Sony's Andrew House Part One

I'm not going to talk about pricing today.

We'll give it full and due consideration at the price point that we think is right for the business model and the consumer.

I don't think so. If it's cheaper would we sell more? The answer would probably be yes. There's a couple of issues and these are fairly prominent with any platform. One is the cost and business model, and making sure it works overall from a profitability standpoint. The second thing it's tied in to is that we have always said we take a different view of the lifecycle than perhaps some of our competitors do. People laughed at us when we said that ten year lifecycles were possible in the videogames business. Well, we had one for the PSone, and we're nine years into PS2 and still going very strong, although admittedly with a different focus on different markets as the lifecycle progresses.

I think on PlayStation 3, and the potential with an extension of PSP, we've got an opportunity to go even further on that. The overall value proposition which, by the way, European consumers get very, very well, I don't think they are as price driven as other markets. So the overall value proposition is really strong and trends towards that lifecycle. And then you've got for the first time a networked community for the business and the strength that implies. That's a huge factor in retaining people for a longer lifecycle with the product they have, because now they've bought into not just a packaged media relationship with games, but they're bought into a community that they're sharing with people and they're interacting with. So on the PS3 front and other networked products that we have we're shifting the relationship and the traditional dynamics of that. That has an impact on what you can do with pricing.

On balance it was a conscious decision to think that with portable devices in particular there's a certain opportunity there to find new and different talent. And that the cost of the SDK could be a barrier to entry for that. So let's explore that, let's remove that barrier or reduce it and see if that has an effect in terms of letting us tap into a new set of talent there. It wasn't specifically targeted towards one platform or another. Some of the other devices including the iPhone are primarily productivity devices. They have some limited form of entertainment thrown in. That's not the space that we're in. Everything about the PSP Go says it's primarily an entertainment device and a gaming device. As we move to a network device, as we move to consumers who are very aware of downloading content and accessing that over the internet as their primary source, that leads you down the path of seeing there's other development talent out there that we could probably tap into. So let's make the SDK more affordable and let's explore it.

I think beyond just PSP Go if there was one thing that was a huge takeaway from our E3 press conference it was that an enormous renewed focus from the development community at large for the PSP format. It spoke of innovation from a hardware stand point. People have gone back to the device and looked at it and seen it's got broader opportunities as an entertainment device. Yes, PSP Go is a part of that. One of the critical things I want to state is that it's not a replacement for, it's in addition to and an extension of the existing PSP universe that lets us welcome more consumers, and I think publishers and developers are responding to that.

It's a market segmentation issue. If you look at the broader strengths of Sony, we're very good at managing multiple products against different consumer segments – look at the number of SKUs at Sony Electronics. It's not something that's set in stone, it's a moving market and we feel we want to respond to it. The decision to push this alongside PSP 3000 is absolutely the right one because there's still a very large, untapped market there for a traditional, package media based portable gaming. This allows us to extend into other areas. The beauty is that we cane respond to consumer's tastes and balance the two platforms against each other. There's a price point difference between them and we'll monitor that as we go along.

It's pretty transparent for them, it doesn't create a lot of inherent issues around it. A more interesting reaction is the publishing and development community sees us as taking something of a leadership stance by taking a bold step of introducing a portable device that has no packaged media component against it, because we think there is enough of a market there and enough of a model. With all due respect to publishers, I hope that's what they would expect from a platform holder – to take that leadership stance and start to explore and build a market they can take advantage of.

I think we're comfortable with where the prices are sitting right now. There's still a lot of growth in the market that we can see, just based on the existing pricing model.

Yes, those are going to be discussions that are ongoing, from E3 and beyond. There are other ways in which retailers can participate in the model. I'm a firm believer in things like vouchers and cards at retail – other ways in which you can turn essentially a relationship with a network into a sold good at retail. We'll explore all of those options. It's new and different territory for us, but I think we've got a long enough history with retail partners that we've got a degree of trust there and we want them to participate. It's going to require some collaboration and promotional thinking. An example that looms large is Sony Online Entertainment, that has for years pursued a by and large network only model, does an enormous business in network access cards available at retail. The margin is great, the trade margin is good and everyone is happy with that.

That's definitely one option and under consideration. It links back to the question about new development talent and whether we're going to be focused on big traditional packaged media gaming experiences. The primary focus, just in the traditional gaming realm, there's the best line up for PSP ever coming this year. Yes, there's an opportunity there because the download space lends itself more to a smaller, snack-like gaming experience, but it's one component within the wider mix. Because we're balancing both of these platforms – the very strong business in the PSP 3000 and the PSP Go – the primary focus is going to be to deliver the really big gaming experiences that work on PSP and justify it as a platform. There's something to explore, and downloads takes us into that territory.

You're absolutely right, that's not the way to approach it. Back to the point that it's not an existing platform, it's a extension, we're not requiring developers to reship resources to a new SDK. We're saying to the consumer that you already know about the PSP, you already like it. If you want to have packaged media then that's the traditional market that we'll serve. On the other hand, for those that have potentially moved beyond that and are consuming media differently, we also have you covered. And that lets us start to explore other areas that are beyond the traditional gaming package.