Jack Speaks - Interview with Sony's game chief

[KnackChap]

Troy Wolverton and I (Dean Takahashi) did a Q&A with Jack Tretton, the president and CEO of Sony Computer Entertainment America in Foster City. This is an extended version of what we’re running in the newspaper.

http://blogs.mercurynews.com/aei/2007/12/a...ed_version.html

 

Q: You’ve been in the jobs for a year, what’s your view of how that year has gone?

 

A: Well, I feel good about the progress we’ve made. I mean, I think unfortunately by nature, by personality, I’m a bit of a perfectionist. So, I think sometimes I tend to dwell on what we haven’t done yet as opposed to what we have done. And I have to remind myself, even though I’ve said it many times in interviews, is that this is a 10-year product lifecycle, and you have to put things in perspective. But given that we’re one year into the PlayStation 3 and I’m one year into the job, I feel pretty good about what we’ve accomplished in the last 12 months.

 

Q: What do those bigger accomplishments at the top of your list include then?

 

A: Well, I think the fact that we’re a three platform company for the first time. And that is a formidable challenge. To take a platform like the PlayStation 2, over seven years old and has sold over 120 million units and maintain the relevancy. And we hoped to sell 10 million units worldwide this year, and it looks more like 12 (million). And then I think PlayStation Portable is an equal challenge, and the lesson there is that, you know, being in the console business is very different from being in the portable business, and there are a lot of learnings there, but this will be our best year for PlayStation Portable of the three that it’s been on the market. And then I knew we had a formidable challenge on our hand with PlayStation 3, I knew the price would be a challenge to people, and I knew, given the technology and the multimedia functionality of the PlayStation 3 that there would be a large education process necessary, and I feel we’ve made some very nice strides there. But to say those three challenges all faced me a year ago is a pretty daunting task.

Q: But I guess some outside folks might view this year as a kind of disastrous one for Sony in respects of, as far as going from no. 1 in the console business to no. 3 in the next generation consoles.

 

A: I guess the way that I would keep score, and you know, again, you’ll have to blame my math teachers in school if this doesn’t make sense, but if we have 67 percent growth over last year in our revenue, and if 45% of all software sold is on our three platforms, I’ll take that kind of disaster all year long.

 

Q: How’s the season going for you guys? How do you feel you’re positioned right now.

 

A: Well I think one of the biggest challenges we’ve seen virtually every holiday season, and I can’t tell you it’s absolutely perfect this year, is — we’re probably in the best position we’ve ever been in in terms of supply. PlayStation 3 debuted a year ago, but we really didn’t have the inventory to take advantage of our first holiday season on shelves. And PlayStation 2 has always been something that we under-forecasted, and I think we built a lot more aggressively this year, and we have three really nice models of PlayStation Portable available, and that’s in short supply, but we’re still going to have a lot of inventory to sell.

Q: At what point would you say the predictions can be made about how the winners are going to turn out? There’s a lot of people who are ready to call the game now and say, “it looks like the Wii has won this generation.” I know you say it’s a 10-year cycle, but I don’t think we exactly have to wait 10 years before we find out really who comes in first place.

 

A: No, but I think that if it’s a one-year cycle, nobody wins. So I think it’s a little premature really to make any predictions. I think if you’re a failed format, you’ll know within three years, and you’ll be out of the business within five. And there are many, many examples of that. If you’re a successful format, I think you have the potential to go on beyond five years, although as far as I know, there’s only two consoles that have ever done that, and we’ve published both of them. I think the other key to success is that you have to realize it’s a big world out there, and it goes beyond one year, and it goes beyond one household. The United States is extremely important, but the worldwide market is what really determines platform success. And if you look at the success of the PlayStation platform in North America, we’re really proud of that, but if you look at the success on a worldwide basis, it’s just not even close.

 

Q: Yes, but isn’t that part of the problem with this go-round with the PlayStation 3? I mean, you guys are getting wiped out in Japan. As I understand it, you’re losing share in Europe as well. So it’s not just that you’re behind in North America, it’s that you’re behind worldwide right now with the PlayStation 3.

 

A: Well, we outsold, according to the articles that I read today, according to Enterbrain, we outsold the Wii last month in Japan, and I think the traction for the PlayStation 3 is extremely good in all three worldwide markets. So, I tend to think that our success on PlayStation 3 is extremely strong.

 

Q: But that’s one month. You guys have been trailing quite a bit since launch in Japan. I’ve seen figures that you guys were — five-to-one that the Wii was outselling the PS3 in Japan.

 

A: Well, I would tend to agree with you that one month isn’t anything to judge it on, but we’re saying that the year is the be-all, end-all. So, one month is important, if you look at it in perspective of a year. If you look at it in perspective of a 10-year product lifecycle, then I think, as I’ve said, we feel very good about where we are a year into it, regardless of what our competition’s doing.

