Preparing for an Online Onslaught
Technology titans Sony Corp. and Microsoft Corp. last week unveiled more details of their plans to take their game consoles online, adding to the months of chest-thumping by both companies.
The noise will only grow as the two companies head into the holiday season, when half of the industry’s annual sales occur. Sony will fire the opening shot this month when it releases an Internet adapter for its PlayStation 2 consoles. The $39.99 device will come with a free game, “Twisted Metal Black Online,” to whet consumers’ appetites for online play, which will at first involve playing opponents over the Internet and eventually include downloading everything from additional game content to music and video.
Microsoft is set to follow in November with a $49.95 starter kit for its Xbox console that will have a headset, a mini-game and a one-year subscription to its proprietary online network. In 2004, the company is expected to charge $9.95 a month for the service, sources said.
Each company plans to launch more than a dozen games that will have online features by the end of the year, and their efforts will be backed by millions of dollars in marketing hype.
But beneath the glam of online games are some decidedly unattractive numbers. Microsoft’s internal expectations are tens of thousands of subscribers this year and only several hundred thousand subscribers next year.
Sony plans to ship just 400,000 adapters this year in North America. That means Sony expects just 3% of PS2 owners to buy the device.
Kazuo “Kaz” Hirai, the 41-year-old head of Sony’s Play- Station business in North America, discussed the future of the console market as Sony envisions it.
Question: You’ve set a target of shipping 400,000 adapters in the United States by the end of the year. Are those numbers really indicative of a mainstream technology?
Answer: Against an install base of 11 million PS2 units, 400,000 doesn’t sound like very much. But the largest online game community in the United States is “Everquest” with 425,000 subscribers. The numbers may seem small, but it’s a very large community by online standards. Is that mainstream? I don’t think it is. But you need to start somewhere.
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Q: When will PlayStation users be able to download music and movies?
A: It’s always been one of Sony’s visions that the Play- Station 2 play not only games but also movies and music. That’s something we already accomplished to some degree. The PS2 plays DVD movies and music CDs right out of the box.
As for downloading, the technology is already there to actually do that. So now it becomes a matter of managing the copyrights, coming up with a viable business model for content providers and waiting for broadband Internet access to become more mainstream.
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Q: How would you define mainstream?
A: For it to really be considered mainstream, we’re talking penetration of 40% to 50% or above. I live in Foster City, and we can’t get even DSL. In some places, the service isn’t even offered. It’s no secret that some people expected broadband penetration to be higher than it actually turned out to be. There’s also demand. There are people who are happy with what they’re getting through dial-up analog. So it will take some time.
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Q: PlayStation 3 is already in the works, and Sony has said it is working with IBM Corp. and Toshiba Corp. to design a processor for the new machine that will be as much as 1,000 times more powerful than the PS2 and built for broadband networking. What can you tell us?
A: Generally, any future platforms will have to take advantage of a networked environment as a basis for that platform. One of the things we always strived for with the PlayStation was to offer a cutting-edge platform that has as few limitations as possible for content creators to express themselves, whether it’s real-time photo-realistic rendering or whatever.
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Q: How will the online aspect affect your business model?
A: It means there’s an added layer of complexity to the business. If you have an offline game, the consumers buy it at the store and they take it home. There, you only have to deal with one-off consumer issues such as returns, scratched discs and so on. With online, the consumer buying the disc is only the entry point. Now you need to support their playing it as well, and you need to support it [24 hours a day, seven days a week]. So that adds a level of complexity to the business that we didn’t have in the offline environment.
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Q: Synergy has become a dirty word lately, especially with conglomerates such as AOL Time Warner Inc. and Vivendi Universal running into financial problems and trying to make their media empire fit together. What do you think of synergy?
A: If you’re talking within Sony, we’re consistently in touch with other Sony companies--Sony Music, Sony Online Entertainment, Sony Pictures--to explore ways to cross-market and cross-sell each other’s products. Unfortunately, synergy has gotten a bad rap lately because you had forced synergy. And that never works. To give you an example, we’re always looking for music tracks for our games. Our first call would be Sony Music. If what they have fits, that’s great. If, however, there was no artist that was appropriate at Sony Music, we don’t hesitate to go to other companies. At the end of the day, when you start forcing that stuff, it usually doesn’t work. I’m all for synergy, but if one party thinks it doesn’t work, then it’s time to wait for the next opportunity.
