Sony's software brilliance still isn't enough

Hardware pricing remains the elephant in the room, says Rob Fahey

Sony came to Gamescom with a lot to prove. In spite of a general consensus that the company had narrowly bested its platform holder competitors with its showing at E3 a few months ago, 2012 has not been a positive year for the company. Sales of the PlayStation 3 have slackened, while Vita has had the weakest launch of any PlayStation hardware platform ever. Sony's games division, traditionally a bright spot on the company's financials, turned a loss. If 2012 is going to be rescued, it's going to have to happen in the Christmas quarter.

The expectation was that Sony would begin its efforts to salvage a tough year by announcing a new model of PlayStation 3 hardware - slimmer and cheaper than the existing console. A PlayStation Vita price cut might also be on the cards, although that kind of embarrassing climbdown announcement is more traditionally carried out at a dour press conference in Tokyo involving a lot of bowed heads, rather than on a festive event stage like Gamescom.

"Pricing and hardware never troubled the stage. Instead, the company put software front and centre, with a strong, confident presentation which was rich with new IP"

In the end, though, Sony took an altogether different - and arguably more aggressive - approach to Gamescom. Pricing and hardware never troubled the stage. Instead, the company put software front and centre, with a strong, confident presentation which was rich with new IP. E3's over-long and rather botched Wonderbook presentation was redeemed with a set of announcements and video demos that suggest that the company could really be on to something in the kids market. Vita, embarrassingly neglected at E3, was given centre stage and an intriguing new Media Molecule title.

This was a conference presentation which had a strong sense of being carefully orchestrated by Sony Worldwide Studios, in so much as it was all about software. Certain strategic aspects of Sony's overall approach were visible in the mix - connecting Vita to PS3 is clearly seen as a major USP for both devices, while the extension of PlayStation Plus to Vita is a welcome move that serves to reinforce Sony's commitment to the (now thoroughly excellent) Plus service. In general, though, the casual observer would come away with the impression that Sony has only one strategy for success - "make great games".

Which is absolutely fair enough, and indeed a very laudable approach. As a gamer, it was glorious to see that Sony's ability to create and support titles rich in imagination, whimsy and creativity is still thriving - there's not a single title among Tearaway, Rain and Puppeteer that I don't expect to buy. "Show us the games" is a constant refrain when we watch conferences laden with corporate nonsense - and as a consequence, I end up feeling deeply churlish for being the voice in the corner saying "actually, that might not quite be enough".

"People buy consoles to play games, and Sony is quite right to identify the creation of those exclusive games as a vital part of any strategy to get people to buy its hardware"

Yet that's the truth. The work that Worldwide Studios and its partners is doing in creating exciting new games for PS3 and Vita is vital, and it's incredibly important to note the company's courage in defying industry conventional wisdom by creating well-funded new IP for a platform that's about to enter its seventh year on the market. People buy consoles to play games, and Sony is quite right to identify the creation of those exclusive games as a vital part of any strategy to get people to buy its hardware.

People also make buying decisions based on price, though, and the reality is that the PlayStation 3 has yet to crack the kind of mass-market price points which made its predecessor systems so dominant. Nearly six years since the launch of the console, its base model still retails for $249 in the USA, or £199 in the UK. By way of comparison, at an equivalent point in its lifespan, the PS2 was selling at $129 in the USA, while the PSone was already at a $99 price point.

Consumers may not be going out to research historical price-cutting activity in the console market, but they're smart. They know that console prices bottom out around the $100 to $130 range, and they know that the PlayStation 3 has been around for six years. The fact that the console launched at a (frankly ludicrous) $500 price point doesn't matter. It's six years old, and people don't want to pay $249 for a six year old piece of hardware - especially not people for whom gaming has become an increasingly cheap hobby in recent years, thanks to the rise of mobile gaming and other such trends.

"People don't want to pay $249 for a six year old piece of hardware - especially not people for whom gaming has become an increasingly cheap hobby in recent years."

So right now, no matter how great Sony's software looks, the company is in a waiting game with its potential consumers. The market knows instinctively that the price of the PS3 must fall - and having watched the 3DS bloody itself with a deep price cut after only a few tough months on the market, consumers know that the Vita can't hold its present price point either. Sony can offer all the goodies it wants in software terms, but if consumers are utterly convinced that they'll be able to enjoy those things for hundreds of dollars less in a few scant months, they'll hold on to their money.

