Thanks for meeting with me today. So I think maybe my biggest question right now is the amount of consoles that are coming in to the States and Japan. I mean, they've been getting cut and on launch day and we're now down to 480,000 worldwide?
I don't know that there's anything new to talk about there. I'm trying to recall the last public statement about the launch number.
Last one, I think, was last week. Japan went down by something like 20,000 units.
Yeah, I think that's right. There's not a whole lot to add in terms of the public position there. We've kinda gone on record to say Blu-ray has been a challenge to manufacture. I think Jack [Tretton, co-chief operating officer of Sony Computer Entertainment of America] had some comments about that recently. I think the good news is we'll focus on day one, and then making sure there's a steady flow of hardware in weeks two, three, and four, and consumers don't have any big draws out of stock. So, that's kinda what we'll focus on, and as I said, we're gonna monitor that on a day by day, week by week basis, and steer the production based on each territory. What we know is that demand is going to outstrip the supply for some time.
So, it's really -- it's a high class problem, and we'd rather have this than the alternative. But it's still something that we'll have to deal with, and we don't want consumers to be put off by this. It's one of the reasons we're not encouraging retailers to do reservation lists -- because if we did, we'd probably have situations where a consumer couldn't even get a shot or get in with these things for six or eight months, and that's something that we'd like to avoid.
Realistically speaking, do you foresee any future supply problems or things that would further cause the amount of launch date units to decrease?
No. No, I don't.
So, you think at this point it's --
In fact, I've heard positive rumblings, internally; it's getting better, the production is starting to crank up. These are all kinda typical problems that you have at launches. And it's exacerbated a little bit because the PS3 is such a cutting edge demanding machine to manufacture. But you know, it's conventional wisdom. When you start out manufacturing, you better get the kinks out on the line, and as you go forward you pick up different efficiencies, and it's gonna get better.
So, we're gonna realize those efficiencies over time, anyway. And as I said, I've already heard that they're starting to get a little better at it, so I think that will continue. I mean, you really start to kick into a higher gear, as you get in tune to the --
But in terms of the roadblocks that are currently causing these units to not be manufactured at the quantities that Sony would like them to be, typically Blu-ray is what's been getting the blame, at least in the press. But I've heard things like it's a subproduction problem, that it could be Cell chip or RAM production issue. Is it really specifically only Blu-ray at this point that's at fault for the delays?
Right. As you said, when you have situations like this, people tend to speculate quite a bit what the real problem is. I'm sure our competitors, maybe they're stirring the pot. To the best of my knowledge, it's really a Blu-ray issue, and the manufacturer of the Blu-ray diode. The rest of the manufacturing and the rest of the components have been ready to go and are waiting to be assembled. You know, as I said, no, they've got the Blu-ray stuff a little bit better. We're hoping that that it's only going get better from here. But there haven't been any issues on the sale of these.
So, you think you're still on track for 2 million units in 2006?
I'm gonna hold you to that.
Okay, you can hold us all to it!
So one of the other things that has been the buzz with the gamer community is the lack of rumble in the controllers. And this kind of just goes back and forth with Immersion, and you know, Nintendo has that functionality in the Wiimote -- but Sony doesn't. What's the reason that Sony didn't work with Immersion to make that functionality happen in the SIXAXIS?
We feel like we've got a better solution in the access motion control works. It's an evolution very familiar formfactor and design, but the ability to put that SIXAXIS control into the players' hands puts them that much closer to the game. And I know that I've read a lot -- and you probably have -- and it seems like the folks at Immersion are looking to sort of negotiate through the press and try to make their case to us. But, I think from Sony's point of view, we have a design path that would enhance the experience for the gamers, and we're looking to move forward and not continue down the path that we did down before. But to better the experience, we've talked about how there's a potential for that rumble to interfere with the SIXAXIS controller.
Another thing I was talking to Phil Harrison about recently is the weight of the controller is now so much lighter that you almost forget that you have it. And again, it's bringing you one step closer to the game. So, we're very comfortable with the new controller, and I think gamers will be, too, once they play the games. A lot of this is people are reacting to something that they haven't tried. There's only a limited handful of people that get to go to E3 or get the controller in their hands, but pretty soon, everyone will get to try it out, or else we get forward when people get to retail [kiosks] if they don't get one themselves.
I think that they'll realize that this is a different experience, but it's one that's very familiar in a lot of respects because the form factor's the same, the buttons are in the familiar places, but this SIXAXIS really does do something very different that rumble did not provide.
So, is it Sony's determination that rumble is not technically feasible for this controller?
