We recently had the opportunity to chat with Sony Computer Entertainment America's Executive VP Jack Tretton (right). In this exclusive interview, Jack fills us in on some key data points and what they mean from Sony's perspective. Dig in...
There's been a lot of negativity surrounding Sony in recent months, but the fact of the matter is they're still number one in the video game space. That was the basic message GameDaily BIZ received in a recent interview with Sony Computer Entertainment America Executive Vice President and Co-COO Jack Tretton.
To start, Tretton outlined a number of interesting pieces of data for us, some of which we hadn't previously been aware of. He began by reiterating Sony's belief in the 10-year life cycle for the PS2 and emphasized how the PS2 has been performing far better than the original PlayStation. "If you track like timeframes, 5 and 3/4 years into the two life cycles, we're 28 percent ahead of where we were on the original PlayStation... We did extremely well with the PS2 on a North American basis, on a U.S. basis and on a worldwide basis, and no matter how you put it, we basically trounced the competition," Tretton said. According to SCEA internal data, the life-to-date PS2 installed base stands at 39 million units in America.
Everyone knows how successful the PS2 has been, but what's a bit surprising is that the aging console has been outselling the Xbox 360 in recent months. Furthermore, according to the NPD Group's TRST data, the Xbox 360 is actually off to a slower start than the original Xbox. Looking at retail sales for the respective consoles' first nine months shows the Xbox at 2.55 million units and the Xbox 360 at 2.21 million units.
"What I've read widely and what I've heard from MS is, 'Yeah, we got beat last generation but that's because we were late to market and came out a year after PS2 did and that's why we got defeated and that's not going to happen again.' Yes, the PS2 was beating the Xbox 5 or 6 years ago, but now the PS2 is beating the Xbox 360... Year-to-date we've sold more hardware than they have and this past month we've sold more hardware," Tretton boasted. "So we beat them in their last generation machine and we're beating them in their current generation machine. And if I were Microsoft, the big concern I'd have is... Xbox 360 is actually doing worse than the original Xbox did."
He continued, "I think there's less consumer interest in [terms of] pure numbers for their new system than there was in their previous system. I think the thing that's concerning to the industry or to anybody involved in generating income from it or I would assume to Microsoft is that they're the only supposed next-generation system out there. They have the market all to themselves... and they're doing worse numbers. To me that says the consumers are either not satisfied with what they're seeing from 360 so far or they're waiting to potentially purchase another system from a competitor or stick with what they're currently playing. So if that is the future of the next generation then this industry is in a whole lot of trouble because it would show a decline as opposed to growth."
The discussion then moved onto the portable space. Interestingly, the PSP has actually had a higher adoption rate than the PS1. Looking at the 18 months after launch of each system, the PSP sold 5.30 million units in America compared to the PS1's 3.48 million, according to SCEA internal sell-through data. Furthermore, while the DS has been an unbelievable success in Japan, in North America since the PSP launched it's outsold the DS, roughly 5 million units to 4.1 million units. Life-to-date, however, the DS still has a larger installed base in North America (5.6 million vs. 4.9 million).
Said Tretton, "We really feel we carved out new territory [with the PS1] and then we built upon that with the PS2. The parallel that we draw to the PSP is that it is exactly the same to portable gaming to what the PlayStation was to console gaming, that we are carving this new road out and we are selling again to 20-something consumers that were not fans of portable entertainment, were not playing Game Boys because the technology and the software offerings just weren't appealing to them... And now because of the technology in PSP and the game offerings it appeals to them and that same consumer we carved out with the PlayStation is now being carved out with the PSP at an even much greater rate than we did with the original PlayStation. There's a lot of PlayStation legacy there that we've been able to capitalize on that we didn't have back in 1995, but I think it's very similar in terms of carving out a new audience and that new audience has generated $2 billion in revenue in the 17 months that the PSP has been out."
