In the last few weeks GamesIndustry.biz grilled Microsoft's EMEA VP, Chris Lewis, on the state of play for the Xbox business. Now it's Sony's turn.
Here in part one, senior VP and MD for the UK, Ireland & Nordic regions at Sony, Ray Maguire, talks about the company's plight in the current economic conditions, the success of the PlayStation 3 in the UK despite its premium price point, and the importance of first party innovation and risk-taking. Part two will follow next week.
Q: 2009 so far hasn't been easy for too many people - is it a tough time for Sony at the moment?
Ray Maguire: Yes, it is, I think it's a tough time for everyone. Probably more so in the UK, because we're hit by the effects of currencies - euro, pound, yen and dollar - and the weakness of the pound is definitely an issue that affects us more than the rest of SCEE. We have to do as much in this office as we can to make sure that we can build on the success we had last year in terms of the units we sold, great IPs that we had to bring to market.
This year we've got even more, even better product to put out there - but trading is difficult, it's really tough. Just credit insurance - credit limits are going to challenging for the whole of the year. These are things which are completely out of Sony's control - it's about the environment in which we trade, but we have to be responsible, we have to do what we need to do to make sure we give back to the shareholders what they need.
Q: This time last year general opinion suggested that Sony held a strong position - but there were things, as you reference, that have made life tough for Sony that it can do nothing about: the strengthening yen, and a poor climate for consumer spending overall. Neither of those things play into the hands of a company that manufactures premium products...
Ray Maguire: That's right - for any product to gain an installed base it needs two things - a great product, and a good price. We've clearly got the best product you can get, so there's a big tick in that box. The price - it's a premium product, so therefore it costs a premium price, and that does give us issues in terms of the expected sell-through that analysts and the media want, but actually when you look at it in isolation: close to a million units in a year which is really tough, at a premium price, actually shows that's a great number.
If you look at the RRP that we've had out there for 2 million units, and compare it to PlayStation One and PlayStation 2, it's amazing that we've got to this kind of level. Actually, I'm really pleased with that - it does show that the premium product was the right strategy to have.
It also shows that we have potentially more longevity in PlayStation 3 than we had in the previous PlayStations, simply because if the price goes down we've still got a massive market place to sell in to. Really that's testament to the risk that was taken - do you have a fully-loaded feature-set, or do you just go for price?
If you just go for price at the moment it must mean, by looking at the stats, that the cycle will be shorter for those which are not so forward-facing, compared to PlayStation 3 which has clearly got many years to run.
Q: And on the other side of the coin, a depressed economic climate makes it virtually impossible for anybody to invest the USD 2 billion-odd that it would take to put out any new generation of hardware. So does that play into Sony's hands?
Ray Maguire: Each iteration has an increasing big number when it comes down to development costs - that's for certain. It's also fair to say that a lot of time and energy is spent by media and analysts looking at installed bases, and the growth rate of installed bases.
What really we need to look at is whether or not you have a base that's big enough for third parties - and first parties - to sell software against? And I think the answer, as soon as you get to 1.5 million-plus, is yes.
If we have a look and analyse software sell-through at different points of installation, after you're at this level it sort of tails off. So a really good, solid-seller in the UK will be around about 200,000, and something astonishing will still be 600,000, maybe pushing up a little bit more than that. Those are the kinds of levels that you get.
While there's a lot of focus outside, internally we just have to ask if people still want our products, are we building numbers, are we building the services that support the proposition we have? The answer is yes. Would people like the price to be lower? Of course they would, because who wouldn't? But at the end of the day are they still getting value for money? Yeah, they probably are.
I think the focus for us is just making sure that the product is right, and making sure that the services that surround it start to grow, start to give value back to the consumers that have already bought into the PlayStation 3.
Q: And ultimately, when you've got a high manufacturing price point, that has to play into the business model in the short, medium and - frankly - the long term as well?
Ray Maguire: Yes it does. Many people have questioned the wisdom of Blu-ray, but quite simply our machine crunches so much data that you couldn't do without it. The fact that we have got Blu-ray there with multi-layers as well, going up to some serious capacity, that's the right way. No one wants to be changing disc after disc after disc after disc to get their content into the machine.
I fundamentally believe that was the right decision, although it adds cost to the PlayStation 3... but then, of course, as a Blu-ray movie player, you're all good to go.
I think sometimes people don't look at prices of consoles and then consider what happens when you add on more memory, a Blu-ray drive, other elements. You start adding them up and it comes to the same sort of price as a PlayStation 3 in the end.
Q: The problem is, though, that in a time of booming economy people will add those up, and perhaps choose the console that gives them the greater lifespan, and represent the most value for money over time - but in a difficult economic time, if people are looking at a purchase decision, they're more likely to go for something that's more entry level, with the option of adding to it later. That's the challenge for the PS3 versus the other consoles right now.
Ray Maguire: Possibly - people have to make whatever choices that they have to make at the moment. This is the time people buy what they want. The emotional decision is more difficult, and we are becoming more emotional in our decision-making - that's just how we're evolving. I think if we show them them the connection, that PlayStation 3 has more longevity, that products we have such as Killzone are must-have products - when you start to see the kind of quality that these products are giving... I'm sure when you see Gran Turismo 5 it's one of those jaw-dropping moments, and people see what they're buying into.
That's the decision. If you want it, you'll have it. It's a question of are there enough people to pay a premium price for a premium product, and the answer is that there will be enough. We just have to make sure that we can add the value, so they feel they've made the right decision.
Q: Ultimately the videogames business as a whole will be generally less affected than certain other industries. It's still a growing entertainment genre.
Ray Maguire: Yes, last year was a record year, for everyone. This year, whether it'll be bigger than last year, I don't know. I would imagine probably not - but if not, it won't be far away. Software is still going to be strong this year, peripherals are great - we have a good attach rate there. In terms of hardware we'll have a good, solid year this year, especially with PlayStation Portable, which is basically evolving.
So I think think it's going to be a tough year in actually getting through it, but we will achieve some good results.
Q: You talked about the installed base from a third party point of view - but platform exclusives seem to be receding, so how important is the work that first party is doing in terms of bringing added value through to the consumer?
Ray Maguire: It's very important. We've always had the model that third party is the larger proportion of our business, comparing it to first party, and also we have a different task. We need to take some slightly bigger risks, because that's our job as a format-holder. We have to show what the PlayStation 3 can do.
If you look at some of the innovation that we've brought out, whether that's EyeToy or Buzz!, all these things have been done because we had the ability to play around and just see what PlayStation 2 and 3 can do.
That's still a requirement of first party, to push the envelope and try things which might be riskier. It's tough out there for third parties - they have to have a multi-platform philosophy because the cost of development goes up, and up, and up. Meanwhile price erosion means prices are coming down, so the gap between the two is considerable.
Evolution says that what we'll try and do is make the difference between what we would have sold for, and what we're selling for now, in extra product - which is great for consumers, because they get longevity, and they get constant development and innovation on an IP level, on a title level, rather than just one title to another.
I think actually think that's much more compelling, and gives more value to the gameplay, but that's something we champion here - making sure there's the right ratio of online to offline. There's plenty of work that goes on next door [at Sony's London Studio] that never sees the light of day, and I think that risk-taking is exactly right, I think it's what we have to do.
Q: The PlayStation 3 sales, on average, have balanced out at 1 million units sold per year. Do you expect to see a consistent level of growth over the next twelve months?
Ray Maguire: I think it'll be pretty close.
Ray Maguire is senior VP and MD of SCE UK, Ireland & Nordic. Interview by Phil Elliott.