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Counting Rupees: The year of the PS3

Jeff Engel

Each week Jeff Engel and Geoff Brooks contribute Counting Rupees, a column on the business behind gaming:

Apparently, 2008 is the year of the PS3. After what most consider a very shaky first year, the media is abuzz with a comeback for the company that was once king of consoles. EGM's March issue proudly proclaims on its cover that it's "The Revenge of the PS3". EDGE's December issue was entitled "The Empire Strikes Back" and even Joystiq's PS3 Fanboy has given us 10 reasons why the PS3 is back in the swing of things. Some analysts have proclaimed that the PS3 will do at least as well as the 360 in 2008, and others have the PS3 edging out the 360 by 2010 or even the Wii by 2011. Clearly, everyone is pointing to 2008 being a turning point of sorts for the Cell-powered beast. But is it actually true?

Let's focus on, at least initially, Sony's battle against the 360. Certainly, the PS3 has a lot of things going for it. Blu-ray has officially won the next-gen DVD war; upcoming games, such as Metal Gear Solid 4, Killzone 2, and LittleBigPlanet show tremendous potential; and it has seemingly found a price point that people are willing to pay (as they did originally for the 360). In the US, at least so far this year, Sony has managed to outsell the 360 according to January and February NPD figures. But will it be enough?

January's NPD results had the PS3 topping the 360 by 39k, a reversal from the previous month's 400k advantage for the 360, while February showed a 26k advantages over the 360. At this rate, using numbers from VGChartz, the PS3 would need nearly 18 years to overtake the 360 in the US. If this didn't look bad enough, Microsoft also claims that it's had supply shortages for its console early this year. If true, Sony has an even steeper hill to climb assuming Microsoft can work out these "shortages."

Sony has to rely on other opportunities that present themselves this year. Certainly, its Blu-Ray win is one thing that it hopes will generate momentum. Unfortunately, so far, people haven't looked like they're in a hurry to buy the PS3 now that Blu-Ray has won. From January to February, after Warner Bros. effectively ended the format war, the PS3's sales only went up 4%, while 360's sales went up 11%. Perhaps since the format war wasn't officially over yet the news hadn't taken effect yet. It could also take some time before clarity in the HD disc market actually trickles into the console market, particularly if this old survey is still an indication of people's knowledge of the PS3's Blu-Ray capabilities. While the PS3's perception on this has probably improved, Sony also likely realized that it needed to continue to increase awareness of movie-playback capability. The fact that a Spider-Man 3 Blu-Ray was being packaged in with PS3's over the holiday period is certainly an expression of that, as is the "Movie Pack", which comes with 3 movies, that is going to be made available in Europe very soon (and I'm actually surprised something like it isn't going to be marketed in the US as well). Assuming Blu-Ray gains in popularity, it could certainly accelerate the PS3's adoption at least until Blu-ray players hit a mass-market price, after which, most people looking for a way to play Blu-ray movies will probably opt for the standalone player. For this very reason, I'm not confident that the PS3's inclusion of Blu-ray will help it narrow the gap with the 360.

If not Blu-ray, then perhaps the games will help propel Sony into the lead? After all, Halo 3 moved quite a bit of hardware last year, so couldn't MGS4, Killzone 2, LittleBigPlanet, and Gran Turismo 5, among others, do the same for the PS3? No doubt, there is a lot of hype behind those titles, but unfortunately for Sony, they're no Halos. Granted, nothing else really is, but they're no Marios, Brawls, or Mario Karts either. Hell, Gears of War sold nearly as many copies as MGS3, MGS3: Subsistence, and Killzone combined at a time when the PS2's base was substantially larger than the 360's currently. As much praise as the MGS series has received, they don't have an extremely wide appeal. LittleBigPlanet, obviously as a new property, is completely untested and it is hard to tell whether it will reach the PS3's current demographic, as it seems more in tune to Nintendo's. Gran Turismo may be, surprisingly, the strongest property here; its last outing selling nearly 9 million copies, but again, with a 100+ million installed base. None of this is to say that PS3 owners shouldn't be celebrating these game releases, but as properties, they have not proven to be "killer apps". Easily, Sony's biggest games from the last generation were the Grand Theft Autos, all of which sold more than 11 million copies each, and whose newest installment is a multi-platform game with exclusive content going to the 360. Despite the strength of its lineup and without an exclusive like GTA, Sony may not have a killer app.

