Monday, October 08, 2007

Console Post of the Week: We've Always Been At War With Eastasia

I've seen quite a few articles about backward compatibility and the new 40GB PS3 unit, basically saying that Sony has "betrayed" the consumer.

Look, there's no question that Sony ridiculed the 360s level of backward compatibility and said that BC was an essential part of the consumer experience. Here's one of my favorites from Ken Kutaragi in 2005--just before the launch of the 360, in reference to its spotty backward compatibility:
The current Xbox will become antiquated once the new machine comes out this November. When that happens, the Xbox will be killing itself.

There are a few hundred more where that came from, but that one's my favorite. Then there's Kaz Hirai's baffling statement last week:
We have made clear on many occasions that our priority is on developing innovative new features and services for PS3 and not on backwards compatibility.

WTF? "Many occasions" as in "never"? Backward compatibility was a lynchpin of the feature set of the PS3.

So it's totally hypocritical of Sony to be saying all this now. It's like some freaky videogame console version of 1984.

Having said all that, though, I don't think Sony had a choice.

I don't think the removal of backwards compatibility was necessarily a cost-based decision. Yes, iSuppli estimated that the Emotion Engine chip cost $27 last November, but that was what--10 million units ago? All that was being included now in terms of hardware was a modified version of the PS2 graphics chip.

So what are we talking about here--saving ten dollars?

Seemingly, that would be the best ten dollars Sony could possibly spend in terms of customer satisfaction--that chip, along with software emulation, ensuring compatibility with thousands of PS2 games.

And there, in short, is the problem: compatibility with thousands of PS2 games.

PS3 software sales have been remarkably tepid compared to the install base. So tepid, in fact, that as slow as hardware sales have been, it could be argued that the software sales are even worse.

Sony is competing for developer resources, just like Microsoft and Nintendo. Here's their situation: the PS3 adoption rate is poor, software sales are worse, and developers generally agree that Sony hasn't supported them very well. Oh, and the PS3 is a bitch to work with.

So why should a developer support the PS3?


Sony had two massive fault lines here. No matter how feature-rich or future-proof or warp-dimensional-engine the PS3 was, it was still ridiculously expensive. Remember, as I've written before, the console market is a cost market first and a value market second.

Maybe Sony didn't understand that last November, but based on the massive price cut they announced last week, they do now. One fault line remedied.

The second fault line was that people weren't buying enough PS3 games. Backward compatibility allowed them to weigh the value of a new, $60 game versus a library of thousands of PS2 games, all of which they could buy used for far less money.

If you have an HD set, you're probably buying the PS3 titles. But if you don't, that back catalog of used PS2 games has to look fantastic.

Sony was publicly lauding the strengh of the PS2 all this year, but behind closed doors, they were ill. They didn't need developer support for the PS2--they desperately needed it for the PS3.

Sony was eating itself.

So they've removed backward compatibility, they're going to take a huge PR hit, people are all pissed off--but it removes the second fault line, and that's more important.

With a holiday season at $499 (or worse), the PS3 was, incredibly, heading toward irrelevance. Now, with what must be the biggest first-year price reduction in console history, that's no longer the case.

I don't know if they've fixed all their problems, but I do think that in spite of all their public bluster, they have at least correctly identified their two biggest problems.

On to Microsoft.

They're sweating.

Sure, they're going to put out some "Halo 3 Is Bigger Than God!" press releases. And yes, September console sales are going to be huge.

Sony, though, has finally woken up.

Microsoft can't automatically count on Sony making the worst possible decisions anymore. Sony did everything they could possibly do to fail, but they may have pulled back from the brink. And Microsoft must be looking at this and geting ill when they realize what this is going to do to their margins.

Oh, and in other, seemingly odd news, Bungie bought itself back from Microsoft. Very strange, particularly given how tight-lipped everyone involved has been on the deal. N'Gai Croal has the best coverage, with an interview on both sides of the fence--here (Bungie) and here (Microsoft).

I think it's fair to assume that the split being announced so soon after Halo 3 indicates both that the deal has been in the works for a while and that it hasn't been entirely amicable, no matter what both sides are claiming publicly.

Lastly, there's Nintendo, and there's just not much to talk about, because it's the same story week after week--the Wii is an incredible success story.

I checked Wii availability today and it's as low as I've seen it in months in the U.S. Nintendo has said both that they've greatly increased inventory shipments to North America AND that they still won't meet demand.

In other words, Nintendo is still printing money.

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