GDC: Leverage Will Be Key to Sony's Victory

About this time a year ago, Sony was in the midst of the HD format wars, months away from its first PS3 hardware price drop and talking about Home for the first time. Twelve months later, Toshiba has essentially conceded the format wars to Blu-ray, the price drop and new SKUs resulted in a healthy increase in the installed base of the PS3â¦and we're still talking about Home.

Unlike Microsoft, Sony didnât present a keynote at GDC this year and has not used the conference as an opportunity to make any new announcements to the press. However, SCEA's vice president of product marketing, Scott Steinberg, was kind enough to sit down with GamesIndustry.biz and chat about how the company expects 2008 to pan out for them.

Steinberg: Well, I'll announce it here — there wonât be any announcements, so don't worry about tomorrow. There's no news coming out.

I think what we decided isâ¦Coming out of January CES, we started to sense the flood of support for Blu-ray, to let our partners do the talking and leverage their announcements - from multiple different sources, both from retail and from the studios — to carry the flag on their support for Blu-ray as the standard.

It just felt stronger coming from so many different high-caliber partners as opposed to self-congratulatory announcements from ourselves that the war is over and the standards battle is complete, and we have a standard and it is us.

It just felt like a keynote would be a little bit over the top. Having the ability to leverage all these great PR stories leading up to GDC gives us an opportunity to talk about, not the business fundamentals — because studio support, retail support, we already know that. It's already hit the news. We can talk about what we think is even stronger a scene for us which is the games we've got coming out this calendar year. And I think that's what is going to drive our business and drive the difference between the 360 and ourselves.

I thought it was interesting in the sense that what they were talking about we've sort of been doing for the last couple of years with PSN and giving smaller, start-up, entrepreneurial developers the chance to get in and make their games available on the PSN.

We have a different approach and I think it speaks to the different styles the two companies are taking towards online. We don't charge for our online service. We make it available for everybody. So, the accessibility of somebody's content who decides to make a game that is maybe smaller, more affordable for consumers to buy — I think we're a better choice because the PS3 owner has the ability to go online day one without having to cut a check. And then make a decision around what kind of product they want to buy, as opposed to getting stuck with a monthly subscription service.

I think on a global basis, the PS3 brand is going to be the winner. I think the story is already written in Europe and in Japan. In the US it is sort of a "jump ball" that is remaining, but quite candidly I think if a small, start-up company wanted to have global access to their content, and have global commercial potential for their content, Sony is by far the best platform.

We were sensing it in the fall. We had leverage pointsâ¦This industry, in our opinion, is about leverage and being able to leverage Blu-ray through the movie studios, being able to leverage it through our retail partners, gives us access toâ¦to just be a bigger partner and a bigger brand.

So we're not just a videogame company. We're being merchandised in the consumer electronics departments of Best Buy, Circuit City, Wal-Mart, Target. So, all of the sudden, Blu-ray is more ubiquitous and less a toy and more a lifestyle brand, and I think that's something we were sensing as a tipping point in the fall. And then after CES it became a shoving point with all the other platform stakeholders signing up to Blu-ray.

So I think it was a bit of a foreshadowing and some smoke signals, and it has given us a great opportunity to put some of those standards discussions — which were great maybe for the first six months, but after two years a little bit fatiguing — and let us talk about the line-up. And I think when it comes to the three platforms, we've got the best line-up in 2008. We have the best diversity, the most breadth in genres, and I think we are hitting our stride.

So, when we think of a ten year system and a ten year platform, it would have been I think a bad strategy for us to dump all of our content out in the marketplace before the standard battle had been finalized. I think our competition did that.

Now that it is done and people are going to make a decision — well, if I want to get into high-def, realizing the standard is Blu-ray, I'm going to make that Blu-ray choice. And then we have this cherry on top, which is our line-up which is exclusive to the PlayStation, being developed by the 2,300 employees we have in our studios thinking about nothing other than building great content for our three platforms and network. I think that's the exclamation mark on it.

The importance of 2008â¦We're exactly where we want to be chessboard-wise heading into 2008.

I don't know. It is a great crystal ball-gazing question.