I'm not a technical person. I think that's what I've read, though. From all the comments I've seen from the Kaz [Hirai, President & CEO of Sony Computer Entertainment America], and from Japan, that there were barriers to getting those done.
Assuming that it would have been possible, assuming that Immersion's technology could work, would Sony do it?
I mean, I can't get into hypotheticals. We can assume a lot of things, but that's not really here nor there.
I mean, it seems like there's such contention in the community about that specific aspect of the controller, where everything else looks pretty good about it. You've got rechargeable batteries, you've got Bluetooth wireless, you've got motion-sensing, but then there's a step back in this very obvious place where it seems your competition has been able to make it happen.
Again, competitors do things for a reason and Sony does things their own way for a reason, and we feel like we've got a great product. Again, when consumers get their hands on it, I think they're gonna agree that it's a great experience, and I don't think that people will be as up in arms about rumble once they experience what PlayStation 3 is all about.
So let's talk about some of the marketing decisions made on inclusion of gear in the unit. HDMI is not included, and I think that kind of ruffled a few feathers.
HDMI is included.
I mean an HDMI cable, sorry. Or, I should say, high definition cables in the box -- so, that's not included?
Is there any particular reason why?
Again, it comes back to the whole thought process behind the two SKUs to begin with, which is giving consumers some choice based on how they want to use the system, based on the type of configuration that they have in their house today. And what type of configuration they might have in their home in a year, two years, five years, ten years, when you talk about future equipment. So, it's very important to have HDMI functionality in the box -- in the hardware box, not the retail box.
But there's also a trade off to add the cost of the cable to everyone at a point in time when not everyone is ready to use it. So, there are a lot of people right now that are gonna buy the 60GB unit, the voracious consumers, and download a ton of stuff to their hard drive. There's other folks that want to get the full experience of PlayStation 3. And that's to kinda give you both SKUs. They're both providing the same experience. One isn't without a hard drive, one isn't without Blu-ray. So, you get the full PlayStation 3 experience. But if you're at home and you don't have high def set, why burden the consumer with the extra cost of the cable if that's not the way that they want to use the machine just yet? If you have HDMI and you want the full experience, you know, that's something that they can easily add to the system. So, it's really back to giving consumers flexibility and choice, based on how they want to use the system in their home.
Should consumers expect a VGA cable for the PlayStation?
I have to get back with you on that one. Not sure.
As far as I know, there's been no mention of it thus far. It's something that the Xbox has, but not all consumers have it or want to use it.
Right. I don't – no, no, it's not included in the box. I don't think we're offering that as a peripheral. But again, because of some of the USB connectivity we've had questions about keyboards and other things that you could just pop into a USB port, and those would be able to work on day one
So, 1080p is really important feature to the PlayStation 3. How does Sony feel about Microsoft's inclusion of 1080p and adding that support and game developer starting 1080p development?
Our view on this is that we're offering true high def, and the PlayStation 3 system is technologically superior to anything out on the market. I think it's curious to read our competitors' comments on this now, versus a few months ago. A few months ago, we were reading things our competitors saying that 1080p of 60 frames per second is impossible, and they won't achieve in year five, let alone that launch software won't get close to it. I think you've probably seen some tentatively titles of running at 60 frames.
They're launch titles. So this notion of resing up, it strikes me as just a little bit disingenuous: what they're really offering consumers, what they said our system could do and couldn't do, and now how they're reacting to it. So, I think for a long time they wanted consumers to believe these systems were really on par with each other. Like, there's no graphical difference, that there's no gameplay difference, and, I think what consumers will see, in a very few short weeks is that nothing could be further from the truth. PlayStation 3 is technologically superior. You're gonna see it in the games. It's true HD. We can now put 1080p at 60 frames per second, and they can't. And that's something that they'll live with. They built their system, it was important to them to get it to market first, and so, based on that, I think they rushed a system to market that wasn't quite ready for prime time.
Do you feel like their announcement of 1080p support at all diminishes the kind of hype that Sony's been building around 1080p?
Based on the technical people I talked to -- and again, my background's in marketing not on the technical side -- it was a very cleverly worded announcement. But whether or not it qualifies as true 1080 is a big interpretation.
Yeah, I mean, it's on a per game basis. It does work. I tried it this morning, because they released the update actually just today. So, I mean, I have a 1080p set, and it was working fine.
Is there an issue, though, with [upscaled] 1080p versus native?
So to actually 1080p supported in-game, that's something that the game developers have to enable.
So, they have to make the games specifically. Otherwise, you can upscale. But that's actually another question I have. So, there's no 1080p upscaling for DVDs, PlayStation 1, or PlayStation 2 games. Is there any particular reason why?