Sony is, for its part though, playing it smart with the properties it has by creating what are likely to be fairly popular and lucrative bundles for both MGS4 and Gran Turismo 5 (in Europe anyway). While I'm sure that MGS4 will sell fairly well by itself to the hardcore PS3 crowd, packaging a well-known exclusive name with a PS3 could help less hardcore fence sitters decide that it's the system they want, particularly in a year with no Halos on its closest competition. Still, while the 360 doesn't have a Halo, it does still have some high-profile games coming out. If Microsoft is able to market exclusive games like Gears of War 2, Fable 2, and Too Human effectively, it may well be able to counter the impact of the PS3's new games, particularly if the games fail to impress as Lair and Heavenly Sword did. Even with positive reviews, there's still no guarantee that they'll sell as well as "killer apps" are expected to, as Ratchet and Clank Future and Uncharted: Drake's Fortune demonstrated. If the games still don't sell well, it's unlikely they'll drastically improve the PS3's sales. Sony's going to need quite a bit of positive buzz around its system and these games if they hope to make up its nearly 7M unit deficit to the 360 in the US. I'm not sure I see it happening by 2010, 2011, or at all.

Which brings us to an interesting possibility: can the PS3 take 3rd place in the US but overtake the 360 in the world market? There may be an opening for Sony here. As we all know, the 360 has sold abysmally in Japan. Sony has already sold about 1.4M more PS3's than Microsoft has 360s, and this trend will probably continue, if not accelerate. If we simply take the average sales of the consoles on a monthly basis from the time of their release, the PS3 would net roughly 5M consoles alone from Japan. In Europe, the PS3 is closing fast and is about 500k consoles behind the 360. Indeed, Sony expects to overtake the 360 in Europe this summer. Projecting in a similar manner as before, surprisingly, the PS3 nets another 5M against the 360 over 3 years from Europe and other PAL regions. The PS3's strength in Europe and Japan could very well offset its weakness in North America, but if the 360 can retain its strength in the US, it will be pretty close in the worldwide numbers. Obviously, over even more time it looks quite possible that the PS3 will surpass the 360's worldwide numbers.

As for catching the Wii like some analysts have suggested? Considering the Wii has so far more than doubled the sales of the PS3 in nearly every region in the same time frame (slightly less than double in Europe), has consistently been selling out at least in the US every month it's been available, and continues to dominate in sales around the world every month, this seems exceedingly hard to believe. Certainly, sales are not static and the Wii could slow down as the PS3 speeds up, but starting almost 12M units down with no real signs that it can outsell the Wii, it would take a serious stumble by Nintendo to lose its lead here. By my calculations, over 3 years, the PS3 would need to net over 300k units per month to catch Nintendo now. We've seen no precedent for this yet, and even with new games coming out for the PS3, it seems unlikely that the momentum would shift so drastically in its direction. I would think that for Sony, just gaining parity with weekly Wii sales would be considered a huge success at this point, let alone surpassing its sales by a few hundred thousand units.

So, is this the "Year of the PS3"? Perhaps as a gamer, as the system seems to have many of the "big exclusives" this year. As far as its sales, things are a bit more mixed. While the PS3 is likely to overtake the 360 in Europe, it still looks unlikely that its situation will change in US, even with the success of Blu-ray and a potentially strong software lineup. Still, the trend in sales worldwide looks like it could settle comfortably in second place. Ironically, before the 360 launched, everyone considered whether a console could succeed on a worldwide scale without succeeding in the all-important Japanese market. To some extent, it looked like the US would be big enough to determine its success. But that was apparently only part of the question. The other part is whether a console that performs marginally in the US can actually compete at the worldwide level (at least for second place). Seemingly, Sony is set to demonstrate that the answer is yes.

As co-editors of A Link To The Future, Geoff and Jeff like to discuss, among many other topics, the business aspects of gaming. Game companies often make decisions that on their face appear baffling, or even infuriating, to many gamers. Yet when you think hard about them from the company's perspective, many other decisions are eminently sensible, or at least appeared to be so based on the conditions at the time those choices were made. Our goal with this column is to start a conversation about just those topics. While neither Geoff nor Jeff are employed in the game industry, they do have professional backgrounds that are relevant to the discussion. More to the point, they don't claim to have all the answers -- but this is a conversation worth having. You can reach them at

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