 

Q: Jack, how’s your interaction with Kaz right now, and what are some of the calls he’s making, and what are some of the decisions you are making?

 

A: Well, the good news for me is I couldn’t ask for a better person to work for, and we had the pleasure of working together for 10 years before he took his role at the head of SCEI. And, obviously, as you know, Dean, his previous role was my job at SCEA. So, he understands my job better than anybody in the world. So, I think he’s very sensitive to the challenges and the opportunities that we face here at SCEA. But I think if you look at the history of the PlayStation products, we’ve always operated very independently in each region, down to the pricing structure, down to the type of SKUs that we’re offering, the way we market it, the way we approached our business. So, it’s always been an entrepreneurial business, but I think with Kaz at the helm, we’ve got even more freedom than we’ve had before. So the interaction is great. We’ve got the support when we need it, and we’ve got the independence when we need it.

Q: I want to ask you a little bit about — you guys are — you mentioned this right at the start — you’re looking at the 10-year product lifecycle and having a product that’s relevant over 10 years. One of the ways that you guys tried to do that was by building in the Blu-Ray disc format into the PlayStation 3. Like Dean said, there are many people who are ready to call this for the Wii, for this generation of consoles, there are also people out there now that are getting ready to call this battle between the HD-DVD and Blu-ray for HD-DVD. Is that beginning to look to you guys like a mistake that you went with Blu-ray instead of HD-DVD, given the costs and what market share has done of late?

 

A: I guess you might be seeing some numbers that I haven’t seen, but everything I’ve seen has Blu-ray outselling HD-DVD handily. And I think the other thing that’s lost on people getting into an HD-DVD-Blu-ray battle, is that Blu-ray is a great format for movie playback, but for the PlayStation 3, I think the most important thing is the Blu-ray drive for gaming and the ability to have 50-gigs of storage on a PlayStation 3 game as compared to 9 from our competition at max. And if you look at games like “Ratchet & Clank,” “Resistance” and some of the key games that we’ve shipped, you’re talking about games of upward of 24-gigs. And I think again, you can’t ignore history. When we first came out with the CD format as compared to cartridge, the storage capacity was incredible, and what you could do with gaming was incredible, and people said, “that’s amazing, it’s never going to get any better than that.” And then DVD came out, and initially people said, “Why do you really need DVD? CD has plenty of storage capability,” and five years later, 95 percent of the content was on DVD. I think you’ll see the same thing with Blu-ray. And people say, “Oh, 9 gigs is enough. You just put two, three, four discs in a box.” That obviously isn’t going to fly long term.

Q: I hear you, but you guys have also, if you don’t want to ignore history, you guys have a history of backing formats that didn’t pan out, whether it’s Betamax or whether it’s mini-disc, or whether it’s the disc player that’s in the PSP.

 

A: Yeah, and we’ve had some history of having some success as well, but I’m not sure what your question is.

 

Q: Well, I mean that just because Blu-ray has all these advantages of more space doesn’t mean that it’s going to be the one that wins out in the battle with HD-DVD.

 

A: Well, I guess it will win out over a platform that doesn’t have a disc format in it. Again, I don’t know if your question is relative to gaming or whether it’s relative to the HD-DVD-Blu-ray battle, I’m not really sure what you’re getting at.

 

Q: Well, you guys pitched this as both, that it was not just — that the PlayStation 3, that having the Blu-ray in there was not just for the games, but also for — that this was going to be the Trojan horse to win the Blu-ray DVD battle, which Sony has placed a lot of bets on. Just because it’s in the PlayStation 3 doesn’t mean it’s going to win.

 

A: OK, well I’ll give you a couple of statistics that has me fairly confident: 160 CE companies backing Blu-ray, seven of the eight major studios backing Blu-ray, you’ve got Blu-ray content outselling HD-DVD two-to-one, and by an even greater margin worldwide. You’ve got a machine in the PlayStation 3 that’s got over 2 million units in North America that plays Blu-ray movies, and those to me are all positive signs. Now if you want to rattle off the HD-DVD statistics that are more superior to those and are more advantageous, I’m more than happy to listen.

 

Q: I think the only thing is the studios that defected, because of Toshiba’s big payment.

 

A: So, as I said, seven of the eight studios. So we don’t have all eight, you’re right.

 

Q: As far as the console war, this $400 price, how much is that going to help you this season? Do you see the effects as far as whether that price will allow you to gain market share?

 

A: Well, all I can judge it by is the early read, and the early returns have been extremely positive. We’ve seen triple the rate of sales from prior to the price decrease, so that certainly has us confident.

Q: But the other guys are probably selling a lot more as well, because the Wii demand is unabated, and Microsoft has done some things to help speed along their sales as well, like “Halo 3″ and this new discounted unit as well.