A few weeks ago, I wrote that following the leaks of pictures of Sony's new PS3 hardware, a failure to reveal the new system and a steep price-cut at GamesCom would result in huge disappointment. It's wonderful to be wrong, because I was reckoning without the strength and breadth of the software line-up which the company would be able to unveil at the show. For the games media, no price cut is remotely as exciting as a batch of great new games, and quite rightly so.

"In the end, I expect that market realities will win out. Sony will drop its hardware prices this autumn, because it must."

Yet reading editorial after editorial this week suggesting that Sony's conference showing has "rescued" its consoles from tough market conditions, I can't help but feel that this is a naive assessment. It's not enough - tough decisions still need to be made at the dull corporate end of things if Sony is going to turn 2012 around. Make no mistake about how tough those decisions really are; the incredibly strong Yen ties Sony's hands, meaning that any price cut overseas cuts twice as deeply in Sony's financial results.

In the end, I expect that market realities will win out. Sony will drop its hardware prices this autumn, because it must. Neither Vita nor PS3 can continue on the market for long at their current price points, regardless of the impact this will have on Sony's financials. The good news, though, is that the excellent work being done by Sony's first- and third-party developers should amplify the sales impact of any price cut - creating yet more pent-up demand which will be released by the lower price point. GamesCom's strong showing will give Sony a bump in the market - there's no question of that - but first, the pricing decision the market is waiting for is going to have to be made, no matter how much it hurts.

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Latest comments (20)

Bruce Everiss Marketing Consultant 6 years ago
The traditional end of cycle price cuts lead to a change in customer demographic. They become much younger, for starters. Which leads to a change in which games are successful.

It looks like Sony are caught between a rock and a hard place. In the past they have ruthlessly used the Gillette Razor marketing model, subsidising the platforms and making the profit on the software. But with their losses and financial position they seemingly can't afford to do this any more.

The knock on effect of this is that Microsoft get an easy ride and keep the Xbox 360 price up. So with all the living room consoles being overpriced for the market we see the effects of price elasticity of demand. The whole market is much smaller than it could be.

Playstation 3 has only sold about 66 million units worldwide, compared with 154 million for the Playstation 2 and 104 million for the original Playstation.

And just to show how the market has changed so radically, over a million new Android devices are registered EVERY DAY.
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Caspar Field CEO & Co Founder, Wish Studios Ltd6 years ago
...and every day, six months later, ~900,000 disappointed Android owners wish they'd bought something better ;)

Consoles should go subsidised, like phones, bundling in services (such as PlayStation Plus). I very much doubt the iPhone would be doing quite so well if you had to buy it up-front. An unsubsidised base-model iPhone 4S is £499, rising to £699 for the 64GB version. Even the venerable 8GB 3GS is £319 off-contract. Those prices make a PS3 or 360 seem like a pretty good deal.
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Terence Gage Freelance writer 6 years ago
Interesting to read that the PS1 and PS2 were at $99 and $129 at the equivalent points in their lifespan. I wonder how much room to manoeuvre the PS3 has on its current price-point, unless the super-slim is real and is coming soon at a cheaper price.

In software terms I think Sony is much braver and more interesting than Nintendo and Microsoft combined, but they really need to sort out their marketing. Their marketing used to be so cool and edgy, and these days it just all seems so half-hearted. I can't remember the last time I saw an ad on a billboard or a bus stop, or on TV or in a magazine for a Sony exclusive. Not to mention they should be getting the word out about the Vita, which it seems is still unknown to a lot of folk. The Vita definitely needs a price cut - and they should probably swallow their pride and include a 4GB memory card in the box too - and generally speaking I don't think bundles will do the trick. They need to give consumers the choice to buy the console for, say, £150 with a memory card, or £170 with a memory card and Wipeout or Uncharted or Gravity Rush. They'll likely lose money on each sale initially, but with the goal of market share and hopefully making that money back from each consumer over time.
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John Bye Lead Designer, Freejam6 years ago
Caspar hit the nail on the head. If Sony really want to turn the market on its head, they should give the PS3 or Vita away free with a PlayStation Plus subscription at (say) $10-15 a month for a 2 year period, just like a mobile phone. Plus is a fantastic service, offering tons of free games, free one hour trials, monthly discounts and more. A deal like that could bring a lot more people into the PlayStation ecosystem, and get them used to downloading their games as the industry moves away from retail.

