Life After Ken

Following last week's announcement that long-serving Sony Computer Entertainment boss Ken Kutaragi is retiring, much attention has been focused on his past achievements and on the corporate machinations which led to his retirement.

This is, of course, perfectly justified. The man dubbed as the "Father of PlayStation" is one of the most important and influential figures in the history of interactive entertainment. His legacy is immense; he entered an industry which catered to children and a niche, geeky audience, and leaves behind one which is a mass-market, fully accepted form of media to almost anyone under the age of 35.

However, there's a more immediate question to be considered as well - namely, what the repercussions of Kutaragi's retirement will be for Sony itself in the near term, especially in light of the uphill struggle the company still faces with the PS3.

Taken in that context, the significance of this retirement is interesting. It's widely accepted that Kutaragi did not retire voluntarily - to do so at his age, given that he has worked at Sony for his entire adult life, would be almost unheard of in Japanese business. Equally, the suggestion that he was retired as "punishment" for the enormous overspend and delays to the PS3 seems likely to be true only in the broadest sense.

No, Ken Kutaragi's retirement has to be considered as an offering to shareholders who are understandably upset that the hugely expensive PS3 has failed, so far, to look like the all-conquering platform Sony had hoped for. It is, essentially, a head on a plate; the long-established Japanese tradition of an executive being helped to fall on his sword to placate unrest among investors.

Such placatory gestures are limited in their effectiveness, however. Removing Ken Kutaragi will only be an effective move if it can be accompanied by clear steps to improve the market standing of the PS3. In terms of the PlayStation business, it's not Kutaragi's retirement that counts - it's what Sony does to capitalise on it.

As to what that may be, it's not easy to say. It's arguable that the two biggest problems facing the PS3 in the market are its price point and the lack of compelling new software - with the dark horse being the Blu-Ray question.

The price point would be hugely expensive to fix, but at least it could be remedied quickly; new software takes a long time to develop, and existing titles in development can't be speeded up without risking their quality. Blu-Ray, meanwhile, could win many new consumers over to PS3 if it can effectively demonstrate that it is the clear winner of the next-gen DVD format war, but such a demonstration is probably a year away. It's also a Catch-22; the success of Blu-Ray may be predicated on the success of PS3, which means that it's unlikely that the reverse can also be true.

Looking at it objectively, it seems likely that Sony will opt to remedy the price point before any other aspect of the console's problems. In fact, we've previously speculated that Kutaragi's own plan for PS3 may have seen rapid discounting of the price once Blu-Ray was established in the market, since the bulk production of BD-ROM drives would drive the production costs of the console down extremely quickly. Sony may choose simply to accelerate that schedule and take a further financial hit.

The irony is that while from a western perspective, or a gamer's perspective, Sony needs to catch up and compete effectively with Microsoft's Xbox 360, the investors that such a move would be aimed at placating probably don't care greatly about the Xbox. They are likely to be more concerned with the Wii, whose vast Japanese and international success throws the difficulties facing the PS3 into stark relief. Even at that, however, Nintendo is not the company which keeps Sony investors awake at night.

The fact is that it's Sony's own legacy that Sony has to compete with, more than anything else. As far as investors are concerned, PS3 faces tough comparisons not with the Xbox 360, or with the Wii, but with the PlayStation and PS2.

If Sony loses some market share, it doesn't actually matter that much to the stock market - as long as it gains in terms of overall business, by grabbing a smaller portion of a much larger market. PS3's sales curve will be judged not by the point at which it overtakes the Xbox 360, or how it matches the Wii, but rather by how it stacks up compared to the sales curve of historic Sony products.

Sony knows this, and it knows that right now, the biggest barrier is price. Software, although not entirely healthy at present - the system unquestionably has far too many Xbox 360 ports, and the big exclusive titles are a little too far in the future - will almost certainly sort itself out given time. Kutaragi's departure leaves SCEI in the hands of people whose primary focus has always been software, and both the work of Worldwide Studios and of the company's third-party partners will almost certainly fill in a compelling software line-up, given time.

Price, however, won't fix itself - and can be fixed now. In part, a financial hit is required; but we also sense that the decision to package the European PS3 in a cheaper chassis and remove the Emotion Engine and related components from the motherboard probably wasn't one which sat well with Kutaragi's perfectionist engineer's mentality. Rather, we suspect that other forces within Sony and SCEI had a hand in that cost cutting measure - and wonder just how much leeway for price slashing the firm opened up for itself by such a move.

We'll leave the speculation over exactly how much Sony could cut off the PS3's price to the analysts - but certainly, it's hard to see the console arriving at Christmas 2007 at its current price point. Kutaragi's retirement will win enough goodwill from investors to enable the company to make a tough financial decision on price cutting - and removes a major barrier to cutting corners and slashing costs on manufacturing. In their desperation to match the success of consoles past, we doubt that either of those considerations has escaped Kaz Hirai and the other executives whose hands are now on the tiller of the PlayStation business.