This week, yet another game-industry analyst issued yet another report predicting yet another winner in the next-gen console race. However, unlike a July note which warned that Sony's "techno-elite" strategy could be its downfall, this week's report from the Yankee Group forecast the PlayStation 3 as emerging victorious from the fracas to succeed the current crop of game platforms.
"By the time third-generation consoles reach market maturity in 2011, the PlayStation 3 will once again be the market leader," said Yankee Group in its report. The Boston-based industry-research firm went on to predict that over the next five years, Sony would sell 30 million PS3s in North America, attaining a 44 percent market share.
However, with the PlayStation 2, Sony currently enjoys around a 60 percent market share. The Yankee Group's prediction had Microsoft selling 27 million Xbox 360s to increase its slice of the gaming pie to 40 percent--meaning Sony would cede roughly 16 percent of its North American customers to its archrival. (The report has Nintendo retaining its current approximate 16 percent market share, selling just 11 million Wiis over five years.)
The Yankee Group report generated a surge of interest and sparked numerous verbal skirmishes between console enthusiasts. But how did Sony feel about it? Was the company happy to receive a reprieve from the ongoing consumer backlash about the PS3's dual $499 and $599 pricing? Or was it concerned about the fundamental market shift the report augured?
To get some answers, GameSpot spoke with Sony Computer Entertainment American president Kaz Hirai about the Yankee Group report and his company's ongoing preparations for the PS3's November launches in Japan, North America, and Europe. The executive also addressed the controversy surrounding Sony's first handheld, the PSP: Will there be a price drop? Will there be a redesign? And is the PSP's UMD format going the way of Betamax and MiniDisc? And what about those rumors fingering Sony as one of the architects of the drastic downsizing of the Electronic Entertainment Expo (E3)? GameSpot put those questions--and others--to Hirai earlier this week.
GameSpot: Why do you think the Yankee Group report has the PS3 coming out on top?
Kaz Hirai: Different people have different opinions, and at this point in time they're all forecasts. And people make forecasts based on the information they have at hand--their experience with what the companies in this space have done in the past, et cetera. And I think that as far as the Yankee Group goes, they've looked at the information they had at hand. It's generally a very positive report, but you can tell they've done a lot of their homework because there are some things that we need to work on. We've had those ups and downs as far as manufacturing is concerned on the console, for example, and that's being properly addressed. So I think they looked at all the information they have at hand--good, bad, or indifferent--and came to this conclusion. And I obviously think that they did a great job on this report.
GS: Now according to their report, by 2011, when the next-gen console market matures, the PS3 will have a 44 percent market share. Do you think that's a fair prediction?
KH: 2011 is, what, five years from now? So I really can't say one way or the other whether that percentage is the right percentage. My plan basically is to make sure that we keep at least as much market share as we have had with the PS1 and the PS2. We don't plan on ceding any of the market share to our competitors, especially after the cycle has gone deep.
GS: Right. But Sony has something like 60 percent market share now, and they have Microsoft gaining over 15 percent of that.
KH: Well, the numbers change depending on how you slice and dice the data. What I'm saying is, given any metric they use to chart sales between 2006 and 2011, or calendar year to date of 2001, whatever you do, when we look back, I'd like to think that our market share will be as good--if not better--than what we've accomplished with the PS2 in the same kind of time frame since launch.
GS: Speaking of dates, its three months to the day from now that you guys are going to launch.
KH: Correct. Yes.
GS: How are things looking there?
KH: Everything's pretty much on track. I just came back from Las Vegas where we we're still actually having our internal sales and merchandisers gather for basically four or five days of intense meetings. Everything from retail strategy to talking about the interactives, and how you can reboot it if your power goes out, so everything from nuts to bolts all the way up to the retail strategy. So we're internally really getting geared up to go to market with this beautiful console in three months' time, and at this point in time all signs are good to go.
GS: The 360 was plagued by significant shortages at launch. What steps are you taking to make sure the PS3 doesn't meet the same fate?
KH: Well, I think that you know this is all relative, but you need to put it in context. I think that we've always talked about shipping 2 million units worldwide within the calendar year. [UPDATE--Sony has contacted GameSpot to clarify the number of PS3s available at the end of the calendar year. The company is targeting 2 million PS3s available at launch, and an additional 2 million by the end of 2006.] Since we're going with three territories, we haven't really come up with an allocation just yet. But even if you do the simple math you're talking about less than 700,000 units per territory, per major territory, between launch and the end of the year. So even if there was some fluctuation--you give Japan more, you give the US more, what have you--you're going to end up with some shortages. So I think that if we've done our jobs right and if we've been able to really have the consumers become interested in this product, then, unfortunately, I think it's going to be very much of a challenge to be able to meet every single unit demand that's out there in the market. That's just a logistical impossibility. Unless we suddenly say, "Well we want to wait until June of next year to launch because we want to stockpile product," I don't think that's the approach we want to take.