Edited 1 times. Last edit by John Bye on 17th August 2012 2:06pm

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That would be a incredible biz model indeed. Contract console bundles!
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Stephen Richards Game Deisgner 6 years ago
It's easy for us consumers to say the vita should get a price cut, but just look at its specs and compare them to what you'll find in smartphones and tablets. Compare its processing power to the ipad's (it's better). You'll realise that the vita's already at a very subsidised cost compared to its competitors and if it was loaded with android or ios it'd be by far the best value for money purchase on the market. Focusing on the software is exactly what Sony needs to do because that's what'll make the vita stand out. A price cut is largely irrelevant to Sony's core audience, most of whom already own smartphones and will only be drawn to the vita if it has some superb exclusives.
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Jed Ashforth Senior Game Designer, Immersive Technology Group, Sony Computer Entertainment Europe6 years ago
Something very similar is already being dabbled with by Microsoft - [link url=""][/link]

Seems like sound reasoning for both the business and the consumer, although those prices seem a bit oppressive.

Edited 2 times. Last edit by Jed Ashforth on 17th August 2012 5:06pm

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John Bye Lead Designer, Freejam6 years ago
The Microsoft offer isn't great value for money, and you still have to pay $99 for the console up front, which makes the whole thing less appealing, especially as you get the entry level 4Gb model which doesn't give you enough space to really take advantage of Xbox Live content.

Some retailers in the UK offer free PS3s and Xbox 360s with mobile phone contracts, so it can't be beyond the realms of possibility for the console manufacturers to do something similar themselves without involving a phone. Especially in the case of Vita, where the 3G model needs a data contract anyway.

Edited 1 times. Last edit by John Bye on 17th August 2012 5:22pm

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Sam Maxted Journalist / Community / Support 6 years ago
Many consoles are somewhat subsidised anyway by licence fees, as far as I'm aware? I know Nintendo made a profit on each Wii sold from day one, but from what I understand this is the exception rather than the rule.

I know where you're coming from with this though, and I think there's some mileage to be gained by offering this as an option. From a personal point of view I hate and want nothing to do with this model as a consumer, as it results in people eventually paying over the odds for what they're actually getting. However, if supply can keep up demand, this could really rocket a console's installed base early in its lifespan.
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Dave Wolfe Game Developer, Cosmic Games6 years ago
@Stephen I agree with you about the cost of the Vita, but the cost of the memory cards is outrageous.
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Tony Johns6 years ago
Nobody seems to be happy with the cost of hardware these days.

Hell, I know a time in my life when I had to pay $100 for just one game and $400 for just one console that had no games packed in.

Sometimes I feel that we all have short term memories, and maybe because $$$$ and jobs are harder to come by and the cost of living has always gone up every year that we seem to demand games for cheeper and have forgotten that only those who are lucky enough to save up are the ones who are early adaptors of technology.
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Bill Garrison Studying Student, DigiPen Institute of Technology6 years ago
The missing component in Sony's business model for the PS3 is some kind of paradigm pushing multimedia service. Microsoft intelligently marketed Kinect as not just a new gaming interface, but a next generation TV remote. With all the advancements in the smartphone arena, people expect a lot more out of user interface. Its very ironic because Sony had trouble early in this generation with messaging the PS3 as a game console, versus a media hub. They invested so much technology money into giving the PS3 the exact edge that the 360 now has, but they never thought about how to actually execute such a product.
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Stephen Richards Game Deisgner 6 years ago
@Dave yes that's true, though my opinion is the real problem is not the cost of memory but the fact that the vita doesn't come with say 4Gb on-board storage. After all, apple charges exorbitant amounts for extra memory and no one seems to mind...
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Zan Toplisek6 years ago
@ Stephen: You can't compare Vita directly with smartphones or tablets. It's like comparing apples and oranges. Vita is a dedicated handheld console, whereas smartphones and tablets are all around devices where gaming is just a part of the whole experience. Yes, yes, Vita offers more than just games, but does it no where as well as smartphones or tablets. Also, people don't buy Vitas to watch Youtube videos and surf the web, they buy tablets. So to compare Vita's price with, say, the iPad's is quite absurd.

I also don't agree with you saying the price is good as is. Only the hardcorest of Playstation fans got the Vita so far, the rest are waiting for the price to drop and quality content to arrive. Or, even worse, don't seem to bother at all. Even when the promised quality content arrives, the typical core gamer will still have trouble with spending 250 + 50 EUR for the initial experience. Content is key, but it's not for free, it costs money too. It's also good to keep in mind that if a core gamer is ready to drop 250 EUR on a console, it doesn't necessarily mean he/she is willing to drop the same amount on a handheld.

