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February 24, 2007

On PS3: How To Kill Your Brand

Via HotAir:

I was about to post on this Thursday, but didn't.

In case you don't know, Sony's entire gaming brand is now threatened. They've gone from being the leader in the field to being in fourth. The unassuming little overachiever from Nintendo, the Wii system, has first place, X Box has third. Sony's PS3 lags in fourth place.

Who's in second place? Well, Sony. But with the PS2, which is outselling its heavily hyped new system.

And neither is it selling very well in Europe, where it's only now debuting, at least if pre-orders are any guide.

Indeed, the British division of online retailer Amazon.com apparently still has allocations remaining in its queue for pre-ordering the PS3, despite starting the process more than a week ago. By comparison, the Wii sold out of all of its pre-order allocations last year in less than 7 minutes. The year before, allocations of the Xbox 360 went nearly as fast.

Even PS3 pre-orders at Play.com are doing no better. According to the retailer's website, the button to "buy" is scheduled to disappear upon the sale of their entire pre-order allocation - yet the same Gameworld Network report states that "the button is still there and very clickable."

Sony attempted to leverage the popularity of the PS system into making its Blu-Ray technology the preferred format over challenger HD-DVD. And apparently they've managed that... sort of. They currently now have a lot more Blu-Ray players out there than there are HD-DVD players, but one suspects that's only because so few people have bought either sort of player yet, and Sony used its big customer base to push Blu-Ray out there on the back of the PS3. What happens, though, as the PS3 starts to enter a death spiral, as seems likely? And does it matter if a relatively small number of early-adopters have "chosen" Blu-Ray (and they haven't really "chosen" it -- for many, it just came bundled with their very-expensive PS3 system)? After all, the general public has not made its decision yet -- perhaps only 5% of the ultimate market has bought these things yet.

Plus, again, the porn industry seems to be embracing HD-DVD. Cool innovation mentioned there: DVDs being sold with normal DVD coding on one side, HD-DVD coding on the other. Seems like a smart thing to do for all DVDs now, as no one wants to build up a DVD collection anymore just to replace it with HD versions in two or three years.

This article describes how the death-spiral will go for Sony. It's fairly interesting if you like this kind of thing.

THE CONSOLE MARKET is a virtuous circle with three main points, a virtual virtuous triangle. If you don't do well on all three points, you end up out of the market, and Sony is on the verge of just that.

The three points of the triangle are cost, installed base and games. If you don't have two of them, the third will never happen, and if you do have two, the third will come for free. Basically it is a feedback loop, you will excel at all three and ramp up the numbers or you will be in a death spiral quicker than you can say comprehensive Blu-Ray crack. There is no middle ground.

The writer says that most game consoles are at first usually sold at a loss -- basically the company is eating a loss to get as many units out there as possible, and make up for those losses with game sales. These companies usually get a $10-15 kickback -- well, license -- from each game sold by third party licensees.

The XBox 360 is now apparently turning a $75 profit per console, and can choose to drop their costs further if they really want to stick it to Sony. Sony is eating a $200 loss with each $600 PS3. So Sony can't really afford to cut prices much further.

This is where it gets really bad for Sony:

I have been told by a bunch of people that dev costs are painful on the new consoles, the 360 and PS3 specifically. If a game for the older XBox1 or PS2 cost $5 million to make, the 360 is about double that or theoretically $10 million. The killer here is that the PS3 dev costs are between 2-3 times that of the 360 and about 5x that of the Xbox1 or PS2. Ouch.

...

Basically what it comes down to is the more units a console maker has out on the market, the more willing game companies are going to be to write for it. Even if you make a stinker, if there are 100 million consoles out there, you will probably make a profit, there are a percentage of people who will buy anything. Conversely, if you make the best game in the world that everyone buys, if there are 100K consoles out there, you will still not make any net profit.

There is a big mushy middle ground here, and that has to do with how much effort you expend on each version of a game written for multiple platforms. If the 360 has 10 million units and the PS3 1 million, you can do the math. Write it for the 360 and spend $10 million, but only port it to the PS3 if you can do the port for under $1 million.

This is where a lot of the death spiral side of things comes in. If you don't have enough consoles out there, people will not write games for your super 31337 system, or at best do a crappy port to it. This means the console with the most units will get the better games. It will sell more units allowing them to lower costs, make up the money they initially ate faster, and in general be happy camper.

The company with the lower number of units gets the shaft. They become less and less desirable to write for, and less and less desirable to buy, and less able to lower costs. Higher costs means fewer sales means worse games. Negative feedback, and it hurts.

He continues his analysis in part II, here. Basically, Sony may have marginally better graphics capabilities, but users will never see those potentially sharp and fluid graphics, because few games will be written for the Sony:

The problem there is that the 360 will be utilized fully and optimized for. If there are special features of the 360, they will get used, and every tweak and hack explored as well. This will then be shoveled off to some poor third party who has to make it work on the PS3, a very different architecture with a very different set of strengths and weaknesses.

What you end up with is a fully utilized 360 and the 'same' game on the PS3 with all the weaknesses of the 360 and all the weaknesses of the PS3. Add in very little budget to optimize the resultant PS3 code, and you get a B-list version of an A-list title. This will be readily apparent to even the most blatantly paid for game reviewer.

Ouch.

I was wondering if Sony's benefits could possibly eventually cause it to take off. One thing they brag about is that you can use the gaming system as an internet browser, to manage digital photographs, hold your whole MP3/iPod music library. Sony will start offering downloadable movies -- from their site right to your PS3's hard drive -- and one article notes that you can even run Linux on the PS3.

But -- what, who cares? Why on earth would I want to run Linux on my game console? Doesn't everyone buying a very high end gaming console already have a computer to take care of such things?

It's a feathered fish, a fish that neither swims nor flies. About half of a computer, for about price of a half of a computer, which is, alas, far more than people are used to for paying for a game console.

And I don't get the whole thing about "turning your television into an internet browser" to make the system "your family's core entertainment system." The internet is just about the most solitary, anti-social past-time available. People say watching TV discourages families from talking, but at least there you're watching the same thing in real-time and thus have a common topic for conversation.

But the whole point of the internet is to let people jump from this hyperlink to that one, following whatever interests them at that very second -- how can that sort of experience, optimized for a single user, ever become a "family experience" or otherwise shared experience? How can Dad and Daughter ever agree on what site to go to next? Does Dad want to go to the Barney the Dinosaur sing-a-long site? Well, maybe, but not for long. And likewise Daughter doesn't want to read about off-season football player trades.

So... I don't know. The PS3 community is still hoping it will take off for some reason, but why on earth would it suddenly take off? It's only marginally better, on paper, than the XBox in terms of graphics, and in reality, is now doomed to be its inferior; and it's hellaciously more expensive than the Wii.

The product is inferior and the pricetag is huge. Not a winning combination. And anyone who hasn't yet committed to buying the Sony is now warned that the system may be all but dead within a year, with Sony basically disappearing from the business until it tries to buid again from scratch at the start of the next product development cycle in five years or so.

What a mess.

All to push the Blu-Ray.

Not sure if that will be seen as a wise move five or ten years from now. If they successfully win the format fight, I guess they'll make more money off that than they would have made with the PS3. Maybe the sacrifice of one product was necessary to guarantee the success of a more lucrative one.

But if they don't even win that, it's just a disaster all the way around.


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posted by Ace at 08:22 PM

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