GS: So is the PS3 already being manufactured?
KH: We haven't started manufacturing yet. Some of our ops guys were actually just in China, and also in Japan just reviewing the [production] lines and everything else. But they are, again, preparing as we speak to get the manufacturing going. We've not announced and we haven't set really a specific date to say, "As of this day we're going to start manufacturing."
GS: How many games do you plan to have available at launch?
KH: That is still very hard to determine. Even looking at our first-party portfolio, from the [Sony] Worldwide Studios, we're looking at what titles are going to be available at launch. We don't want to launch everything on day one, because we certainly want to manage the portfolio, and say, "These two titles need to be launched in December, or this one needs to go in January," just to keep the portfolio fresh. It's also a matter of which games actually have enough polish to go out on day one as opposed to those which could use another good three weeks and still make it within the year, but really become the second wave. I think the third parties are basically doing the same thing as well. As with any console launch, I think the definitive title lineup for launch--and possibly up until maybe the end of the year--that sort of list will probably not be finalized until a month before launch, give or take. I think it's too early to say at this point in time which games definitively are going to be launch titles, and I certainly can't speak for the third parties.
GS: When Microsoft launched the 360, they had a "launch window" of about 90 days when so-called "launch titles" could come out. Does Sony have a similar definition of launch titles?
KH: No, when I say "launch title" I was referring to more, in this particular instance, titles that come out really day and date with the console launch, or maybe out a week or so. That was what I was talking about as I said "launch titles."
GS: So, this week Vivendi Games announced that F.E.A.R. is going to be a launch title for PS3. Will that come out on the same day and date as the console?
KH: When I was answering your question it was more day and date with the launch.
GS: Right. Well, I'm just saying, I know a lot of third parties are saying, "This is a launch title"...
KH: Right, and I think everybody is basically kind of hedging their bets at this point in time because again, they don't know if title X is ready for launch day and date, or if they want to wait a couple of weeks to put more polish on it or just to manage your portfolio titles. Again, I think that's really a moving target for everybody, and it won't get locked down until about a month before launch.
GS: Now, moving onto the PlayStation Network Platform, is that going to be online on November 17th when the PS3 launches?
KH: The plan is to take the console online on November 17th as we launch and I also assume as we launch in Japan on November 11th.
GS: So the service will be available immediately?
GS: Great. We got a taste of the PlayStation Network Platform's version of Marketplace at E3, and how you could buy in-game items for Warhawk and such. But how is it going to differentiate itself from Xbox Live? What services will it offer that Xbox Live doesn't?
KH: We're not ready to announce exactly the service features of the online service just yet. But, I think I talked about this at the E3 press conference as well, as far as we're concerned--online, offline, it doesn't really matter. It's basically another form of delivering entertainment. Some things are better done offline. Some things are better done online. It's really not a differentiating factor to basically put all of our eggs in the online basket, because I don't think it makes a whole lot of sense at this point in time. So it's basically just a matter of balancing the two--that has always been our strategy, as opposed to basically putting all of our eggs in the online basket.
GS: OK, now you mentioned "entertainment." Sony is in kind of an enviable position because you guys have a great library of TV properties, film properties, and music properties, whereas Microsoft doesn't. Can we expect to see movies, music, and TV shows being distributed on the PlayStation network?
KH: You're absolutely right about the assets that the Sony Group brings in terms of entertainment content. We definitely plan, and will leverage a lot--if not most--of the entertainment content that Sony brings. Having said that though, we want to make sure that we're not just suddenly becoming a vehicle for delivering Sony entertainment content only. At the end of the day, people don't distinguish between a movie that's from Sony Pictures, or Twentieth Century Fox, or Paramount, or Warner Bros. I don't want to be in a situation where all we have is Sony products, and I'd much rather make sure that we have a well-rounded portfolio of software offerings or title offerings from a variety of different studios. If that means that we have to wait whatever time it takes to make sure that we're satisfied with the portfolio, I'd much rather do that than to just go out there and try to leverage off the Sony portfolio.
GS: Now speaking of content delivery to a Sony platform, I know that there have been a lot of questions about the Connect service for the PSP. And I was kind of wondering what the status was of that. I know at CES a Sony executive mentioned it was going to go online in March, I believe? There was going to be downloadable television shows and music and whatnot for your PSP.
