Tuesday, February 19, 2013


The PS4 is apparently being announced tomorrow.

Here's the state of Sony's affairs, based on the earnings report released in early February. These numbers are all unit sales comparisons of the first two quarters of Sony's fiscal year versus the previous year:
Video cameras (-9%)
Digital cameras (-29%)
PCs (-9%)
LCD TVs (-28%)
PS3/PS2 (-22%)
Vita/PSP (-14%)
PS3/PS2 Software (-9%)
Vita/PSP Software (0%)

In brief: not going well.

Sony needs a hit. A big one. So  let's spitball a bit, before the big announcement. What would the PS4 be like if it was going to succeed, as opposed to the PS3 losing Sony billions of dollars over its lifespan?

1. It must be reasonably priced at launch.
Think Sony can launch this at $499 and succeed? Think again. Think they can launch a crippled version at $399 and have the "real" unit at $499? Think again.

Look at it this way. Sony launched the PS3 on an unbelievable wave of momentum following the spectacular success of the PS2. They had absolutely everything in their favor. Everything! And as soon as they announced the price ($499 and $599), they were dead.

$399? That's the absolute highest point, in my mind, and it better not be some fraud unit that's crippled compared to the real unit.

Of course, it's fair to question whether there's any price point where a new console can succeed, given the state of the market. The Wii U sold 69,000 units last month, which is not a death sentence, but it's certainly a scary, scary number (that's a Gamecube sales number).
[aside: I have NPD data back to November 2001, and unless a console was designated as end of life and its replacement already launched, no console besides the Gamecube sold as few as 70,000 units in a month.]

In a hyper-competitive environment, with cellphones and tablets offering unique cost advantages, consoles can no longer afford to just compete with their peer group on price.

Also, from the business side of things, Sony can't afford to over-engineer this console like they did the PS3. Let's say you're going to lose 10% on every console you ship at launch (the PS3 lost much more, but stay with me here). If you're shipping a $300 box, you're going to lose $30. If you ship a $600 box, you're losing twice as much --$60.

You probably wind up losing the same amount of money on the hardware, because you'll sell 2X or more in the case of the $300 box, but you have twice as many units in the wild, selling twice as much software, and you have twice as many people talking about your product.

2. It must have something fun to play.
The single best thing Wii Sports did for Nintendo is that it got everyone who bought a Wii talking about the same game. It was ultra-concentrated consumer love, and it worked: people bought the Wii to play Wii Sports.

Why will people buy the PS4 exactly? Will they buy it because Sony tells us we should? Will they act like they did with the PS3, where they said people should "aspire" to buy a PS3? Remember that shit?

Probably not a good idea this time.

Instead, here's a novel approach: include an outstanding pack-in game. That way we all play it, and we all talk about it, and if it's a good game, then we'll wind up saying lots of good things about the system. And people will buy the system to play the game.

Really, it amazes me how complicated people make the business end of this sometimes. At the margins, maybe it is complicated, but the broad strokes are very simple.

3. The games must be reasonably priced.
Seriously, don't even try that $60 bullshit. That is an automatic fail in this environment. Across all publishers, there might be 12-15 games a year that can make money at that price point. How much developer support do you think you'll get with that model?

If the PS4 locks out used games, then games can't cost more than $40, and that's the absolute ceiling. I'm not even sure the market will support $40 without resale. And it's an incredibly awful idea, for reasons I've discussed previously.

Could locking out used games be enough to make the console fail, even if Sony does everything else right? In some situations, yes. And regardless, Sony's not going to do everything else right.

Everyone seems to keep ignoring how price sensitive the gaming industry is in general. That's a mistake.

4. It must be compact, and it must be quiet
This will undoubtedly be market as a media center/gaming device, and that means it can't be huge, like the original PS3. It also can't sound like a Dustbuster after 5 minutes, and it has to be cool enough that you can put it into a stereo cabinet and it won't overheat.

If you want us to watch movies on your system, we have to be able to hear the soundtrack. Non-negotiable. And since there's no way in hell that Sony will sell enough games to make this system profitable without a substantial contribution from non-interactive media purchases, they better design a console to meet the quality standards of other devices in that space.

5. It must offer real value, not marketing value. 
Sony is absolutely notorious for marketing chicken shit as chicken salad. So if this console does lock out used games, and then tells us it's actually for our benefit and we should be grateful, it's an indicator that the arrogance and hubris at Sony hasn't changed.

Here's Sony's last moment of real value in consoles. The PS2 launched at $299 in October of 2000 in the U.S.. Nineteen months later, the price was dropped from $299 to $199.

That's real value. That's a real price drop. And it created huge momentum for the PS2.

When a company is marketing some bullshit that's so complicated even they can't explain it, or they so obviously fabricate, it's because they have nothing to market.

Again, it's not complicated.

After Sony's announcement tomorrow, let's circle back and see how many of these criteria they fulfilled, and what it might mean.

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