With that said, I completely agree with the author of the article, Sony desperately needs to drop the price.

Edited 1 times. Last edit by Zan Toplisek on 19th August 2012 12:56am

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The cartel that is the console publishing scene is about to break and all that we can do is watch from the sidelines.

I wish the industry was more adequately formed to allow voices to be heard, and comments and opinions to be recorded - we are left with commenting on media pages and emailing parties. No serious trade news service (MCV is a joke) - and now we see that the mainstream of the consumer console media has sold out to support their chance to get the Gen-8 exclusives - all this while the retail sales structure crashes and burns!

The console machine contract idea is a great one, though MS and Sony as well as Nintendo would find it impossible to emulate due to their current business model, and handcuff status with retail!
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Nick Parker Consultant 6 years ago
These debates are interesting for divining what can and cannot be done by console manufacturers. The Vita with PS3/PS4 interoperability seems like an iTunes clone aspiration especially as Sony turns on Cross Buy and could become unique among the three manufacturers as a static with mobile business model along with PlayStation Plus support. Content is always king so we should hope Sony have devised a clever user experience within their hardware eco-system for the new software announcements.
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Klaus Preisinger Freelance Writing 6 years ago
If you looked at the people visiting the booths of f2p games at this year's gamescom, then you can't help but think that consoles have lost a lot of drawing power. One could say this was an "end of console cycle" phenomenon, only this time, people did not look at PC games featuring spectacular graphics which shamed consoles. Instead, people flocked to f2p games which they liked for their gameplay.

It is my opinion that having the big f2p games exclusively on your console is going to be of vital interest for console manufacturers during the next hardware cycle. Having Bungie and Epic Games exclusive titles will still be important, but signing Riot or will be more important. Those are just the games, providing access to the community culture surrounding those games (forums, social nets, videostreams of various origin) is the next must-have feature.
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Nick Burcombe CEO & Co Founder, Playrise Digital Ltd.6 years ago
Hmmm. I agree with the subsidised thing to a point - particularly with Vita....shame the Sony Ericsson buy-out didn't happen earlier and perhaps a genuine Playstation Phone could have been a serious contender with Apple and Samung.
Also those ~900,000 Android owners (PER DAY! - I might add) ( , may not be happy with is as a games console, but that's not the reason they bought one either.
The mobile phone is considered an essential lifestyle item all over the world. And Smartphones, in some ways, are only really just getting going. With this in mind, I'd say that the second part of your argument regarding the perception of value doesn't really stand up. The cost of the phone can't be measured against the cost of a console as they serve completely different purposes. Everyone I know with a consoles also has a phone of course. But it of course not true the other way around. Console gaming is not ubiquitous and console don't come with the other key benefits that (arguably) facilitate peoples ordinary lives in the way mobiles do. They are limited-use devices - regardless of price.
Clearly, price is not a barrier for customers either. As you say £500-700 is not uncommon - but something we often forget is that this reiterates pretty much every two years - this is a product life cycle the consoles industry, nor AAA budget developers can adopt.
So this is where the consoles are going to come real under pressure. The next generations of phones and tablets are going to be able to close the gap on consoles in terms of graphics and user experience. You can increase the graphical output for the PS4 or the XBOx720 all you like, but in the end whose going to notice once it's 'good enough' - I know people (so called core gamers too) who had their PS3's in 576p mode for years - they still thought it looked great.... All the console business will be doing if it follows the same old business model is bumping up development costs again and becoming more and more adverse to risk taking.
The mobile and tablet gaming market is forecast for 24% year on year until 2015 whilst consoles are forecast for a 2% decline (EA's numbers not mine). The numbers speak for themselves: By 2017 there will be an estimated (Ericsson) 9bn mobile phone subscriptions in the world ( Currently only something like 26% of the current 6.2bn subscriptions, are actually smartphones. By 2020, there won't be any "dumb-phones" at all - even in so called "developing countries" , so there's still over 70% of the mobile phone eco system yet to get on the smartphone wagon! I find that amazing.
The console market by contrast is looking increasingly staid, sluggish and unwilling to innovate and in terms of product diversity mobile has it licked. Sure graphical quality has been an issue in these early days of mobile, but don't tell me Doodle Jump or Angry Birds et al, weren't fantastically profitable.
No, in my eyes, the stand-alone, works-in-isolation, console that sits under the TV has it's days numbered....there I said it ;) I sometimes wish Sony, MS and Nintendo would quit the hardware war and bring all their IP to the mobile space......Here's a much do we think "the big three" are leaving on the table not exploiting their IP? God of War, GT, Forza, Halo, Mario, Smash Bros? As an indie developer I fear the arrival of those big guns, but with the digital democratisation of publishing, hopefully we'll all get a crack at this ever-expanding mobile market? (This was in response to a post much earlier - just hadn't pressed send ;))