I think there is so much of the value in this industry tied to retail, tied to physical goods thatâ¦Certainly we're reliant and we need to exploit those channels and those mediums. I think there will be a spigot that gets turned a little bit as online becomes more critical and consumers I think are already ready for downloads in terms of their iTunes behaviour and some of the other models that are already out there.

People like to shop. People like to be social. It isn't like the internet bubble, where everybody was saying "Brick and mortar are dead. Long live dot com!" I think we've been there and realise that people aren't switches and they don't just go on and off like that.

So I would caution people not to project the death of brick and mortar retail. I think about ten years people were trying to do that, and things didn't work out too well.

Well, I think it is really easy to point to one when you've only got one. And so by default, that sort of solves itself.

I don't want to say that we have an embarrassment of riches, but we have the ability to go in a bunch of different directions depending upon the choice and the taste of the gamer. So we're not just forcing one genre upon our population, our installed base.

Let's break it down by calendar. It makes it a little easier to keep them organised.

We start with — and these are for the most part exclusive — but we are starting with our baseball game MLB: The Show. And quite frankly then go into a great month of April where we've got Grand Theft Auto IV and Gran Turismo 5 Prologue. Anybody on the sidelines waiting for some exclusive content — Gran Turismo has been emblematic of the PlayStation brand. It's celebrating its tenth anniversary in 2008. A lot of people bought their PS2 for GT, so I think it is an important sea change product for us.

We almost go into a completely different mindset with Little Big Planet. It's veryâ¦You could almost say unusual in the sense that it's not a shooter, it is something you would definitely not see from any of the other companies. It's a very social, sharing, creating style game. Shipping in the summer/fall.

SOCOM: Confrontation shipping in the summer. SOCOM is also one of those emblematic PlayStation brands. Multiplayer. A lot of folks have grown around the PS2 [version]. Killzone 2â¦not quite new IP, but certainly not an established brand like SOCOM. That will be a huge FPS title.

And I think one of the biggest games for us will be Resistance 2. We expect that, in November, to go toe-to-toe against Gears of War 2. It will be our third-generation PS3 product. Insomniac, having shipped Resistance 1, quietly sold a million units. And then Ratchet & Clank last fall. This is the third [game] on their technology shipping in November.

I welcome the head-to-head competition. I think it is going to be really exciting to see how we sort of put some distance graphically and from a fidelity standpoint with third-generation tech against the HD-DVD effort.

Some of these games you are seeing, like a Metal Gear Solid 4 which is a summertime exclusive, plus Resistance 2 — they're tipping the scales at 30, 40, 50GB. And if you tried to do that on HD-DVD, it would be like those old-school floppy [disc] games in your Apple and Commodore [mimics switching disks in and out]. I don't know about you, but I've been there, done that. I'm probably not ever going to go back. Even if you are double-layer on the DVD side, you are nowhere near that size and scale.

So I think you'll see the biggest blockbusters feel and certainly exude the kind of Blu-ray magic and Blu-ray gaming that will become something important for the back half of the year.

That's the other side of why 2008 is so important. It's the year that we unfurl home.

We're still in the closed beta phase. And if you are a student of the game, you know closed beta will begat a more open beta, and we still haven't announced when that potentially would be, but the notion behind 2008 is that we come to the table with a kick-butt line-up software-wise and we show the full articulation of Home and the networkâ¦and maybe some special surprises within that context.

And I think we end the year with incredible momentum with those two elements working in concert together and really adding an exclamation mark to the PS3 for the year.

We're still looking at a lot of that stuff.

The lessons from the fall were pretty acute to us. We expected to sell a lot more of the USD 399 system than the USD 499 system. We entered 2008 pretty dry on the 80GB at USD 499 because of the equilibrium on sales for both systems.

We found that the hardcore guys were willing to spend that extra hundred dollars, and the more casual consumers without the bells and whistles were quite comfortable with a Blu-ray machine that, from a consumer electronics comparison, is still much more expensive than USD 399.

We weren't quite predicting that. We weren't predicting the evenness of those sales numbers and we got pretty light on the 80GB. You'll see that correct itself as we get deeper into the year. We are still sort of evaluating what that means from a going forward strategy. We're pointing to that commercial flow in the fall as a reason why we are still a little bit light at retail for those 80GB machines.

None that we can announce.

