Can the PS3 Save Sony?
An old article, but still a pertinent one.
Can the PS3 Save Sony?
The company that created the transistor radio and the Walkman is at the precipice. If Sony's new $600 console doesn't blow gamers away, it may be time to say sayonara.
By Frank Rose
Never try to introduce the same product twice. That was the lesson from the Electronic Entertainment Expo in May. A year earlier, at E3 2005 in Los Angeles, Sony had wowed the videogame industry with demonstrations of the upcoming PlayStation 3's unprecedented graphical muscle. The machine wouldn't be available until months after Microsoft's next-gen console, the Xbox 360. Yet based on the spectacular preview, many gamers had no problem waiting for the PS3. Then, early this year, Sony dropped a bombshell: The PS3 release would be pushed back until November. So when E3 came around again this spring, everyone trooped out to the retro Hollywood lotusland of the Sony Pictures lot only to view the same console they'd been promised the year before. Not great.
Delays are nothing new in tech, but Sony seemed intent on making the worst of it. The crowd was kept waiting nearly an hour. Then Kaz Hirai, who heads PlayStation in North America, took the stage to declare, "The next generation doesn't start until we say it does!" He meant it as a dig at Microsoft, but to gamers who'd been salivating for a year, his words were like a bitch slap. The demos that followed were no more impressive than those the year before. Finally, PlayStation chief Ken Kutaragi came forward to make the one announcement everyone wanted to hear: the price. $600 for the high-end model? The room gasped, then fell silent. Almost immediately, the blogosphere lit up with denunciations: Sony has turned its back on gamers. The PS3 will be a failure. Kutaragi and Hirai are idiots.
PR fiascoes tend to be a sign that nobody's thinking about the customer. E3 was Sony's second in seven months. Last October, a security researcher reported on his blog that CDs from Sony BMG the music label half-owned by Sony contained antipiracy software that covertly embedded itself in computer operating systems, spying on their owners and leaving the machines themselves vulnerable to identity theft and zombie takeover attempts. Sony BMG pooh-poohed the problem and released a software fix that made it even worse. Millions of CDs had to be recalled. As class actions multiplied and even the Department of Homeland Security warned music labels against undermining computer security, angry consumers declared themselves ready to boycott anything with the Sony name on it.
Sixty years after its founding in the ashes of postwar Tokyo, the company that gave us the transistor radio and the Walkman portable music player is deeply wounded. Only once in the past five years has Sony's all-important electronics division posted a profit; during that same period, the company's share price has fallen by nearly half. Its hit products of the '90s Handycams, WEGA TVs, VAIO computers were succeeded by stillborn wonders like the AirBoard, a $1,000 videoscreen that could be carried around like a laptop, and the Net MD Walkman, a too-little-too-late attempt to challenge Apple's iPod. Neither this latter-day Walkman nor Sony Connect, the online music store The New York Times once called "Sony Disconnect," would have anything to do with MP3 files only Sony's cumbersome and proprietary Atrac3 format would do. Now, having ceded to Apple the portable-music-player market, Sony desperately needs to stay on top in videogames. It's not just that Sony needs a win; PS3 is critical to its entire strategy.
The PS3 is much more than a game box. Kutaragi likes to say it's actually a computer, one that's designed to lie at the center of the networked home, serving up films, navigating the Internet, doing nearly everything a PC can do, and delivering jaw-dropping videogames besides. The new console relies on two extremely ambitious yet untested technologies. At its core is a highly sophisticated microchip that can cruise at teraflop speeds (equal to the fastest supercomputers of less than a decade ago) and that might someday revolutionize home electronics. Also built into the machine is Sony's new Blu-ray hi-def disc player, which is proudly incompatible with a rival format from Toshiba and which represents a bold, some would say reckless, attempt to control the multibillion-dollar market in next-generation video discs.
All this makes for a daring strategy, but not one that plays to Sony's strengths. Sony has always been at its best as a personal hardware company, coming up with nifty gadgets that delight consumers. In recent decades, though, it's become oddly fixated on imposing its own standards Betamax for VCRs, the Mini-Disc for digital music players, the Universal Media Disc for PlayStation Portable, the Memory Stick for anything you can think of despite the world's unwavering rejection of those standards. And Sony has never displayed an aptitude for software or had great success with networking, the key feature Microsoft has built into the Xbox. Yet Sony has to face Microsoft not just in videogames but across the entire panoply of home electronics, which Microsoft is determined to control through software. And Sony has to do this with cash reserves of $6 billion compared to Microsoft's $38 billion hoard while losing hundreds of dollars in manufacturing costs alone for every PS3 sold. Eventually, Sony's costs will come down. But in the meantime, Goldman Sachs projects, Sony will lose nearly $2 billion on the PS3 by the end of this fiscal year in March.
Sony lovers and they are legion have been watching all of this with awe and trepidation. It's not every day that a $64 billion-a-year corporation puts its future on the line. "It's very un-Japanese," observes Rishad Tobaccowala, who tracks the entertainment business as a future-of-media specialist at the global ad giant Publicis. "It's betting the company. If this thing bombs, there is no second coming. Everything else about Sony is a sideshow. This is the show."
How did it come to this? There were missteps aplenty, but at their root is a common dynamic: What once made Sony great has worked against it in the digital age. Sony's course was fixed in the 1946 prospectus drawn up by cofounder Masaru Ibuka, when he set forth the new company's purposes of incorporation. Number one on his list: "To establish an ideal factory
where engineers with sincere motivation can exercise their technological skills to the highest level." To succeed, engineers would need to form small development teams and compete to build the next great gadget.
Teams of hardware engineers locked in competition: "It's the principle Sony is built on," says Shin'ichi Okamoto, PlayStation's former CTO, now a Tokyo entrepreneur. "Personally, I believe it's not such a good principle nowadays. I got this impression in the '80s, with the technological shift to semiconductors and software" both of which require enormous development teams that collaborate with the hardware units their work is intended for. "At Sony, most engineers want to invent something new by themselves. That's a very different goal."
Faster, faster, faster, until the thrill of speed overcomes the fear of death...
Hunter Thompson