We tend to look at things in 10-year increments when a lot of people tend to look at in five, and then they boil it down to three as the make-or-break time. And I think if you have that narrow of a view you take much less risk. We want the platform to be successful, we want to be profitable. But it is getting harder to measure that. And when you get down to a game like The Last Guardian, you can’t just look at the number of units it sold versus it’s development cost; it’s what did you do to drive our message of diversity.
You have to look at things over a long-term period. It’s extremely difficult to do in our industry, and even more difficult to do in this economy. In our industry it’s all about now, “When are you going to drop you price? When’s the new system coming out? What’s the new game?” You have to take a step back and not get caught up in that. But it gets more and more difficult in this economy because people don’t have the patience to say, “You’re not profitable today, or that game didn’t make money today, but it’s kind of setting up for three or five years down the road.” In this economy people go, “There may not be any tomorrow, so it’s all about today.” So I think that attitude is being tested now more than it ever has.
Out of E3 came criticism of the and disappointment that there was no PS3 price drop. What do you think about this fixation on price?
It’s somewhat natural, especially in this economy. But people are always wanting you to lower your price on hardware. We could’ve come out with a PlayStation 2.5 for $299 or less, and in the first two or three years it would sell extremely well. But there would be a point where people would be going, “I am not really seeing the incremental leap.” We feel that we’re sacrificing the short term to pay dividends in the long term. People are having short-term thinking–the platform is not even three years old. It was $599; it’s now $399. The focus on pricing is something we appreciate, but you have to have the conviction and the confidence that you are on the right path for the long term and ultimately you’ll get all the consumers you want. You won’t get them all day one, but we’re looking to get them over a 10-year period. It’s going to take different things to get different consumers.
I said that in the context of, “We want a price drop; when’s a new system coming out?” I am saying to enjoy the technology that you have, explore the technology that you have, maximize the technology that you have, instead of trying to hasten the demise. People are just coming up to speed with the technology. Today’s platform and tomorrow’s platform is the PlayStation 3. But there’s somebody that wants to talk about when PlayStation 4 is coming out and what kind of technology is it going to have.
If you were one of the first consumers to get a PS3, I hope that you would say, “I might have paid $499 or $599 for it, but it does so much more today.” There are a lot of technologies where people say, “I don’t even bother pulling it out anymore. I was excited when I first got it, but I have kind of moved on.” And that’s sad. It costs a lot to invest in rolling out new technology, and if the consumer walks away before the lifecycle’s over–you can talk about the install base of hardware, but how many of those machines are still active, how many people are still playing them?
The flipside of the 10-year cycle is that the economy tanks and you have to stick with the 10-year program. So how do you weather the storm when things outside of your control don’t go your way?
Hopefully last year is as bad as it gets. I think all indicators are that 2009 is going better than 2008. In 2008, we had a 38% increase in sales and we hit our 10-million-units-worldwide goal for PS3 sales. We had $6.4 billion in revenue in U.S. alone on the PlayStation brand, and a 116% increase in software sales. At the worst possible time, if you’re hitting numbers and delivering success… my hope is that as our production efficiencies improve and more great games come to market, the horizon has got to be better for 2009 and 2010.
It’s like being out there in a storm–it does cause you to question your conviction, and tie yourself to the mast and weather the storm. We have hit a very challenging period of trying to sell future technology, a high-end device, but is on the high-end retail pricing spectrum, at a time when people’s disposable income is limited. But I think the fact we were successful in that says people are getting the message, that you get tremendous value when you buy a PlayStation product. Yes there are cheaper machines out there, but not ones that deliver the degree of value for the money that ours does.
The PSP Go is the first digital-only gaming device to come to market. Digital has always been part of our strategy. If you go back to PS2, there was no fee for the online service; not only broadband connectivity, but dial-up connectivity. As we sit here in 2009, and it’s like, “Who is interested in dial-up?” I think we brought in a lot of consumers with a free service and a dial-up connection.
You move to today, I feel like the PS3 is perfectly positioned. You like playing DVDs, but you’re not ready for Blu-ray? Fine, our machine plays them. “I’m not even interested in movies; I’m interested in game content.” Are you interested in disc-based content, or digital content? Because we can play both. And we can stream digital downloads of TV shows and movies in standard definition or high definition. So whatever the argument is, I feel like the PS3 is perfectly positioned to be the toll booth that everybody runs through.
We still have a significant portion of our business, and always will, in disc-based media, but we offered fully-downloadable games before anybody else did. When you bought SOCOM or you bought Gran Turismo 5 Prologue, that was available day and date in either digital format or disc format. Now we’re moving towards, with PSP Go and PSN, where the consumer will always have a choice, to say, “I want to download it my living room, if I want it digitally,” or “I’ll buy it at the local retail store, if I want it disc-based.” Nobody is cut out of this equation. The consumer has ultimate flexibility, brick-and-mortar retail is still embraced. But, I think the retailer understands that digital is here to stay and that they are not going to stem that tide.