Thursday, January 29, 2009
The economy is in a downturn. EA, Microsoft, Nintendo and even Disney are reporting down profits or planned layoffs. The world is on its ear, it seems. Then there’s Sony. EA looks like they’re set for smooth sailing compared to the former electronics giant. Today the company reported a 95% drop in profits compared to last year. This is not a normal piece of news. CEOs and executives are often removed from the companies they lead for reports like this. People killed themselves in the 1930s for such news. Due quick publication of this article, Sony has yet to show any reaction to this news from its earlier publish today.
Driving this news is simply a case of Sony’s being out of touch with the market. The Playstation and Playstation 2 are some of the best consoles to ever hit the market and new PS2s still sell to this day. The platforms are easy to program for from a designer standpoint, and the install-base (which is used to determine potential sales) is incredibly large. Sony made the bad assumption of gamers just simply moving straight over to the most expensive console of all time – one hell of a gamble on just the Playstation name. They also exhibiting some of the poorest business decision making skills witnessed in business.
Historically the market does not support any console over $399 – each attempt has failed. The Philips CD-i, TurboGrafx-16, NeoGeo AVS, and 3DO all died summary deaths based on the price point limiting the install base. Sony is also echoing a bad business decision repeatedly stated as the reason Sega died a manufacturer’s death – supporting too many consoles. Upon the launch of the Dreamcast a decade ago, Sega was still manufacturing and supporting the Mega System, Mega Drive, Sega CD, 32x, Pico, Saturn, and Game Gear consoles in combination for various markets around the globe. Splitting resources so many ways drives inefficiency and spreads resources thinly. Sony is supporting the PSOne, PS2, PS3, and PSP – when history shows only two consoles is what a company can support while still achieving significant financial success, as Microsoft and Nintendo do.
Also driving Sony’s severe downturn is the cost of investing in the cel processor. Some investors have indicated the company many never make a profit on the processor and any feasible plan would require a significantly longer product lifecycle for the PS3 or a recycling of the processor for a theoretical Playstation 4. If this is done Sony cannot afford to market or let any sort of recycled product image enter the market or the console will suffer.
But gamers rarely care about the business factors and historical trends associated with games – most only know of the premature death of the Dreamcast and the Sonic franchise. A majority of gamers care only about what the console can do for them, how much space it wants in the living room real estate puzzle, and how much it costs. Cost has already been addressed – it is simply too high for historical trends but it is also too high when comparing it to what the console some of the true factors involving console sales come to light.
In an era of companies pushing high definition gaming and multifunction devices, gamers want consoles that play not only new titles, but their older titles as well. When deciding for one console or two, one will always win. Sony’s decision to remove Playstation 2 compatibility all currently-sold Playstation 3 models has left a bitter taste in fans’ mouths. PS3s that can play PS2 titles do a fantastic job of upscaling older titles and adapting them for HD on the fly and it once served as a significant selling point to potential buyers of the hardware. With this feature removed, gamers are not nearly as interested in placing an entirely new console into their entertainment centers without removing another. Yes, PSOne compatibility is there, but the PS2 era is where Sony’s titles began to shine and garner their dedicated following. Removing this option to play PS2 titles was just plain stupid when you consider Sony’s decision to cash in on the Playstation brand name. Couple this with the high cost for such a small usable library, and you’ve got a recipe for poor sales.
So is Playstation 3 the new Dreamcast? Yes. Given Sony’s continued game of making decisions and correcting mistakes later versus anticipating and invigorating the market, it is likely the powerhouse console will likely die off completely a la Dreamcast, see some drastic hardware changes, or be refreshed as a different console. Trying to let Sony know how to change is like screaming at a brick wall, so I won’t even try it. Anyone want some popcorn? I’m going to watch the show.