Is Sony fighting a losing battle?
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Sony is facing a struggle over its PlayStation 3, with critics concerned about the processor and the price. Jack Schofield reports on the next stage in the console wars[/FONT]
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Thursday August 3, 2006
The Guardian
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At the E3 games trade show in Los Angeles in May 2005, Ken Kutaragi, head of Sony Computer Entertainment, proudly announced the PlayStation 3 as a "supercomputer for computer entertainment". The man who created the PlayStation phenomenon now had an unbeatable hardware specification, including a new multi-core processor and a high definition Blu-ray movie player, plus an incredible series of game demos. The world's press lapped it up.
Sony already dominated the games market, having comprehensively crushed both previous leaders, Sega and Nintendo. Now most people seemed willing it to grant it victory in the battle for the next generation, before any of the machines had even been launched.
But it has been all downhill from there. "People in gaming and game publishing are drastically less excited about PlayStation 3 than they were a year ago, and competition is looking much stronger," says David Cole, a market analyst and president of San Diego-based games specialist DFC Intelligence, quoted in The Wall Street Journal.
First to worst
Sony could even go from first to worst. In a research note published on its website, DFC commented: "While it has always been clear that Sony's dominant market share was destined to decline, there now appears to be the distinct possibility the PlayStation 3 could end up third in market share behind both the [Microsoft] Xbox 360 and Nintendo Wii (
tinyurl.com/rjvo8)."
So how did it come to this?
The backlash started with the Killzone game demo shown at E3. This was hotly debated in the online community of games sites, blogs and chat forums, and the influential IGN site (since bought by Rupert Murdoch) announced that "IGN believes, overwhelmingly, that the video is a fake".
The PS3's new Cell processor came in for similar treatment, prompted partly by Major Nelson (
majornelson.com), a Microsoft employee who has become, in his own time, a hugely popular blogger. The Cell does, in theory, offer supercomputer-type power, as Kutaragi claimed. However, doubts were raised about its suitability for games playing, and whether software developers could actually exploit its power.
This point was made by star programmer John Carmack, co-creator of Doom, who famously called the Cell chip a "pain in my ass". According to a breathless Forbes magazine cover story, Holy Chip!, the Cell "runs at least ten times as fast as Intel's most powerful Pentium. More important, Cell boasts a staggering fiftyfold advantage in handling graphics-intensive applications that will define the next generation of visual entertainment (
tinyurl.com/metvd). Odd, then, that it can't seem to drive the PS3's graphics - Sony eventually turned to nVidia for a PC-type graphics processor similar to the one used in the Xbox. The reality still seems to be a little short of the hype.
Image battering
Blu-ray's image has also been battered during the past year. It was initially seen as the inevitable successor to DVD, but the rival Toshiba-backed HD-DVD high-definition system - which also uses a blue-ray laser - got to market first. In the US, Sony didn't even make the commercial launch of its own format, as its standalone Blu-ray players were repeatedly delayed. Worse, the Samsung BD-P1000 player that was released performed worse than expected, apparently because of an "incorrect default setting" in a chip.
Although HD-DVD is still the underdog, it has also picked up support from Intel and Microsoft, who were concerned that the Blu-ray camp's commitment to copy protection might put a damper on their plans for exploiting video in Viiv and Media Center PCs.
Then there's the price problem. In going for new technologies with Cell and Blu-ray, Sony has committed to using components that are much more expensive than the ones in the rival Xbox 360 and Wii consoles. As a result, the PS3 will cost $499 for the low-end model and $599 for the full-spec version - probably £425 in the UK. That's 50% more than an Xbox 360, twice the price of a Wii, and more than three times the price of a PlayStation 2.
Rather than dampening down the overheated online arguments about all these issues, Sony's staff have tended to feed the flames, appearing remote or even arrogant. For example, Kaz Hirai, president and chief executive of Sony Computer Entertainment America, recently told PlayStation Magazine: "Every time we go down a path, we look behind and [Microsoft is] right there - we just can't shake these guys. I wish that they would come up with some strategies of their own, but they seem to be going down the path of everything we do."