 

A: I think there’s no question the entire industry’s doing well, and I think if the industry’s doing well, we stand to do well also. So that’s all good news, as far as I’m concerned.

Q: And what did you think of Bobby Kotick’s comments at this conference, where he said that Microsoft and Sony really ought to get on board with the lower price and maybe by next year go down to $199 if they really want to compete with the Wii.

 

A: Well, I think from an unrealistic standpoint, I’m never surprised by that, because a software manufacturer may not be concerned whether a hardware manufacturer is successful or whether they’re profitable. But I think they should be, because without the hardware manufacturer, the software manufacturer has nothing to publish on. But, you know, I’m surprised by it, because I would never venture to suggest what software publishers should price their software at. So I don’t think it’s appropriate for them to suggest what hardware should be priced at.

 

Q: I guess what he’s calling for is maybe a more nimble reaction to the Wii’s success.

 

A: I don’t know, maybe he should design a platform.

 

Q: Do you guys have any projections of what you expect to sell this holiday season?

 

A: Sure. We expect to sell 33 million pieces of hardware across the three platforms. And that breaks out to 12 million PS 2s, 11 million PS 3s, and 10 million PlayStation Portables, and then we don’t break out software, but our forecast is 250 million units of software across those three platforms.

 

Q: And are those worldwide numbers, and that’s shipping numbers, is that right?

 

A: Worldwide numbers, and they’re sales, not shipment numbers.

 

Q: OK, but sales meaning that’s how many you get into consumers’ hands? Or does that mean you consider it a sale when it goes to a retailer?

 

A: We consider it a sale when it goes to a consumer.

 

Q: And that is for March 31?

 

A: That is correct.

 

Q: So Jack, that’s not Christmas numbers, that’s year-end numbers.

 

A: That’s correct. By the end of our fiscal, March 31, ‘08.

 

Q: Did you get as big a pop out of the redesigned PSP as you had hoped for?

 

A: Well, I mean our PSP numbers have been strong all year long. So we had a very positive trend before the redesign. So it’s difficult to determine how much of the growth is based on the redesign and how much of it is just based on, you know, people getting excited about the PlayStation Portable. But I think it was certainly viewed positively.

Q: So this season, the Wii seems to be in a shortage as well. Do you think consumers out there are actually concluding they should just buy a PS 3 that is more available? Or do you think that’s actually not happening?

 

A: Well, I think we’ve had shortages throughout our product lifecycle. And you always wonder whether you lose sales to the competition. I don’t think there’s any manufacturer out there that wants to be out of stock, but I think it’s the nature of the beast, given the production time and the demand for product. So I don’t really know if that will result in people choosing other formats or not.

 

Q: We’re going to look at some of your past year here. How do you think different events have gone for you in the past year, like E3 or just GDC as well?

 

A: Well I thought both GDC and E3 went extremely well for us. I mean, I take very little credit for the success of GDC, but I think the reaction to Little Big Planet and the reaction to Home was very positive and a lot of good information in terms of development tools being released. And then I personally was intimately involved with E3, and I was extremely proud of our performance there. I think the reception was very good to what we had to say, but the thing I’m most proud of is the results post-E3 are very positive. The games we talked about are coming to market and being well received. The hardware’s been well received. So, I thought E3 was a great success in terms of the event itself. But I’m most pleased with how the results are trending coming off that.

 

Q: Can you guys give us an update on where you’re at with the Home initiative?

 

A: Sure, we’re looking to do a beta in the first quarter of calendar 2008. And then we’re not 100 percent sure on when the full-blown release will be in terms of an actual date, but obviously following the … data.

 

Q: You had some big titles slipped this year. I suppose that makes for a good ‘08?

 

A: Yeah, and unfortunately, Dean, that’s the nature of the business. And I think that’s why we’re extremely pleased that we have the largest internal development studios of any manufacturer in this business and that we’re not dependent on any one title to make or break our year. And, you know, I certainly lament anything that doesn’t make Christmas, but this business has evolved to the point where it isn’t about the Christmas season for a software title to be successful on. And I think the poster child for that was “God of War II,” which shipped on PlayStation 2 and shipped in March of 2007. So you didn’t have a holiday season behind it, and you had it on a platform that was approaching its seventh birthday, and we sold a million units the first week it was on shelves. So, I think good titles sell regardless of when they ship.

 

Q: As far as the first-mover advantage that Microsoft has talked a lot about, they did gain a fair amount of market share, it looks like here, by doing that. But they also had this billion dollars write off. Do you look back on that and sort of feel like you guys made a better call, as far as when to launch?

A: I think when you launch is relative to the technology you have and relative to the content that you have for it. And that’s typically what I would tend to judge it on. We’ve never been first to market. We’ve preceded competitors, we’ve followed competitors, but I think the long-term success in my mind that we’ve enjoyed has very little to do with when we shipped. It was the technology and the content behind what we shipped. And I think when you look at a successful platform, and you look at how many units you’ve sold over time, what you typically sell in the first year is a fraction of what you ultimately sell over the course of a successful platform.

