It's a great question. Let me try to give a few reasons.
1) Sony can release a hybrid or handheld in Japan. This isn't so far-fetched, as they already released the PSP and Vita worldwide. This way, they could tap into the selling power of gaming on the go.
2) Japan is the motherland of modern gaming after the crash of 1983, even in the West. This means that having games cater to and originate from Japan is a spice to keep your brand alive, where the West and its style of handling the gaming market has been fickle.
3) Nintendo is making a lot of money in Japan, and Sony has already stolen the market from them before with the PS1 and PS2, and even in some cases the PSP. If Nintendo has been able to rise from the ashes in certain cases, why not Sony?
4) There is another approach to the "if there is no money there, then exit" strategy. If Nintendo had taken that position, they would never have made a home console after the gamecube. But they made the Wii and it was a worldwide phenomenon. In other words, even if something is not making money now, it doesn't mean that something can't be done to make things profitable.
First, I don't think SONY will again make a handheld after the failure of Vita, I don't have the source but I remember there's some statement from SONY before saying the same, the failure of Vita is largely caused by the trend of mobile gaming right then in early 2010s, I think SONY quit the market of handheld and then turned to invest on mobile games instead, the successful FGO by SONY music segement is a good example, and that made SONY a bunch of money, so I think the odd SONY release a handheld or hybrid is very low(even though I would definitely welcome if they do it). For the approach you mentioned, I don't think SONY quit the market in Japan, it's still one of the most important market for SONY even with the declined performance in hardware sale, just no more reason to prioritize on it, that makes sense right?
@DonFerrari I'll give my opinion to your post here in one reply to NathanSSSS.
The way I see it, Sony might have made money by migrating away from handheld gaming towards other mobile opportunities, but it was costly to them. The reason is that a lot of R&D went into the Vita, and the way Sony stopped supporting it caused their market on the portable to preemptively plummet, causing them to lose the R&D investment they had made. It could be said that they would have lost more money had they not made that bold move, but it could be argued otherwise too. If instead they had coasted the Vita with 1st party support, they would have had a chance to maintain a position in the market, but it could have had an impact on their home console 1st party support, so I understand the difficult decision. At the time, they also didn't know if their support for the Vita would pay off. So in a sense I agree with you both saying that Sony has shown no interest in pursuing a handheld line, but I sometimes wonder if it was the right decision.
I don't expect them to come back to the portable market, but if they wanted to it would be possible. If they did, I think that for the reasons I gave you in my original post, there would be something profitable to go that route in the japanese market. As for the home console line, if I were Sony I would keep releasing it in Japan for presence, but like you mentioned I would not invest much more into it for fear of losing my RoI. If however there was absolutely no choice for Sony but to go with a home console, I might argue that supporting the japanese market in a decent priority might be beneficial for their brand overall. But since that requires time & money, it would be difficult to say whether this is a good direction, be it over the short, medium or long term.
In principle, if investment money was infinite, I would say that Playstation as a brand would only benefit from increasing their presence in Japan and their development of Japan-centric content. As an interesting mental exercise, one could wonder what worldwide benefits Sony would enjoy from such an activity. I can think of a few:
- The birth of new japanese IPs which could be popular in the west, but would not exist otherwise (examples: Bayonetta, Splatoon, Pokemon, Shadow of the Colossus).
- A secondary market to operate in in case things implode in the west.
- (If they chose to continue their portable line) A backup system in case the home console market crumbled.
- The birth of new creative japanese studios, which could make games of all types (japan-centric or west-centric like Square does)
- The ability to tap into markets they might have struggled in before, like competing in genres like Monster breeding, such as Pokemon, Digimon and other big franchises, or games that are generally popular on handhelds such as Monster Hunter.
- The birth of new inputs of play, such as the touch pad on the vita that translated into the PS4's touch pad and now the PS5's touch screen.
- An overall diversity in how they approach game making and console development.
In a nutshell, Nintendo is doing most of these things and it gave us the Nintendo of today, and the Nintendo Switch.
The most valid reason why Sony wouldn't pursue this is due to risk and competition. It is probably too uncertain for Sony to push that direction, hence why they dropped support for Vita, and money to support the japanese market is not infinite. Also, japan has always been Nintendo's most understood market and they will defend it aggressively. Nintendo is currently consolidating into their main market, which may cause Sony to lose money on their investments if they choose to compete there.