He continued, "I think obviously our competition, the handheld devices from Nintendo and specifically in the case of the DS, we really feel like they're appealing to the same audience that Game Boy has always appealed to. And if you look at the adoption rate of the DS over the first 17 months, not only does it trail the PSP but it also trails their other platforms... They're potentially losing some of their core audience and they're not really expanding beyond that and we think we're expanding into a completely new audience as we did with PlayStation. And we'll do just what we did on PlayStation; we'll dip down to the younger consumer eventually and we'll ultimately appeal to that vastly Earth wide audience we carved out with the original PlayStation."
We queried Tretton about Nintendo's approach to broaden the market and "touch" the so-called "grey gamers" in addition to appealing to the younger set, and while it's hard to imagine a PSP in the hands of a 60-year-old for instance, Tretton believes there are more middle aged and young people playing PlayStation systems than one might think. "I think it's a good premise, but I would tell you for a fact that there are much more people in their 50s and 60s playing PlayStation platforms in terms of console, than there are playing Nintendo platforms. So I think it's conceivable just as we did with the PS1 and PS2 that we could bring in that audience."
"You start with the core audience first and then it's much easier to reach down to a younger consumer and it's much easier to reach out to a passive gamer than it is to go the other way around and say, 'Well I saw my kid playing this and I was really attracted to it and I've started playing it now,' or 'I'm not really into gaming. I just bought it because I like puzzle games but now I think I want to play SOCOM.' ... So I think just as you saw us do with the original PlayStation and PS2, we start out with that core audience and then we expand out from there."
GameDaily BIZ: What do you make of Ken Kutaragi's recent statement to Reuters that Sony's hardware business is losing strength?
Jack Tretton: The honest answer is that I obviously wasn't there when the interview was conducted. I don't know if it was conducted in Japanese or in English. I only read the news accounts of it just like you did. I've done enough interviews that I know a lot of times quotes can be take out of context. I would say that without speaking for Kutaragi-san that I think it was probably stated in the context of disappointment that we weren't able to launch in Europe and we weren't able to hit the initial launch quantities that we'd like and not that as a company our hardware capabilities are at all in decline.
And I think hardware for a company that's as diverse as Sony is, my first question would be, "What do you mean by hardware?" Is hardware TVs? Because we just went from No.4 to No.1. Is hardware gaming? Because we haven't even put out our new platform and in the face of the competition we continue to be No.1. So I would have to clarify what hardware is and question what context it was answered in. Certainly based on how it was reported, if he did mean it that way I would respectfully disagree with him.
BIZ: I think you understand why this was such a big headline, though. For someone as bold as Mr. Kutaragi to admit that Sony might be in decline in any way is kind of shocking to read.
JT: I would be willing to bet anything that it was taken out of context, and if he said it, he certainly wasn't referring to Sony's corporate strength because I've been here for 12 years and I can tell you that they've never been healthier than they are right now.
BIZ: Ever since E3 there's been a kind of domino effect with the negative perception surrounding Sony and analysts proclaiming all sorts of doom and gloom. How does Sony fight this perception that maybe they're not No.1 anymore?
JT: Until somebody knocks you off, you're No.1. And we continue to be No.1. And I think when you predict the future, it's boring to predict that the No.1 will stay No.1. It's juicy to predict that No.1 could possibly fall. I think we've been facing this since the day we entered the market. "There is no way that Sony could dominate the market in the face of two formidable competitors, like Nintendo and Sega that have such a gaming heritage." But we did it. "There is no way that Sony can repeat the success that they had with the original PlayStation. Do you know that over the course of the industry no company has ever dominated two life cycles in a row?" But we did. We've faced this throughout our entire history and I think it's just par for the course. If you look at a lot of the quotes from back in '94 and you look at a lot of the quotes in '99 or 2000, they were all saying the same things. And I think if you look at any market leaders in any industry or any form of entertainment, what sells magazines with the stars? The fact that their movie was very successful and they give a lot to charity or that they gained ten pounds and got stopped for DUI?