GS: Will that happen this year?
KH: We are still hard at work on the download service for PSP. And again, we want to make sure that what we're offering is something that we can be happy with as opposed to something that's just put together for the sake of getting something out there as quickly as possible. That applies both for the audio side as well as the video side as well.
GS: Now, in regards to the PlayStation One games that PSP owners can download, will we see that this year?
KH: The plan is to bring that this year, as close to launch as possible, as we start embarking on our online initiative. Again, the sooner we can bring that, those titles out to the market, the better. Obviously, we certainly are not going to have 1,200 titles come out at once.
GS: Of course.
KH: You also need to realize that some of the games just don't translate well onto a PSP environment, games that require the use of the two analog sticks, for example. That requires some thinking as to how you want to do that in a PSP environment. So there are some limitations from that perspective as well. But the plan is really to have something day one, or as close to day one as we can.
GS: Right. Now you mentioned the PSP hardware. Now obviously there have been rumors about a PSP hardware redesign. Will Sony have any news on that front anytime soon?
KH: No, right now we're comfortable with what we have. I mean, you probably have seen some of the numbers that were included in the Q1 earnings report from Sony Corporation and as far as the platforms go. Between PlayStation, PS2 and PSP, the PSP happens to be the fastest-growing product we've ever launched. I think we cleared 20 million units worldwide within the first what, about 18 months or so. And in the US, we've already cleared 5.2 million. Again, it's only been in the market a year and five months, so we're obviously very happy with the technology we've packed into the current PSP, and we don't have any plans to redesign the PSP at this point in time.
GS: The other question is, of course, a possible PSP price drop. Is that going to happen this year?
KH: Again, [there are] no adjustments on the horizon as far as PSP goes. We're happy with the pricing, we're happy with the value proposition and we also just recently introduced what we call the Core Packs. I think that's a great value proposition to the consumer. So we have no plans to revisit the price at this point in time.
GS: Now one of the bigger criticisms the PSP has come under fire for is the UMD movie format. There's been some reports, especially in some of the Hollywood trades, that movie studios and retailers are pulling support for the UMD format. Also, now you guys are coming out with this new video-to-Memory Stick [Duo] system. Do you still consider the UMD a viable format? If so, how do you plan on reinvigorating interest in it? Or do you see more of a direct-Memory-Stick-video video platform in the future?
KH: We see the UMD as really being a delivery medium of entertainment content. And as is the case with PlayStation 3, some things lend themselves better to a delivery medium through online to the memory stick. Other content lends itself better to a prerecorded medium in the form of a UMD disk. At the end of the day, our strategy is first and foremost to establish and certainly grow the PlayStation Portable as a portable gaming and entertainment device. As a by-product of that we've set up a format called the UMD. If there are advantages, or for the motion picture companies to take advantage of UMD to deliver their content or music companies to deliver their content on UMDs, that's great. But at the same time, if they perceive another delivery medium or other ways of delivering that content to the consumers to be enjoyed on the PlayStation Portable, at the end of the day that's all going to help in increasing the installed base of the PlayStation Portable, and that's all good news as far as we're concerned.
GS: Now, there were unconfirmed reports that Sony was one of the main companies that was behind the demise of E3, one of the companies that said they didn't want to participate in it anymore. In regards to E3, what do you think the disadvantages of the old form were and what advantages do you think the new form of E3 will kind of bring?
KH: Well, I think the new form of E3 still needs to really be discussed and decided on among the ESA [Entertainment Software Association] member companies. Those conversations have begun, but nothing concrete has really been decided on that just yet. I do think that the old E3 was great at what is was designed to do perhaps 10 years ago. But as the industry evolved, and as the show became bigger and bigger, a lot of the member companies said, "You know what? We need to take a real hard look at what E3 brings as a benefit versus the cost to put on the show." As you know, the E3 show is put on by the ESA. We also needed to, as a bigger issue, really look at the strategic objectives of what the ESA needs to do for its member companies. It was really a part of those discussions where the specific issue of E3 came up, because it is a very large source of funding for the ESA. We had to basically say, as a part of that strategic overview, "Where does E3 fit in? Is it the right format? Is the current format the right format? Are the member companies getting the kind of benefit that they want, the return for the costs for participating? " All those factors really went into the discussion. Then, basically, the result was that we should really relook at how we approach E3 and make it more of a focused event for the industry, so that we are able to reap better benefits from the investments that we're making for an event of that size.