Edited 1 times. Last edit by Nick Burcombe on 20th August 2012 10:31pm

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Caspar Field CEO & Co Founder, Wish Studios Ltd6 years ago
Hi Nick,

(The 900K unhappy customers joke was a small sideswipe at Android as a smartphone, not as a gaming system. I can't wait to get an iPhone again.)

I wasn't comparing the cost of a console to a smartphone as much as really comparing the cost of anything bought up-front versus being subsidised. My feeling is that it's unlikely that any £500 'electronic massmarket thing' - no matter how desirable - would be a success if it had to be purchased outright before use. That was my point. I'm just suggesting that extending the already-existing console subsidy model (funded by royalties on discs) by bundling it with services on a two-year contract would lower the barrier to entry.

Consoles already are no longer 'consoles' as they were when I was a kid. They can play movies & music, access social networks, run iPlayer - they have already become multimedia home entertainment hubs, as well as games machines (to the occasional chagrin of hardcore gamers). Just as subsidisation has enabled the vast growth of installed based for expensive smartphones, so that could be true for TV-connected gaming devices.

Whether or not more powerful consoles are needed... I don't know the answer to that. I used to think PS2 was probably 'good enough' for most people. But the visual benchmarks of the wider world - animated movies, adverts, TV shows, magazines - will all keep moving, all keep improving, so I'm not sure that games can attempted to exist in isolation of all that. Smartphones aren't - they're moving forward, technically, with enormous pace, as you point out. So why shouldn't consoles? (I'm ignoring production cost issues in that argument, as they also affect smartphones, etc.)

Personally I would hate to see 'TV-connected gaming' (avoiding the 'c' word) die in favour of mobile gaming. I enjoy both, but I think there's something really special about playing a game on a large screen. So, coming back around to my original point, I'm just thinking of ways that consoles/ TV-gaming devices might flourish in this new world. And yes, they need more open marketplaces, and less complex controllers, and all of that stuff that everyone's said for years - but those are relatively soluble problems.
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Sabeer Kibria Studying Electrical Engineering and Computer Science, University of California6 years ago
I don't really understand how you can say that. The cost of hardware development, and the cost of the components do not change at all. What you're asking Sony to do is to cut even deeper into their losses, which they can't do because they have investors to show what they spent their money on. Can they guarantee all the losses on the Vita, which they're already selling at a loss, will be recuperated by software and accessories sales? The PS3 may need a good price cut, perhaps of about $50 or Euros, whatever you prefer, but I believe Sony can't handle another loss since they're already selling the Vita at cost/loss.

On the other hand, I believe where Sony is failing on the Vita is lack of proper marketing, and poor focus on software. What needs to be done on Sony's end is to push the low cost games, and market it directly against their tablet competitors such as the iPad and the numerous other tablets being marketed now. They need to allow for developers to create applications that increase functionality also, such as allowing Opera, or Google, to make their own web browser for the Vita. A venue for cheap and affordable small games, much like you see on Android, or iOS, would eliminate any argument of superiority over the Vita with the exception of the screen size. 5" SAMOLED+ Displays, cutting edge ARM processors, and advanced inputs don't come cheap. To put your price in perspective, the cheapest tablet with comparable hardware is the iPad 2, which is about half as powerful as the Vita, and has the same RAM. It retails for around $400 in the US. I don't have an idea of European prices. Why does Apple get so much slack for charging so much more for their iPad with inferior hardware? The cost of a 16GB card with a Vita and a game is still under that cost ($340).

A price drop of 50 EUR or dollars means they have to recuperate that per system. That accounts to an attach rate of 2-4 games per console depending on many factors including development costs, whether the game is 3rd Party or 1st Party, how many games they sell, and many other factors.
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