People thrive on bad news and they like to see people with a lot of success or companies with a lot of success have missteps, so I think it's just culture in general and the fact that people root for an underdog and that bad news sells. And I think that if you're in a leadership position, people are going to want to dwell on the negatives more than they're going to want to dwell on the positives and that just comes with the leadership position. And I guess we're ok with that because ultimately the audience that we have to serve is the consumer and they vote with their wallets every single day. They continue to vote for our platforms every single day and we're hopeful that with PS3 we've given them another reason to vote for us with their wallets, but time will tell. I'm quite confident given the technology that we have to offer but ultimately it's all speculation and speculation to me is kind of tiring; I'd rather deal with the realities and let the future play itself out.
BIZ: How much pressure does Sony's game division feel in relation to positioning the PS3 as a key product for Sony as a whole?
JT: Well I've been here for the entire history of Sony Computer Entertainment, at least in the U.S., so I'll give you the contrast. The contrast was that back in 1995 nobody knew who we were not only in the industry, but nobody knew who we were within Sony. We were these crazy guys that were going to be in the video game business; we were kind of an afterthought to our sister companies. And now, 10-12 years later we clearly have been for some time a very high visibility division and really a profit driver corporately, so that is a banner that I think we take a lot of pride in but it's also something that comes with a fair amount of pressure to continue to deliver. But I think if you're an organization that's competitive and prideful that's a position that you want to be in... the type of person who wants the ball with the game on the line and I think as a division we're comfortable in that role.
I think the role has changed not only from a financial standpoint to the fact that with the advent of multimedia capabilities of our systems we have more parallels to the other divisions than we did in the past. Because the PS3 is such a graphically intensive and powerful machine I think we will have an impact and we have had an impact on the interest in high-definition television, and that will certainly have benefits for the electronics division at Sony. I think the fact that we'll have a Blu-ray player [in the PS3] it's not a secret that the entire Blu-ray consortium is counting heavily on the success of PS3 to help usher in that technology, and then given the fact that we're affecting hardware in that way I think we'll obviously have a big effect on software content beyond what we've been able to do in gaming. We're going to help, if we're successful, sell a lot of prerecorded software in the form of Blu-ray and we'll continue to bridge other forms of entertainment that Sony's involved in, like music, etc., etc. So I think that we have a lot more crossover with sister divisions than we did back in '95 when we introduced the original PlayStation. So those are facts and most of those as far as I'm concerned are tremendous benefits, but it does come with a higher degree of awareness and a higher degree of expectations.
BIZ: Are you concerned that Sony has perhaps priced the PS3 out of the mainstream? How quickly can we expect the price to come down?
JT: I don't think people have ever bought platforms or most consumer goods on price alone. It is price and value that really goes into the equation, and when you look at gaming in our history we have never been the cheapest platform. There has always been a cheaper platform available than our platforms, but I think when people saw the value or compared the value to the retail price of our platforms against our competition, they have always voted for our platforms and seen the value there. And the value is something that we take very, very seriously and it is not a secret that we have invested heavily to try to supplement the retail as much as possible to make it available to as many consumers as possible. And we really feel that this time around the value equation is as solid if not more solid than it's ever been, but we're delivering so much more to the consumer than we have in the past.
And I think that if it's not a system that's in reach for everybodyand even if there's interest certainly supply would dictate that not everybody who wants one will be able to get onewe really feel like we continue to have the number one selling platform in the market with PS2 that appeals to over 100 million gamers worldwide, so we don't expect nor do we need everybody to embrace the [PS3] technology from day one. But I think what we're saying with PS3 is that this is the machine that is going to drive gaming for the next ten years and this is the machine that you need to own and that will be valid and up to snuff from a technology standpoint for the next decade. And we could do a mild improvement on the PS2 and a mild upgrade and sell it for marginally more dollars and I think that would be met with some pretty strong appeal for a short period of time, but I don't think it will have the staying power. So in order to provide a machine that will have staying power for the next ten years, it needed the technology that the PS3 offers and we really feel the value has been justified given what's under the hood. Time will tell and the consumer will tell us whether that's true or not, but we believe that'll be the case.
BIZ: Ok, but we've heard Sega and other publishers state that they believe the PS3 does not have a "family friendly" price and that Sony needs to bring the price down quickly...