I don't know, to be honest. I don't know the answer that much.
Because, that's something that actually kind of turned some heads is when Microsoft announced 1080p support. They also announced that they were going to be adding DVD playback upscaling to 1080p, which is kind of something that is more or less unheard of in the consumer DVD playback market.
Right, so I guess from a Blu-ray perspective, Blu-ray movies are obviously 1080p capable; the Blu-ray player will upscale DVDs -- your question's about why not PS1 and PS2 games?
So you're saying the PlayStation 3 will upscale DVDs to 1080p?
Yes. Oh, yes.
That's part and parcel of the Blu-ray technology. I thought you were questioning about the PlayStation game aspect.
Yeah, this is also about PlayStation 1 and PlayStation 2 games that are going to be played on the console.
Yeah, I don't know the answer to that, as I said. I thought that's what you're asking. Blu-ray does upscale the DVD movie experience. I'd have to check on the PlayStation -- we can get back to you on that.
So you guys are very close to launch at this point, so obviously you've got everything out there. From where I sit, Sony seems to view Microsoft as its primary competitor, at least in this particular holiday season.
We consider the market, our competitor, we consider other forms of entertainment our competitor. From a PlayStation perspective, we're not just focused on PlayStation 3. That's obviously what a lot of folks are interested in, this time of year, being we're so close to launching the hardware, but PlayStation 2 is currently the market leader across the board. We're outselling the 360 on the PlayStation 2 platform month in month out, week in week out. The PlayStation 2 effort is really geared at the very different consumer than the PlayStation 3 consumer, and will frankly compete with the anticipated consumer that Nintendo's going after with their new system.
You know, families, younger kids, and then we've got a hand held business as well, with the PSP. So, we're not just talking about the PlayStation 3. There's a lot of stuff going on. But we get the question all the time, obviously. So, we're very focused on getting PlayStation 3 off to a strong start.
We think we will do, but we're also making sure that we don't abandon our existing platforms. And there's a lot of focus going into the PS2 with games like Sing Star, to reach that aspiring gaming family, that is maybe jumping into gaming for the first time.
They're not gonna go buy a PS3, so PlayStation2 is a great place for them to go. At the same time, we support the PlayStation 2 platform well into the 6th, 7th, 8th year, and will be until 10 years with products like God of War 2 and SOCOM, which will be out this holiday-- you know, core-gamer products. So, it's not all about PS3, I guess is my long-winded answer. We were talking about who we're focused on.
You know, when you look at the numbers on the handheld market, specifically with PSP versus Nintendo DS, the numbers coming out of the analysts are showing that that Sony's handheld is getting trounced in the marketplace. What's the plan there to kind of regain some of that market share, and lure consumers away from the DS?
Well, again, we're not focused on competing with the DS head to head against the consumer they're going after. If we were, you'd see a very different top-down strategy. You'd see a very different technology that would deliver to games geared towards kids. Which is for the most part what they're doing. And so when people talk about how we're doing vis-a-vis the Nintendo DS, again, it's not the whole story. We're selling a device to guys our age, who are using it to play games, to play movies, to access video on the net, music, etc. And it's a very different product than Nintendo DS.
So, we kinda think about it not so much as, again, for the DS. When we originally launched the PlayStation, there was a lot of heavy lifting that had to go into establishing that marketplace, so it was coming from zero, and needed to establish that credibility. The PlayStation Portable is really targeting guys 18 to 34, and therefore, these are guys that, by and large, have stopped portable-gaming. You play with the Nintendo portable when you're a younger kid, but after a while, most guys -- and we know guys in the industry, and really hardcore gamers, may play some with the Nintendo IP -- but by and large, we don't see a lot of older guys in airports playing, as you do with younger kids.
You can look at the software that they sell. All their licensed kid stuff. So, what we're doing with the PlayStation Portable is really establishing a new marketplace, and establishing, frankly, a new beachhead. And that takes time. Having said that, it's the fastest selling platform we've launched to date. We're up to 20 million units worldwide, and that's off to a great start. So, we just need to sort of set people's expectations based on what we're trying to do, not compete against a kid machine.
It's funny you mentioned that it's been so fast selling, because I think what people have really been able to focus on, in terms of the PlayStation Portable's failures, is the UMD as a media. In general, it hasn't been picked up by any third party companies, and sales of UMD discs, in terms of movies, are flat if not dropping, and are starting to fall out of place in retailers. So, what's the ultimate strategy there with UMD?
