This week began with widespread rumors that Sony was planning a major announcement on Tuesday. Many believed the news would be the long-awaited PlayStation 3 price drop which analysts had been predicting all year. Though it would cost Sony much-needed revenue--the company reported a $2.9 billion loss in January--such a move could help the PS3 rise out of its third-place slot in the console race.
However, once Tuesday rolled around, Sony announced a price reduction not of the PS3, but of its elder brother, the PlayStation 2. Knocking $30 off its old $129.99 cost will certainly attract cash-strapped consumers trying to find cheap entertainment in a recession. However, the new $99.99 price point's very numerical makeup underlines the fact that the console is nine years old, having first been released in the US in late 2000.
So why did Sony choose to drop the PS2's price now? When will it drop the price of the PlayStation 3? And just how is the PSP faring in a handheld market that has seen more than 100 million Nintendo DSs sold? GameSpot sat down with John Koller, director of hardware marketing at Sony Computer Entertainment America, to get some answers.
GameSpot: So what exactly prompted the PS2 price drop?
John Koller: The big reason why we dropped the price is because we wanted to extend the overall versatility and viability of the platform. We're seeing some significant growth among the lower-income consumer, particularly lapsed gamers and young families. When you're looking at the current economic situation, they're looking at value and how to get the most entertainment out of their dollar.
There's about 70 to 80 games launching this year, and about the same amount in 2010. So the development's big and still very strong. Publishers are still very bullish on the platform because they're still making quite a bit of revenue from the PS2. It has really turned into a cash cow for them. And when you look at last year's numbers where the PS2 was the most played console, inclusive of next-gen, you can see that it's still got a lot of life.
We look at the PS2 as going well beyond its 10 years that we originally stated. I think this price drop will certainly help it continue.
GS: It sounds like it. So with this price drop, is it still profitable in terms of hardware?
JK: It is. It's still profitable, and that's why the PS2 has long been the foundation for much of what we've done at SCE, and continues to be that. Although the PSP has picked up so significantly in volume and has turned into such a nice growth and high-margin business that it's been able to take a lot of the responsibility off the PlayStation 2's shoulders. So we've been able to drop the price and still have a significantly positive margin on PS2, but not require the PS2 to do all the heavy lifting.
GS: So is the PSP's increasing market share one of the reasons behind last month's flurry of PSP software announcements?
JK: Well, it's certainly related to this announcement. Corporately from a financial standpoint, the PSP has been a high-growth, high-margin product for us. It has, as I mentioned, allowed the PS2 price to drop, and we've had some flexibility.
The many announcements we made on the software side for PSP were inclusive of that tremendous sales growth that we've seen on PSP. But they were also representative of the fact that we went out and talked to publishers about what sells best on PSP and how to craft their business model accordingly. Many of them had taken a bit of a scattershot approach and done a lot of ports and titles that just weren't going to sell very well on PSP. And we had looked at the success we've been having on first-party and said, "Let's make sure we share a little bit here." That's where the publishers were able to launch what you've seen so far, although there's a lot more to come on PSP.
GS: Oh, yeah? Can we expect some major announcements on that relatively soon?
JK: There's a lot of announcements coming up to E3 and particularly at E3. [Emphasis added.] There's probably 50-60 percent of the lineup for the year that has not been announced and there's some big titles coming. So there's a lot of excitement on PSP.
GS: OK, getting back to the PS2 real quick. I know Activision said in its earnings call last month that its continued support of the PS2 was contingent on you guys dropping the price. Did you hear similar sentiments from other third parties? And if so, was that a factor in your dropping the price?
JK: We look at all aspects of the business. A lot of publishers had said, "We still see the PS2 as a cash cow and a place that we can make a lot of money." And a price drop on the hardware certainly inspires the hardware numbers to continue at or north of where they were last year. I think that the software manufacturers and publishers were saying, "Hey we want to see this growth engine continue." So Activision's mention there mirrors what a lot of publishers and retailers were saying in that "You don't have to drop the price. We still think that this is a good model, but if you'd like to, we'd certainly be supportive."
Look at last year's NPD numbers. We sold through 2.5 million PS2s [in the US]. That's pretty good in the ninth year of its life cycle, and we're going into the 10th year in October. So we look at this being a boon to sales and keeping us where we were or going slightly north.
GS: So you said that you now expect to go well beyond the PS2's aforementioned 10-year life cycle. Do you have a ballpark how much longer?
JK: You know, we don't have the retirement chair set up or any plaque on the wall. But I think we can expect it to go well beyond the 10 years. We don't really have a sunset date in mind. We did for PlayStation 1 because we saw that the development spigot really dried up pretty quickly in that ninth and 10th year, and we turned our attention to PlayStation 2 at that time.
But from what we're seeing on the first- and third-party game lineup, there's not a lot of slowdown in terms of the amount of games coming. There are 70 to 80 titles coming in the next few years. That's pretty strong, especially when you look at the game titles that are coming. There's Guitar Hero Metallica, there's Ghostbusters, and a lot of social games: SingStar, Buzz, MLB, and Madden. Those are all pretty big franchises that are still launched on PlayStation 2.
It's a different demographic. When you look at the PS2 now, you have to parse how you used to view PS2 when it was current-gen [hardware]. Early adopters and a lot of other consumers have moved on to next-gen [consoles]. Where we have the PlayStation 2 consumer now is really in that kind of lower-income or new-to-the-category type consumer. And that's a very viable area. It's still very rich.