JT: I think the publishers, God bless 'em, I think they trust that we know what we're doing and they're relying on us to do what we've done for them the last 10+ years, and that's create a machine that allows them to create great software that ultimately has great appeal to consumers and I think from a technology standpoint they're very pleased about that. I think if you look at their best interests or what they'd like to see, they'd like us to give the machine away because they're not interested in whether we're able to generate revenue or not; they just want to sell as much software as they can. And I think as a consumer we'd like to get it for free or 99 cents and that's just not realistic. I could talk about pricing all day long and I think we could get into all forms of comparisons. What is the bar for a TV? Is it $500? Nobody will spend more than $500 on a TV... I mean 50% of the TVs that are going to be sold this year are going to be HDTV. People are spending thousands of dollars on TVs because they see the value in the technology and they say "I've gotta have a high-definition television." You can watch a football game just fine on a TV for $199 at Wal-Mart so why would anybody buy an HDTV?
And I think you could draw parallels across all industries. I think ultimately the concern is if you assume the consumer is not willing to pay more, and therefore to hit those retail price points you have to dumb your technology down, consumers will turn their backs on you because they're bored with the offerings. So we could say "Let's not spend a lot of money in software development and let's come out with a simple game that we can retail for low prices because I don't think that consumers will pay for the kind of technology that we ultimately would like to bring to them." I think the consumer rejects you. You have to go out and show them a state-of-the-art next-generation game. You have to go out there and invest $20-$30 million but if you do that, you're not going to be profitable and you're not going to be in business very long trying to sell those games at $29.99 or $39.99.
And I think what the consumer has said is "If you show me the quality and the depth in the gaming, I'll pay you more for the software." And I think the same thing is true of hardware. If you show them the technology and the value, they'll invest in it, and I think we're selling consumers short that spend $12 billion on gaming to say, "Yeah, they just won't spend over 300 bucks. I mean, that's it." Consumers that are interested in gaming spend thousands of dollars a year. They spend hours and hours and hours playing games and they want the best. If you're marginally better and greatly more expensive then that's probably not going to cut it, but if the value is there they're going to pay the price and I think they do it with all kinds of consumer items across the board and I don't think gaming is any exception.
BIZ: With the newly revised launch shipment numbers, are you worried about shortages this holiday or that gamers might buy a competitor's console instead?
JT: I think it's the nature of the business. I mean, we launched with a half million units on the PS2 and we sold 106 million. So I don't think it had a tremendous impact there. I think ultimately we're talking about a 10-year lifecycle, and the number of units you sell on day one do not anoint you a great success nor do they doom you to failure based on any magic number. Ultimately, it's what did the system do over the course of time, and that initial number, while great for making an initial start, is just really a drop in the bucket in terms of what the system will ultimately do and whether it'll be successful or not. So I think ideally we'd like to have as many units as possible... but it's a constant problem, given the rate at which technology moves, that every company faces and has faced since the beginning of time and probably will for the foreseeable future. I think the goal is to have mass quantities available in all worldwide territories; it's been our goal, it's been our competitors' goal [and] nobody's ever been able to pull it off.
But I do think, if you look at our three previous platform launches, not only have we had some pretty good quantities on day one, but more importantly we've gone on to have great success over the course of an extended period of time and we've done it on a worldwide basis as opposed to succeeding in one market and failing in another. It's a tall order to do it platform after platform, territory after territory, but we've done it. I don't know that that makes it any easier, but I would hope that our track record would indicate that if anybody could pull it off, we're probably a good bet.
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Jack Tretton
Executive Vice President and Co-Chief Operating Officer
Sony Computer Entertainment America
History: Tretton has more than 23 years of consumer product experience, 20 of those directly in the videogame space. He has been with SCEA since its inception, when he joined in 1995 as director of sales. He was promoted to co-COO in 2005.
Highlights: As one of the founding members of the executive team, Tretton has worked vigorously to make all PlayStation platforms best sellers in North America.
Currently: His current departmental responsibilities include overseeing the company's sales, business development, merchandising and marketing efforts which include managing and continuing to develop the PlayStation brand and corresponding product family.
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http://biz.gamedaily.com/industry/fe...d=13906&page=2