I'm glad you asked that. We get asked a lot of times what we could do better, and frankly, I think our approach with Hollywood wasn't as good as it could have been, because we came out with a platform, and our communication with Hollywood wasn't terribly effective, and we really didn't have the resources internally to go knocking on the right doors and talking to Hollywood at the right levels. So, I think, Hollywood said, "Oh, a new format. Great. Okay, turn the switch on. Load the catalog onto UMD, and off we go. We'll have another gravy train of profits for the catalog." And that's not what PSP's all about. I mean, again, I talked about who we're targeting, so, I'll use the sort of made-up example. It doesn't make sense to have "On Golden Pond" published for UMD because that consumer isn't buying a PSP. But that's our fault because we didn't go out to the studios and say, "Okay, here's who the PSP's going to be targeting, here's who we expect is going to be buying the system. We would think that the content in your library X, Y, and Z would make sense."
I don't want to pick on anybody because this was our fault across the board. We've since addressed that. We've got an executive on board who was hired, and part of his responsibility is to have a better interface with Hollywood. And again, so, when we read about Hollywood retrenching or pulling back UMD, I think that makes sense, because it doesn't make sense to have the entire catalog. And it doesn't make sense to have all that jamming up retail shelves with product that just isn't gonna sell. It wasn't at the right price for them to start with, and you know, it doesn't really have a place on the platform that it should have. So, I think, through efforts of our part, we can do a better job articulating what our strategy is to Hollywood, on borrowing the proper support, and working with them collaboratively on going forward. But as a platform, as a technology, we're behind UMD. We think it's got a great life for our platform, and we can probably continue it with UMD as we move forward.
It seems to me that the strategy of getting as many titles on UMD as possible isn't really that bad an idea if you have 3rd party companies picking up UMD and putting it into other devices that aren't the PSP. So, what's being done there with hardware partners, in terms of adoption of the product?
You know, you're kinda getting into sort of a fundamental strategy of the business. PlayStation is closed platform, and always has been. We've been very successful with that. You know, people can talk about Apple and Microsoft OS and what not, open versus closed, but from a PlayStation perspective, we're very comfortable with the strategy that we've had to date. And with UMD, that's been part of the strategy as well. So, you know, until further notice, nothing to announce there, but it's not even something that we really spend a lot of time on because we believe UMD will have a place in PSP, and there will be ancillary businesses for folks publishing them.
So, ultimately, one can expect that if you want UMD, it's going to be on the PSP, that UMD is not going to appear on other platforms? Not necessarily, say, Nintendo, but just on other hardware.
Certainly -- nothing to announce from our part. What other companies are looking at that would be up to them to talk about.
Kind of on a different tangent, and maybe to turn the camera around a little bit in the other direction, I would say that Sony's media presence in the last six months with the launch of the PlayStation 3 has gotten a lot of attention, but it's also brought forth a lot of emotions and feelings. There have been a lot of sound bytes that media has really honed in on, and --
You're talking about -- you say media presence? PR?
Right -- specifically, I'd like to talk about some of the quotes that have been made by executives at Sony Computer America and Japan. Is there there anything that you feel like Sony has done to date with its media blitz that it might have done better or more effectively?
I'm not sure what you're talking about there -- media blitz. And I don't mean to answer questions with questions, but I think Sony has taken our lumps in the PR arena over the last six months. It may be longer than that. My kind of frame of reference, you may or may not know, I rejoined the company, just prior to E3. So, it's about six months.
And I've got my own thoughts on what we can do about it. But I also have some thoughts on why some of it hasn't gone well. And I think part of it is down to being a market leader. And when you're a market leader, you're gonna take a lot of slings and arrows. The expectations are quite high. And I think, therefore, our shortcomings are our own fault. And having said that, you know, one of the things that we get criticized for was being late. And I think, true to Kutaragi-san addressed this personally. He felt badly about it. But I'd like everyone to take a step back and think about what it is we're trying to do and then what it is we're actually doing.
What it is we're trying to do had never been done before. Has still never been done: a global simultaneous launch. So, who, other than a market leader should aspire to do something like that? I think it was a great goal, and it didn't work out. And therefore, here we are. But where we are is no different than where we've been for every other launch that we've done. The launching hardware in a couple territories ahead of another, and we've been quite successful doing that. So, I think, you know, it's not that the sky's falling, it's not that, you know, all the prognosticators saying, "Well, something must be drastically wrong." We're basically doing things just as we've done them every other time. The thing that is different is that we said we were gonna do it differently, and weren't able to achieve that high goal. But, again, I think it was a lofty goal to start out.