It's a remark that Hirai might have got away with in an earlier age, but it was instantly dismembered online. Microsoft was first to put a hard drive in a console, and pioneered with its Xbox Live community building (or both Microsoft and Sony are following the Sega Dreamcast). Microsoft was first to do a global console launch, which Sony is emulating. Microsoft offered two versions of its Xbox 360 console - which Sony said was a bad idea - but there will be two versions of the PS3, and so on.
Paul Jackson, who specialises in consumer technologies for market analysts Forrester Research, says: "You can't overestimate how much negativity there is around the PlayStation 3 in the Web 2.0/blogging space, even among hardcore PlayStation fans. The stories just keep getting worse and worse. They've got a real fight on their hands."
But Sony isn't fighting it. Microsoft had Major Nelson embedded in the online community, and it fed the press a string of encouraging titbits about the progress it was making. Sony, by contrast, is often silent, and one contact told me the games developers weren't saying anything because they were "scared of the wrath of Phil Harrison", who is president of Sony's worldwide studios.
Others describe Harrison as "a really nice guy", and on the phone he sounded remarkably laid back. According to Harrison, "it's all going well. We are in full swing, from a developer point of view, and over 10,000 development kits have been shipped. Developers now have final hardware in their hands, though there will be some upgrades to the operating system - there's nothing unusual about that. The new controller is now in developers' hands, so all the pieces of the puzzle are there."
The development systems have Blu-ray drives, and Harrison says many developers now have Blu-ray burners in their PCs, "so they are now doing their first iterations of games running off discs".
Harrison says: "We have shown more playable games than ever before, so the signs are good, and right now there are more than 100 Blu-ray movies available today, in the US. More than 100 games are in development, and all the major third-party publishers have pledged their strategic support for the platform."
Developer support is a key issue, because of the cost. "The risk of developing a computer game is now much bigger than it was before. They have to be the quality of big budget movies with the same quality of character acting, animation, music, design and so on," says Jez San, author of StarGlider and founder of the now-defunct Argonaut Software, and an investor in a company developing a major PS3 game, Heavenly Sword. "In the old days when games cost £1 million, it was bad enough," says San. "Now it can cost £5 to £10 million to develop one game for one platform, and no one can afford a flop."
I have found San a good guide to the industry over the past two decades, and he thinks the PS3 will win, "but only because it's got Blu-ray". San says: "I think the combination of a next-generation games machine and a next-generation DVD payer that plays full high definition movies is very compelling, despite the huge price.
"Remember, price is just a function of time and volume. It doesn't matter what the PS3 comes out at, it's what it gets down to, over time, that's important."
At Forrester, however, Jackson thinks Blu-ray "is not really going to be a deal-maker, given the paucity of Blu-ray films. At the moment, consumers are not clamouring for something better than their DVDs," he says, "but it could still be a force. Far more people will go for a PS3 than spend $1,000 on a Blu-ray player, so Sony stands a good choice of coming out on top. But it will be a hard fight, and consumers still have Beta versus VHS in the back of their minds."
Jackson agrees that "it's a question of how quickly [Sony] gets the price down. You can't get to the mass market until you get down to $300/£200." That will be hard, given that iSuppli and Merrill Lynch have estimated the cost of the parts needed to make a PS3 at between $700 and $880. It's normal to launch games consoles at a loss, but losing $200 on 10 million machines will cost Sony $2 billion, and Sony's games division has already reported an operating loss of $231.5 million for its latest financial quarter. Microsoft's games division loses, or invests, similar amounts, but Microsoft can afford it.
Still, Sony is now gearing up for its next big push, which will start with the Tokyo Games Show on September 22. Kutaragi is scheduled to give the keynote speech: Next Generation Entertainment Made by the PS3. All being well, this should be followed by the PS3's launch in Japan on November 11, and in the US and Europe on November 17.
Stock shortages will ensure the PS3 sells out for Christmas, but the real battle will be fought next year and there may not be a winner. As San points out, for the first time, all three machines have their own appeal, they're not just "me too" efforts. A three-way tie is a possibility, and that would set up an even more interesting battle for the next round ...
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