Sony Computer Entertainment Europe announced a price reduction of the PlayStation 3 on Friday, a move that had been as much predicted as it was guessed at and erroneously reported.
But there was also the unveiling of a newer 40GB model, a move that sacrifices some of the functionality of the console in order to bring the price down further and position it very close to Microsoft's Xbox 360, its main competitor on the market.
GamesIndustry.biz sat down with UK managing director Ray Maguire to hear the full details on the company's latest move in Europe, why the time is right for a change in price, and the problems of being an early adopter.
GamesIndustry.biz: So what's happened to your PlayStation 3 business model to prompt a drop in price and a new model PS3?
Ray Maguire: We've been doing some research for the last few months, in fact, ever since the launch of the PlayStation 3 in PAL territories, and getting feedback. And what's been overwhelming — although it's been the best launch that we've ever had — there's a whole other layer of consumers that desperately want to get into the PlayStation 3 but to whom price was a big factor. Now, of course, when you're investing into a new product the price is defined by the cost of manufacturing and the amount of investment into that product. But nevertheless we always try to forecast and work towards getting prices down.
Now, the Japanese have given us a brand new sku and its based on a 40GB PS3, and what we've done to take some of the costs down is to remove the memory stick slots, we've also taken out some USB slots and we've also taken out the backwards compatibility, because again there's quite a high amount of cost involved in that.So you're happy to remove some of the functionality of the console in order to reach a lower price?
The rationale for all of that is if you have a look at the peripheral market there are many memory stick converters and many options for accessing multiple portable memory devices — they fit into a USB slot and you have that functionality if you want it. The same goes for the USB slots — the hub market is really wide and the prices have come down significantly, so people can configure to whatever amount of USB slots they want.What about the loss of backwards compatibility? It's something that many consumers would take for granted that newer hardware can play their older collection of games.
Backwards compatibility is quite an emotive subject. We felt that when we launched there was only a few games on the market so backwards compatibility was quite an interesting point and we needed to have it there and then. We went to the cost of producing that backwards compatibility. Now as we come to our first Christmas with the PlayStation 3 there's going to be about 65 games in the marketplace so we feel now that there's sufficient choice and that we're still better off using that money that we'd put into backwards compatibility in either investing in new games or using that money to help support bringing the price down so that people can get into the franchise.
So it was a big decision and we know it is a very emotive subject as lots of people think that backwards compatibility is high on the agenda and yet few really use it. It's a decision that we had to take, we took it right at the launch of the PlayStation 3. Of course, the 40GB PS3 still has PSone compatibility.And you've reduced the price of the higher spec model...
We also realised that going into this Christmas that there will be people who don't want two devices hanging off their PlayStation 3 — a hub and a memory card converter — and who do want backwards compatibility. For those people what we've done is we've reconfigured what is the Starter Pack right now. The Starter Pack as we have it at the moment right now — two games and an extra controller — will cease. We will produce the 60GB machine with all the features, including the backwards compatibility, plus two games and the one controller for GBP 349.With the 60GB version, what's happened in the six weeks since Game Convention in Leipzig when David Reeves said there were no planned price cuts and Sony was happy with the PAL business as it stands?
I don't think he would have said there was to be no price cuts. One thing that we have to be very clear on is that if you've got a strategy and you've got products on a boat which takes six weeks to get here and there's been a three month lead time to get the product in, our business has to go on and we will go on with the strategy that we want. The world now surmises and guesses 99 per cent of the time incorrectly what we're going to do and when we're going to do it. Truly, companies can't react to speculation, we've got a business to run and there is no way that I would ever deny or confirm anything until the time was right for me to make that announcement. We have to be very wary of the internet and what's on there because in most cases it's not based in truth.What would you say to your most loyal consumers that have already bought the 60GB model for GBP 425 and might think they've been cheated in some way when they see two cheaper products on the market only months after they shelled out for the PS3?
I think it's natural to feel that way, of course it is. The difference between our industry and many other industries is that if you're selling cars or houses the price goes up steadily. Consumer electronics only goes one way and that's downwards. If you're a company that has to invest billions into development then you know that costs are going to be high at launch. The reason they are high is because we're taking such a bold step of going so far forward into the future that we have to create our own fabrication plants to make chips, no one can create these things because they're not investing either the time or the money or the vision into making products that are this far reaching.
One thing is common amongst the entire market for consumer electronics and that is that there are early adopters like myself who will spend GBP 10,000 on a plasma TV that is worth GBP 3000 within three years. That's the way the market goes. What do they get for that? They get six months of enjoyment of the product before anybody else gets that ability to play those games.Do you think there have been mixed messages coming from Sony in Europe, North America and Japan? From a 20GB PS3 model to 40GB, 60GB and 80GB, and software bundles on top of that. There have been multiple sku's for multiple territories — how do you make sure consumers know what they are getting for their money?
If you go right back to the start we simplified the calculations for consumers in some of the other territories. There was the 20GB sku that had no memory slots and no HDMI and no WiFi. We decided at that time not to run with that product, the reason being that 50 per cent of UK homes have broadband technology and for us WiFi is one of the most popular ways of connecting any product to that broadband network.
We made the decision to make a very simple offering right at the very beginning. As products evolve the offerings change because they have to adapt to the needs of the consumers but I don't think it's been particularly confusing in six months to go from stand alone, to a bundled proposition into a low price entry level model. We also have to remember that consumers don't search around the world for different configurations. We are a global company but we have to act locally as well.So how have sales of the PS3 gone since you introduced the bundle with two games and an extra controller?
We've been selling PlayStation 3 right on target at the GBP 425 price point. We always had a budget to affect a price change to get the entry level in so now we've got to make sure that we sell at the right level at that entry point. We've yet to see what happens.With the 40GB model you're very close to Microsoft's price of the Premium Xbox 360, and matching the price of the Xbox 360 Elite. Although the skus are different, was it a conscious decision to come with a competitive price, a price that puts the PS3 on the same shelf as your rival next-gen console?
No. We responded to the research we've been doing on what consumers feel about our products. They asked us to do this to get the next level of consumers in and that's what we've done. That's the only focus that we had — out consumers, not our competitors.But the consumer is going to see that the machines are priced similar and that there are multiformat games on the market, so how are you communicating to consumers the difference between the consoles?
The feature that every single PlayStation 3 has always had right from the start is that not only is it a high definition games machine, but that it's a high definition movie player as well. We're in a world, whether you like it or not, that is moving from standard definition to high definition. People are expecting a high-definition world. Again, the adoption rate is all proportional to price and prices in all areas are coming down, which is great news for all consumers. What we're dong is that right from day one we are a part of that world and we always went with the Blu-ray disc for two reasons. One, because it's essential in giving great gaming that you have the capacity it offers, and secondly, because people will want access to high definition movies and Blu-ray is the best format for that.So, are you confident of PS3 sales this Christmas?
What happens now is down to the consumers. If we're right then we're going to have a great Christmas and I feel confident that's what will happen but we can only see when consumers start to buy.
Ray Maguire is managing director of SCEUK. Interview by Matt Martin.