GS: Especially in these economic times...
JK: Certainly. You look at it from an evergreen entertainment standpoint; you could choose to go out to dinner or go on a vacation or you could choose a game for 40 to 50 hours of gameplay that you could play as a family. You know, that's a big focus. It's families playing with families on PlayStation 2. It's not the mom buying it for the 8-year-old and kind of letting him play in his bedroom by himself.
GS: I have one quick question about the numbers mentioned in the press release today. You guys said the sell-in of the PS2 was more than 136 million units worldwide, and I'm looking right now at a Financial Times article from E3 last year that quotes Kaz Hirai saying it was 140 million units last July. Which is the right number?
JK: Good question. I haven't seen that article. It should be 136.8 million units.
GS: The same article also quotes Mr. Hirai as saying that the target for the PlayStation 3 lifetime worldwide sales is 150 million units. Is that correct? And if so, are you guys still sticking by that forecast?
JK: Well, we don't have a particular number that we can discuss on PlayStation 3 lifetime, but I can tell you that we look to the PlayStation 3 to follow the PlayStation 2 growth curve. And we look at that as the goal, and certainly our daily goal is to continue to drive adoption of the PlayStation 3 from that PlayStation 2 loyalty base. That's kind of a primary driver.
There's over 50 million PS2s in North America, and those who purchase one for $99.99 tomorrow probably won't be purchasing the PlayStation 3 the next day. But we firmly believe that they will sometime within this console life cycle purchase the PlayStation 3. And maybe they'll wait for a big game or their favorite franchise or they'll play Blu-ray at some point.
And so our current focus is looking at those who purchased the PlayStation 2 between that 2002 and 2006 period where many of the key PS2 franchises really made their mark, the Gran Turismos, the Grand Theft Autos, and Madden--all those that are starting to come over to next gen. Those are the consumers that we're really looking at as being right for bringing up the PlayStation 3 loyalty curve.
GS: Well, speaking of the curve, one way obviously to have expanded the PS3's base--and a lot of people were expecting this Tuesday--would be a price drop. Do you have any announcements on that front, or will you have any announcements on that anytime soon?
JK: Nothing to announce on that front right now. What we're focusing on for PlayStation 3 is really the overall value of the box. This year we'll probably see the best software lineup that PlayStation 3 has ever had. It's a fantastic lineup, that touches on new IP as well as really strong franchises that have been brought over from PlayStation 2.
Also, the Blu-ray movie strength is becoming a tremendous feature for us. Movies, in some ways, are starting to help us sell hardware, turning the old business model on its head. The Dark Knight in particular moved units for us back in December. And that was an interesting kind of moment for us as we saw the business model change from what traditionally has just been a [game] software driver. The Wi-Fi, the remote play with PSP--all those things add up to a very strong value message for PlayStation 3.
Of course we continue to monitor the business and really in particular look at the consumer demand cycle and see if there are any gaps in any areas we need to fill. But last year was the best sales year we ever had for PlayStation 3, and that was despite really strong recessionary headwinds. And while we feel really bullish about the PlayStation 3 this year, so this week's announcement was really just about PS2.
GS: OK, you said the PS3 sales are still growing, but it's still in third place two years after it launched. When do you think its momentum's really going to start picking up? Is it going to be this year with software titles like God of War 3 and stuff like that?
JK: We look at the start of the strong trajectory of sales starting last holiday and continuing all the way through this year, and a lot of it is based on the games that are coming. God of War 3 is one example that's fantastic, but you can look at games like MAG and Heavy Rain and inFamous and some of the other games that are launching, not to mention our sports games, that will really help drive a lot of the business.
I also want to mention that there's certainly a component of the PlayStation 3 that is going to start appealing much more to families as well, so a lot of those familiar franchises from PlayStation 2--Ratchet & Clank, etc.--that made such a tremendous mark with the younger consumers as well as families, are going to start gravitating more toward PlayStation 3 and kind of softening the brands in many ways.
GS: Take Little Big Planet...
JK: Little Big Planet, yeah. I mean, Little Big Planet is obviously kind of one of the hallmark franchises for us, and we look to that to expand the casual gamer, casual gaming market. So I think this will be the best PlayStation 3 sales year we've had from a hardware perspective. I think the software's the best we've had. The [strength] on Blu-ray is really starting to help with that quite a bit, and that's not just Blu-ray movies but Blu-ray gaming. The idea is that that 50GB of space can be capitalized on by developers looking for much deeper, richer content.
GS: Now, I have a quick question about the configuration of the PS3 that you can probably answer. The 160GB PS3 Uncharted Bundle was touted as a limited edition, but looking at the major retailers, it seems like there's still a pretty decent supply. When do you expect that supply to run out? And if so, when it runs out will there be a 160GB stand-alone PS3?
JK: That's a good question. It is a limited edition. It should finish winding its way through retail in the next few months. So we're looking at the various configurations now. Probably can't say whether there's a 160GB in our future or not. Certainly we're looking at the 80GB as kind of our base product right now. We have stated publicly that we do really think the two-SKU [model] strategy is the right strategy for us, so whatever those configurations are I think you can use that as kind of a baseline. But I think that the Uncharted Bundle certainly did a nice job for us filling the early kind of adopter mentality of "I need more space" as well as "I want one of the top games available" this past holiday. So it was a very strategically served bundle. It should be out of retail shortly.