn't you want every 10 year old kid playing your device?  What about soccer parents or adults that like their portable games a little less intense than the console games?  Some people want a device without a phone.  Some people want a all-in-one device that does act as a phone.  You need a strategy to appeal to them all otherwise you will always be stuck with the bleeding edge male 15-30 year old game enthusiast.  A nice but limited demographic.  The PSP has the potential to be a great overall portable brand across multiple devices.

Jesse Divnich, EEDAR

I think we all tend to forget that the PSP has sold over 59 million units worldwide and to date has outsold the Xbox 360, PlayStation 3, and even the iPhone.  I don't believe the PSP business model was ever broken in the first place, it just got a little long in the tooth as the handheld market evolved due to competitors such as the iPhone and iPad. 

The PSP business doesn't need to be "fixed", it just needs to evolve to fit the current needs of today's consumers, which is the same hurdle any technology manufacturer must face as they launch a new hardware cycle.

I'd like to see the next PSP platform to go truly mobile with a wireless service provider.  The iPhone hardware, despite the hardware refreshes, are getting a little long in the tooth themselves, and I believe this presents a competitor a prime opportunity to capture the growing smart phone market with a fresh looking platform.  Of course, much like the iPad, there should be an option to purchase a stand-alone version without mobile capabilities.

Michael Pachter, Wedbush Morgan Securities

I think Sony made a mistake focusing on the higher end and older customer with the PSP.  It sounded like a good idea at the time, and I was totally supportive, but in retrospect, they really missed the market as Nintendo dominated the younger crowd with the DS.  Now, it is probably too late to compete for the younger crowd, given the DS's dominance, the emergence of the iPod Touch as a competitive device, and the launch of the 3DS.  It also seems that the older market has just not materialized, and will never be larger than a marginal opportunity.

I'm not sure what they should do, given that they let Apple have a head start with multi-media devices, and it will be difficult to play catch up.