Monday, October 22, 2007

Console Post of the Week

May 26, 2006:
We have built up a certain brand equity over time since the launch of PlayStation in 1995 and PS2 in 2000. The first five million are going to buy it, whatever it is, even it didn't have games. --David Reeves, Sony Europe President and CEO

February 26, 2007:
...Sony isn't likely to make any price cuts for at least another two years, said Kimberly Otzman, a spokeswoman for Sony Computer Entertainment America. She noted a similar time frame for lowered prices for the PS2. "We probably expect the same for PS3," Otzman said...
--Kimberly Otzman

October 18, 2007:
...the goal was trying to reduce the price point of the Playstation 3, but keep all the features that we thought were incredibly relevant to the future going forward. We feel like we've been able to accomplish both at $399.
--Jack Tretton, Sony Computer Entertainment America CEO

October 19, 2007:
One piece of news that came out this week was that Sony pleaded with third-party developers not to abandon its struggling platform. That change in attitude is a marked difference compared to the arrogance of past years.
--Dean Takahashi, The Mercury News

It's one of the great humblings in corporate history, from unbridled arrogance to a massive price cut and "pleading" with developers not to abandon the platform.

In the first eleven months following launch, the PS2 sold 6.78 million units in the U.S. The PS3 has sold 1.86.

Think that's bad? It's much worse than that. How much bigger is the U.S. gaming market today than it was when the PS2 launched in 2000?

Nearly doubled.

That's why Sony is pleading. It's selling at just above one-quarter the rate of the PS2 in a market that has doubled. In other words, the PS2 was eight times as successful in its first eleven months as the PS3 has been.

That's why Jack Tretton (as N'Gai Croal wryly noted) used the word "relevant" ten times in a twelve minute interview.

I also suspect that's why Sony came to an agreement with Toshiba this week to sell its Cell production facility. Remember the old days, when the Cell was going to be the future of Sony? That was, oh, twelve months ago. But like I said a few months back, idle production capacity is very, very expensive. Sony spent (reportedly) 1.7B on production of the Cell, and they're going to sell to Toshiba for (again, reportedly) barely half that.

Here's the other news that's stunning, at least to me. Sony's price cut to $499 for the 60GB model in the U.S., in three months, generated 149,000 additional sales in excess of what had been their 20,000 a week sales rate. And September's weekly sales rate was only 24,000 units a week.

In other words, the effect of that price cut has almost vanished, and in only three months.

Okay, so I've been documenting how Sony has been screwing up for over a year now. We all know that they've acted like arrogant idiots. Here's the real question, though: can they pull out of it now?

If you're going to judge the success or failure of the PS3 by the PS2 sales numbers, then no, they can't pull out of it. They're not going to sell 100 million PS3s--at this point I think they'd be doing well to sell in excess of 50 million. Ignore what Sony says about this being a ten-year console--five years is much more likely, and 20% of that time has already been wasted.

Sony made two very fundamental mistakes. One, the price was utterly ridiculous. To some degree, that's been fixed--$399 for a console with a Blu-Ray player and other functionality is no longer unreasonable. Two, they didn't think they needed exclusives. Well, they do, and desperately, and they need them before 2009. Whether that's fixed or not, it's just too early to tell.

One last note: Tretton said last week that removing backward compatibility in the 40GB unit resulted in "no great reduction in cost." I believe that was a move solely made for developers, and developers only, who have been diverting resources to other platforms. It forces new PS3 owners to buy PS3 software, not used copies of hundreds (if not thousands) of PS2 games.

On to Microsoft. They sold over 500,000 units in September, thanks to Halo 3. The RROD issue seems to be resolved on new units. I believe they're still confident that they can compete with the PS3 at $349 (and the "Arcade" pack at $279). That's probably true, at least for a few months, but after that, they have some difficult choices to make. I doubt that they anticipated Sony putting pricing pressure on them this early, but they have, and it's going to cause some pain.

There was a rumor floated last week that Toshiba is looking to manufacture a 360 console with a built-in HD-DVD drive. From a business perspective, it makes perfect sense for Toshiba, because it can counter the Blu-Ray drive in the PS3. The sticking point, though, is that the HD-DVD drive needs to be able to read discs at the same speed as the other DVD drives used in the 360. If they can do that, and Toshiba is willing to subsidize the cost of the drive to gain market share, then it's good for Toshiba and great for us.

Nintendo sold over half a million Wiis in the U.S. in September as well. They're still a steam train, but they desperately, desperately need some high-quality third party games. The amount of greasy feces released for the Wii in the last ten months by third-party developers must be some kind of record. Zack & Wiki or Mario and Sonic: Olympic Games need to demonstrate that not just Nintendo can make a fun game for the system.

There was one excellent game announcement for the Wii last week, though: Okami. It's one of the most striking and beautiful games ever created, and the only reason I stopped playing it on the PS2 was because I kept thinking "I wish this was on the Wii," because the drawing elements in the game would be ideal for the Wiimote. And for most Wii owners, who have probably never even heard of the game, it will be a real revelation.

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