Sony wants to sell Blu-ray, we want to play video games: A primer

Sam Kennedy, 1up’s editor, has a long blog post about Sony’s disarray and the possibility that the PlayStation3 will tank. It’s a good post, and he works out a lot of stuff that’s in his mind. But it also shows how narrowly the video game press has been looking at the console wars.

When he gets to talking about the price, Kennedy writes “It also seems like there’s a bit too much riding on Blu-Ray,” and later adds that “it’s almost as if Sony are completely banking on brand loyalty and Blu-Ray.” Whoa, wait a sec: He’s just getting around to figuring this out now? Of course there’s too much riding on Blu-ray. Blu-ray is the sole reason Sony is stumbling so badly.

This started to become clear in January, when Next Generation ran a story on Sony’s plans for PS3:

This play [including Blu-ray] potentially represents Sony’s most important move in its entire history. Imagine; a royalty for Sony on every single DVD sold between 2006 and 2012 or thereabouts. … Michael Pachter, analyst at Wedbush Morgan Securities says, “A lot of people in the games media are missing the picture here. This isn’t about Sony versus Microsoft. This is about Sony versus Toshiba. Everything Sony does regarding PlayStation 3 is colored by that fact.”

Then in February, Merril Lynch put out a widely publicized report that estimated each PS3 cost Sony $800 to manufacture. The big story there was that each Blu-ray drive added $350 — basically the price of an Xbox 360!! — to the cost of making a PS3. As I wrote at the time,

Still, it’s a big bet and sort of an inexplicable one. Sony is miles ahead of Microsoft in the current generation. The Xbox 360 has had a disastrous launch, and barely made a dent in the PS3 hype. Subtract the $350 for the Blu-Ray drive, and Sony would only be spending $450 per unit — then with a $399 price tag Sony basically wouldn’t be taking a loss given accessory sales, or could easily afford the loss to include a hard drive and still undercut Microsoft with a $299 price. Either the mother ship badly wants Blu-Ray to win, or they’re a little too scared of Microsoft.

It turned out to be the former: As a New York Times article (no longer available free) about the next-generation DVD war started to make clear, Sony was basically betting the company on Blu-ray. For anyone familiar with Sony’s recent failures with proprietary technology, this did not inspire hope. I wrote:

I’m worried — and all gaming fans should be — that Sony has chosen the PS3 to make its last great proprietary stand. Sony had to back down on its original DVD format and join a rival group. The 90s explosion of cheap, high-quality electronics from elsewhere in Asia made Sony’s brand-name edge moot. The company missed out on a whole new generation of consumer electronics when Apple succeeded with the iPod and iTunes. The flat-panel TV boom has made Sharp and Samsung as prominent as Sony. The PSP’s proprietary UMD format is fizzling.
…
In a typically astute New Yorker column about Sony’s proprietary vanity, James Surowiecki wrote: “Ultimately, Sony doesn’t have much choice: it will either change or continue to come up short.” The Blu-Ray bet shows Sony is not yet ready to change. This might be the final time the company has a choice in the matter.

In March, 1up’s Jeremy Parish wrote critically of Sony’s PlayStation 3 bumbling, but didn’t mention the Blu-ray factor. Shortly after, Sony announced the obvious: that PS3 was delayed until November. Right around then, Hollywood Reporter ran a story about the failure of Sony’s proprietary UMD movies (the discs that run on the PSP); coming on the heels of a similar Variety story, this didn’t inspire confidence in Blu-ray, a far more important proprietary Sony format.

In April, a European Sony official supposedly slipped and said the PlayStation 3 would launch at 499 to 599 euros, which translates to roughly $600 to $750. Sony backtracked, but I said at the time that it didn’t matter; there was no way the price would top $499. I was wrong about that, but because of this:

So Sony has to take one of two bets. Either consumers will flock to a $600-$700 machine, or Blu-ray will win the DVD format war and eventually make up for the huge loss Sony will take on each PS3. No company worth its marketing VPs would take the first bet. And only a company so obsessed with past proprietary victories that it ignores a decade of consumer electronics trends would take the second bet.

I didn’t think the Blu-ray problem would override their sense as a consumer technology company. But it did.

Then came E3, and the announcement that the PS3 would cost $500 and $600. Kennedy writes, “Is the PlayStation brand worth $200 (or $400) more to people? … really, a lot of this comes down to the games. …. People are looking for: A. games that are exclusive to the PS3 (come on Sony, start talking about stuff like Soul Calibur 4 or World of Warcraft!), B. games that look or play $200 better.” (emphasis added) The real problem with the $600 price tag is that, because of Blu-ray, there aren’t going to be games that look $200 better. That is, the price difference between PlayStation 3 and Xbox 360 has nothing to do with video games:

At least at first, the PS3 games probably won’t look so much better that people think “ah, that’s why I paid $600.” People won’t think that because they’re not paying $600 for movie-quality graphics. They’re paying $300 or $350 for graphics that might be a bit better than Xbox 360’s, and $250-$300 for a Blu-ray player. That’s something video game buyers haven’t had to contemplate before.

Kennedy’s prescription is for Sony “to make PlayStation cool again.” But that would mean they’d have to start thinking about the system as a game machine. Or a game machine and a home entertainment hub. Or that plus a new way to easily and cheaply download music, TV, and movies to the living room. Or whatever.

But Sony as a whole isn’t thinking about the PlayStation 3 in any of those ways. If they were, they’d have a coherent plan and timetable and vision and not be stumbling from announcement to announcement, having to defend the $600 price tag in increasingly ludicrous ways. Sony is thinking about the PS3 as a means to win the next DVD format war. It’s time to stop asking Sony whether they’re scared of the 360 and Wii, or why the PS3 costs $600. Or rather, it’s time to stop asking those questions free of context. It’s time to start asking: Why are you betting so much of the company’s future on a possibly unnecessary format war, and why are you holding the PlayStation 3 hostage to this decision?

— June 23, 2006