By Makiko Yamazaki
TOKYO (Reuters) - Sony Corp will join the race for virtual reality (VR) dominance on Thursday with the $399 PlayStation VR, a headset the Japanese electronics group hopes will beat pricier rivals and revive its reputation as a maker of must-have gadgets.
Emerging from years of restructuring, Sony is reshaping itself to focus on lucrative areas such as video games, entertainment and camera sensors - rather than televisions or smartphones where demand is flat, competition acute and margins thin. The games unit is now the single largest profit contributor for the group.
The PlayStation VR headset, Sony's first major product launch since it declared its turnaround complete in June, will put the company back on the offensive and test its ability to compete in one of the most talked-about spaces in the industry.
Rival offerings in virtual reality headsets include Facebook Inc's $599 Oculus Rift and HTC Corp's $799 Vive.
Sony hopes to lure in customers with its more modest price tag and by tapping the 40 million existing users of its flagship consoles - the headset is designed to plug into PlayStation 4, rather than requiring new equipment.
"Sony is well-positioned to build an early lead in the high-end VR headset race," market researcher IHS Technology said in a report, forecasting sales of 1.4 million units in 2016.
Sony, developer of the Walkman portable cassette player and maker of the first compact disc player, hopes the headset will be a springboard to pull ahead of rivals in VR, gelling with the content portion of its business, specifically music and film.
In an interview with Reuters in September, Andrew House, Sony's gaming division chief, said he was already in talks with media production companies to explore possibilities for Sony's VR headset. [nL3N1BQ397]
"We are talking about years into the future, but these are interesting conversations to start having now," House said.
Sony, however, will compete in a crowded market. Nomura analysts expect cumulative shipments of all VR headsets to expand more than 20 times to 40 million by 2020, which along with accessories and other non-game content could be worth $10 billion.
Mark Zuckerberg, Facebook's chief executive, said last week the Oculus business will spend $500 million to fund VR content development and is working on an affordable standalone VR headset not tethered to personal computers or consoles.
Other new entrants include chipmakers Intel Corp and Qualcomm Inc, which said they are working on standalone headsets. They plan to make their technologies available to help developers make headsets using their chipsets or systems.
To counter those competitors, Sony may have to eventually open up its PlayStation console to make it compatible with other headsets, said Atsushi Osanai, a former Sony official who is now professor at Japan's Waseda University Business School.
Sony's largest gaming rival Microsoft Corp plans to release a new Xbox One console next year that is expected to support VR headsets of its partners including Oculus. [nL4N1953US]
(Reporting by Makiko Yamazaki; Editing by Christopher Cushing)