I don't disagree, I think a lot of companies set very high goals, and don't always achieve them, and the marketplace will or will not hold you responsible for what ends up happening. But I think that what we're talking about is some of the things that have gone on in some of the past few weeks like, I believe it was
I would never criticize Kutaragi-san in terms of what he says. I think he's a very passionate guy, he's a visionary. A true visionary in the category and his record speaks for itself. I'm not terribly close with the Lik-Sang litigation, nor do I think it's appropriate to comment on. But I think there's other factors that layer on top of a lot of the perception of Sony right now. Some of them are financial and with power struggles, trying to address the company's issues. Some of them have been related to many batteries, and that casts a shadow of doubt to the organization, even though it has nothing to do with Sony Computer Entertainment.
Again, I think there's lots of armchair quarterbacking that goes on. It's what you guys do for a living and we understand that. If you go back six months, when I first got here, I was reading almost every day, you know, a report would come out: we're not gonna defend, we're gonna come in third, we're gonna come in second. I mean, depending on which day it was there's a different prognostication. I've seen the tide turn a lot recently. And I think, at this point, people are kinda getting it. It's like, okay, this machine really is something special. They've got a great track record. There's 100 million PS2s out there. That generates an awful lot of brand loyalty. And again, it comes back to the product and the games. It all looks really great. So, we think we're gonna be successful. These are quotes that we're seeing now. And I'll come back to what we talked about at the top of the interview.
Once consumers get their hands on it, I think that'll take on a different take. I think to the extent that we've been able to actually put the controller into the hands of journalists, educate them about some of the things that we have been a little close to the vest on. Our online strategy was a big, sort of curiosity point for the people. Rightfully so. We wanted to show it to people when it was ready to go. And when we did that, we got "Oh, okay, this looks pretty cool." They kinda got there. And for the next couple weeks, until the machine's on the shelves, and people are playing and having a good time, there'll still be those questions, and that's part of every launch. But we've been down this road before, we'll do it again. And I think, again, we'll focus on the longer term of making the PlayStation 3 very successful. You know, I think it's a long way of saying, "This, too, shall pass."
I think the biggest risk right now, is with Blu-ray. I mean, obviously, this is Sony's big gamble to get Blu-ray into everybody's living rooms, and make this the format that the people really want to have. And I mean, similar to how the Xbox 360 made it to market first, HD DVD also made it to market first. So, it's going be an uphill battle, I think, for that format, though it is technically superior. And I think that that's pretty much inarguable at this point. But there's still the fact that that Blu-ray adds a certain way to price to the actual unit itself, and then comes the supply chain problems of actually getting these units to market.
Fair, but again, in addition to being technologically superior, we're not in this by ourselves. We're looking at the support behind Blu-ray, apart from the CE side, and the studio side, and this is a very firm alliance. 80, 85% of the Hollywood content is coming out on Blu-ray. It's 170 companies. We've got a lot of people on the PR side have been throwing out old Betamax word, and it's laughable. This is anything but. This is a system that's got tremendous support. It's superior technology. I think the risk would be not to include it in the system, because, again, we're focused on its continuing lifecycle, and rather than ask consumers, "Oh, you want -- you want to play a movie on your console? You gotta buy this other thing?" This is kinda what we talk about when we say the thing is future proof. You buy on November 17th, you play games with it. if you wanna use it as a Blu-ray movie player, you can do that tomorrow or you can do that in two years. You can add HDMI. You can buy an HDMI 1080p set to your living room, and that PlayStation 3 is still gonna give you that kick-ass experience, and it's gonna do it for the next ten years. So, it's an ambitious product, it's a technological marvel. But, it's coming, and I think it's gonna be a wild success.
I think it's like two different ways of looking at the same thing, you know? Do you want to make a game console that plays games out of the box, or do you want to have it be a digital media hub that does a lot more? And you know, two different camps and even two different parts of the consumer community are looking at it as, "I want this console to do a lot of things," as opposed to, "I want this console to play games and everything else is peripheral to that."
Yeah, and I think it's got the capability to do both. So, you said it, depending on which way you're looking through the prism. And I think that speaks to another thing, which is another high class problem, and one reason why some people are critical. Why does Sony deal with some of this PR? I think because people are very passionate about Sony, and they want the products to succeed or be the best. And so, they're looking at it and saying, "Why isn't that you're focusing more on the digital media?" Well, it can do all those things and will do, but you know, we're launching it as a game machine. And if we do that, some people might say, well, "Why aren't you talking more about gaming?" Well, that's exactly what we're doing. And everyone is kind of invested in Sony because we're a market leader and we're very close to that, so it just kind of comes with territory. But we kind of enjoy it, because it means people are connected to with what we're doing.
I'm definitely looking forward to seeing the launch go down, and I'll be up there in San Francisco.
Looking forward to November 18th!
Thanks for your time.