We certainly look at Heavenly Sword as being terrific new IP. Part of what I think is incumbent upon any platform holder is to not just leverage existing IP from prior consoles but to build new IP that is specifically tailored for the technology and the capabilities of the new system.

I think we've done a good job, and I think it's part of why Sony and the PlayStation brand have been so ubiquitous. It's not just getting the hairballs coughed out every year on new systems, but we're diversifying that platform offering and bringing new IP like a Heavenly Sword or a Little Big Planet. Re-establishing existing IP but updating it for the new system like a SOCOM. Bringing new IP like Resistance built just for that platform.

It is so hard to build new IP. The batting averages are still not that great - no matter how good [the game is] and how much is spent to market and sell it - that when you get it you want to prize it and treasure it and continue to exploit it.

So, we haven't announced obviously any kind of [Heavenly Sword] sequel strategy but our overall product strategy is absolutely incumbent upon building new IP and ensuring when they do hit, leverage them — not abuse them, not fatigue them, but to leverage them.

That's right. That happens all the time in our industry.

Like anything else, when you dedicate yourself as completely as some of these teams do, they do get crispy and they want to try something else. That happens. I donât know if it is happening with Ninja Theory, but it is illustrative of what happens with a lot of teams. It is not by any means a foreign phenomenon.

I would beg you to look at history a little bit and remember how long it has taken the Xbox 360 to get to this point in time. It was by no means an overnight phenomenon.

I think that is one of the things that Sony brings leverage-wise to the table that our competition doesn't have, that we are an entertainment brand. We have the friends and family — Sony BMG music, the movie side of things. I can't answer it directly relative to when we are going to be launching, because we havenât announced that. It is 2008.

That's why I can say that 2008 is so important to us not just from a product software standpoint, but from a services standpoint and from a network and store perspective.

The value add that we bring, and the leverage that we bring which our competition can't touch, is that we are an entertainment company. We have those relationships because they are us, and we can leverage that to a much greater degree.

Once we do it, it is going to be terrific. It's just a matter of later this year before we can really talk about it. Leverage is key in my mind as to why we are going to win — leverage with retail, leverage with movie studios, leverage with entertainment brands, leverage globally.

You know the story that's happening in Europe. The story has already been written in Japan relative to who's a player and who's not. Development and other publishers, especially the publicly-traded ones, need to look at the world globally and that's where our leverage and the PlayStation brand's leverage really pays dividends.

I think all that makes for why we talk about 2008 as being such a critical year.

They've been great. We say they've been great.

We were effectively out of stock at the end of last year because of the Christmas holiday exceeding our expectations. We're just now starting to fund our retail channels with more volume, and we've got two small "little" games — God of War and Final Fantasy: Crisis Core — coming out in March. So, expect continued momentum on the PSP.

I think it has been a quiet accumulation of 11 - 12 million installed base in North America that has all of the sudden, in the shoulder of all this sort of DS momentum, quietly woken a lot of third-parties up to "Wowâ¦We've got a serious platform with a serious installed base to build to" and you'll start to see third-parties jump on that bandwagon now that they've jumped on the DS bandwagon last year. It is just the way it is.

We wound up with our entertainment pack strategy and our core strategy — USD 169 and 199 — really driving the business. Having enough choice for somebody who wanted to go in with a native system, and someone who wanted to come out of the box with some content — UMD content as well as game content.

There is no model that we can point to.

We love the predictability of going back to PS One and PS2 and pointing to those as our testaments to why we think the PS3 will have a ten year lifecycle.

The great thing about the PSP is that it is a living organism in that firmware updates and technology enhancements turn it into such a different machine than our handheld competition that is basically a closed box that is more of a single utility than it is this broader utility.

We know that our consumers are using it for music, photos, movies and games, so it's got the purpose and the legs of a device that could live for ten years. It has that potential, especially as we are adding firmware capabilities and we are demonstrating a GPS function at CES not too long ago.

So, you'll see us round out our roadmap for PSP and the functionality just continues to get richer. It's one of those products that, the more you play with it, the more you realise what you can do.

I think that bond keeps people in the PlayStation brand. Our overlap between the PS2, PSP and PS3 ownership is off the charts. We know that once we get them, they're ours because we do such a good job engineering these games and these platforms that have lifecycles beyond planned obsolescence.