When Sony first went public with the news that its Playstation Network had been compromised, it claimed some 77 million accounts had been hacked.  It later found nearly 25 million more user accounts had been breached earlier, bringing the total to more than 100 million.

Publicly, Sony appears to be handling the devastating attack on its network reasonably, working with Debix Inc. to offer one year of identity monitoring to its subscribers, vowing to locate the cyber criminals responsible – a group known as Anonymous – and promising to relaunch its network with the most sophisticated security protocols available to prevent a repeat incident.

This is all well and good, as these are all steps toward resolution we should expect.  The question is, does it matter, or has the damage been done and will Sony see its market share decline as a result?

While it’s reasonable to expect that new security measures will prove difficult to breach, consumer confidence, on the other hand, is a fragile commodity these days, and it’s not unreasonable to expect a significant number of Playstation owners trade in their hardware in favor of Microsoft’s Xbox platform. 

One factor that can help head off a major defection, of course, is the cost of the systems and games.  Considering a new system will cost a minimum of $200 for 4GB without Kinect, and around $400 for the 250GB version with Kinect, most owners are likely to think long and hard before switching over.  That’s not even factoring in the cost of replacing games, which run between $40 and $60 for popular titles.

New purchasers, on the other hand, who already will likely be drawn by the allure of Kinect, will likely find the Xbox a more appealing option due to a natural lack of faith in Sony’s ability to secure their personal data.  For those who haven’t experienced Kinect, it is a remarkable achievement, though one that takes a little getting used to.

What is even more likely, however, is that Sony, as well as Microsoft and Nintendo, will see a significant decline in software downloads, and game discs will fly off the shelves in much higher numbers, as consumers will be hesitant, at best, to return to downloadable games.

For Sony, which was on its way to eliminating disc-based games on its portable systems, hoping to drive downloadable games through its PSP go handheld, will have to reconsider that model.  I expect to see PSP go sales plummet.  At least with the Playstation 3 console, owners have the option to purchase game discs or download them – with the former seemingly becoming once again the more popular option, at least in the near term.

Ultimately, while Sony will suffer from the breach of its network, the bigger hit will be on the gaming industry as a whole.  Consumers won’t quickly forget this incident and will be reluctant to return very quickly to downloading games.  Looks like it’s time to increase production of game discs once again – I’m sure retail stores like Game Stop won’t object.  It does quite well selling used games – another factor that can well hurt the overall gaming industry.