On November 17,
Sony revealed last month that profits for the second quarter were down 94 percent to $14 million due to the recall of 9.6 million faulty laptop batteries at a cost of $432 million and the $367 million operating loss of the gaming division, attributed to preparation for the PlayStation 3 launch and declining sales of PlayStation 2 and PlayStation Portable.
The company’s future relies on the PlayStation 3 and the technology that comprises it. Originally slated to launch Spring 2006, the PlayStation 3 release was delayed until November because its two most exciting pieces of technology weren’t ready — the Cell processor chip and the Blu-ray drive. The complexity of the chip, co-developed with IBM and Toshiba, delayed the manufacture of a large enough quantity of consoles for a system launch. “The strength of the PlayStation 3 versus the competition lies in its ‘future-proof’ technologies,” says Kaz Hirai, CEO of Sony Computer Entertainment America.
The Blu-ray Disc was jointly developed by the Blu-ray Disc Association (BDA), a group of the world’s leading consumer electronics, personal computer and media manufacturers (including Apple, Dell, Hitachi, HP, JVC, LG, Mitsubishi, Panasonic, Pioneer, Philips, Samsung, Sharp, Sony, TDK, and Thomson).
This next-generation optical disc format has a slight technical superiority over its rival the HD-DVD, due to its ability to hold up to 25GB of data on a single-layer disc and 50GB on a dual layer disc vs. the HD-DVD’s 15GB. But the price of greater storage will be high. The future of the $24 billion home video market will depend on which format wins over the marketplace. This means the PlayStation 3 is fighting a war on two fronts, one on the gaming console front and the other on the video front. Since the Blu-ray technology is a new one, it has taken a much longer time for Sony to produce the necessary components for a console debut.
With all of the delays and expenses involved in creating a superior product, not only did the electronics company suffer a quarterly loss, but it’s also passing on some of the expense to the consumer. A PS3 will come with a hefty price tag, costing between $499 and $599, depending on the configuration of the system. “Over its lifetime, the PS3 represents a very good investment,” says Hirai. The delay of this technology also hurt Sony with its competition. When the PS3 is released on November 17, Microsoft will already have a lead with 6 million Xboxes shipped worldwide and over 100 games for consumers to choose from. Sony will only release 500,000 units in both America and Japan, compared to Nintendo’s worldwide launch of 2 million Wii consoles. Further consequences will arise for Sony from its delay of the European release of the PS3 until March.
Will the technology be worth the wait and cost? It depends. Many pundits believe the PlayStation 3 has a minimal technological edge over rival Xbox 360, “They seem to be capable of cranking out very similar experiences,” says John Davison, Editorial Director at the 1UP.com website, a Ziff Davis Media gaming community site. And the inclusion of Blu-ray in the PS3 may affect film enthusiasts even more than gamers. For some, the system’s power and Blu-ray drive make the PS3 a more desirable system over competitors’ Xbox 360 and Wii. But Sony’s costly price tag may only appeal to high-end users, which happens to be the same audience that purchases Sony’s expensive high-definition televisions.
The PlayStation 3’s design was aimed at the high-end market as well. Sony chose not to follow current design trends and adopt the color white for its consoles like its competitors. Instead, similar to its television sets, Sony opted for a glossy black finish. Also unlike its competitors, Sony designed a box for PS3 that’s even larger than its predecessors. Both Nintendo and Microsoft made their latest offerings smaller than previous systems to appeal to the contemporary aesthetic. Another difference in design is the PS3’s rounded dome bulging from its body, as compared to the Xbox 360’s concave shape that slims toward the center. The Wii is the smallest of all, roughly the size of a DVD box set. While others have embraced the notion of smaller being better, ala the iPod Nano and shrinking laptops, Sony’s machine ignores this trend.
And while the PS3 will provide a robust online experience, it is not without criticism. The PlayStation network will have a central hub similar to Microsoft’s Xbox Live, with micro-transactions of a few dollars to buy game updates or mini-games, and messaging to contact other friends who are playing online. “They’re taking our lead by copying features that we’ve had for years,” says Albert Penello, Xbox’s Director of Global Marketing.
What the PlayStation Network will lack is a unified hub for multiplayer gaming. Sony is once more allowing game makers to create and maintain online gaming for individual games. This may result in a more customized experience, but it creates a lack of standards. By sticking to an online gaming strategy similar to the PlayStation 2’s, Sony is differentiating itself from the successful Xbox Live (over 4 million members) just to be different. “Xbox Live is growing into a very impressive service. Sony’s strategy is quite different; we’ve yet to see the full fruits of a unified service (like Xbox Live),” says Davison.
Considering the climate that the PlayStation 3 faces upon its release, it’s going to be an uphill battle for Sony. The PlayStation 3 is the most expensive console of this new generation. The PlayStation 3 will have the least units out in stores for the holiday sales period. The PlayStation 3 has to compete with the originality and mainstream reach of the Wii. It also has to overcome Microsoft’s lead. “We’re offering more games, a better experience, all at a price point that actually makes sense to the consumer,” says Xbox’s Penello.
What may be most damaging to the PS3 release, is its comparison with its predecessors — PlayStation 1 and 2 — and the fact that each sold 100 million systems worldwide. “The six-year-old PlayStation 2 currently outsells the recently released Xbox 360,” notes Hirai. Yet it is unlikely that the $599 PS3 will approach the sales rate of the $129 PS2.
Considering Sony’s past stumbles with proprietary formats they pushed on the market, such as the Betamax or MiniDisc, the inclusion of Blu-ray could end up hurting the PS3 more than helping it. “It will depend on the success of Blu-ray and how quickly they bring the price down for PlayStation 3,” says Michael Gartenberg, Research Director at Jupiter. Gartenberg predicts that Sony’s chance to capture the mainstream will come after the launch.
“The market is most certainly Sony’s to lose,” adds Gartenberg.