Q: I had heard that you guys had met with some third-party folks and said that you’d like them to stick with you. It seemed to some of the people that Sony’s approach toward the third parties had changed from the past. You know they sometimes would characterize Sony as arrogant, I guess. And this time they, it was a different sort of feel to the pitch, that third parties should stick with the PlayStation 3 platform.

 

A: Well, I’d be disappointed if they felt we were arrogant, but conversely, I’d be very pleased if they thought we were more positive in our outlook toward them. The reality of the matter is we’ve always been incredibly dependent on third-party publishers, and they’ve been incredibly important to us. And we would not be successful if it was not for them. I mean, upwards of 80 percent of the content that is sold on our platforms over the history of our lifecycle has come from the third parties. So, they’re extremely important to us now. They were extremely important to us in ‘95. And they’ll be important as long as we are in this business. So, yeah, their happiness is very important to us, and more importantly, their success.

Q: Along those lines, I know you said that you weren’t pleased by Bobby Kotick’s comments about lowering the price, but are you getting pressure behind the scenes from other publishers about the price on the PlayStation 3?

 

A: Not realistically, no. I think most people feel pretty good about where we’re at with prices. I think most people are focused on running their business and not worried about other people’s.

 

Q: On the developers and publishers, there is a risk there that as the Wii becomes more successful, that they can shift development resources there. They know that it’s much easier, much, much easier and less costly to develop games for the Wii. What are you trying to do to address that risk, so that you retain your PS 3 developers?

 

A: Well, I think the key is to demonstrate success, demonstrate a willingness to work with a publisher to do everything you can to give them development tools and resources to make them successful. I think the fruits of that labor is 160-plus games this year for PlayStation 3, 23 developers making games for PlayStation 3. And I don’t see any signs of that changing going forward. If anything, given the recent success that we’ve enjoyed, and given the success we’re enjoying on a worldwide basis, we’re getting a lot of very positive feedback about the prognosis for PlayStation 3, and really a renewed enthusiasm for it, as opposed to a declining attitude towards it.

Q: Is it looking like the advance buzz about some of your games is finally coming around to where your games may be at the top of the list, as far as industry buzz goes. Things like “Metal Gear Solid,” “Gran Tourismo,” I imagine those games are going to rank pretty high in gamer expectations.

 

A: Yeah, I think there’s a lot of games that people anticipate going forward. There were games that were anticipated for the holidays that I think are delivering. I think “Uncharted” and “Ratchet & Clank” are two very good examples of that. In the fall, games that we had high hopes for, “Heavenly Sword” I think delivered extremely well, and then in the launch time frame, I think we were really pleased with the success of “Resistance” and “Motor Storm.” So, being able to rattle off a list of successful titles like that in the first year is something that I’m very proud of, especially when you compare it to the tremendous success of the PlayStation 2 enjoyed. And when we launched PlayStation 2, we had one first-party title, it was “FantaVision.” If you look at our software success from a first- or third-party standpoint in our first year and you compare it to our other platforms that we’ve introduced, I feel very good about how the software has performed and been received.

 

Q: What do you think are the factors that from this point on are going to affect market share?

 

A: I think gaming is always going to be the key. The platform that’s perceived to have the best games, the most innovative games, is going to be first and foremost. And then I think the value proposition. I don’t think it’s all about price. I think a lot of it has to do with value: what are you getting for the money that you’re spending, and is that of interest to you. And I think price matters, but not price for the sake of price.

 

Q: One of the things we do for these usually is to get five things to know about someone, some personal things about you. And lists of hobbies and things like that. Do you have anything that you can rattle off there, like you’re an avid fisherman or whatever.

 

A: Sure. I can tell you that I was born and raised in Massachusetts, so I’ll always be a New Englander at heart, although I love Northern California. I’ve been out here 11 years now. I’d say my no. 1 hobby is probably sports: I still play hockey, and I play golf. And I’d probably be a better golfer if I realized I’m too old to be playing hockey, but I can’t give that up yet. And I’ve got three kids who are actively involved in sports. They’re priorities and their activities come first. So, between my job and my family, my personal preference is going to take a back seat, and I’m OK with that for now.

 

Q: What is your favorite game?

 

A: My favorite video game? I guess the game I’m most excited about right now is “Uncharted,” although I’ve just gotten into it. I guess my favorite game over all time was a game called “Choplifter” for GameBoy back in 1991. And it’s the one and only game I ever finished, I’ll have to candidly admit, (other than) sports games like “Hot Shots.” Any sports game I’ve played through the season, but you know, I’ve never been the consumer that makes it through level 25 and ultimately completes the game.

 

Q: Online games: Microsoft seems to have widened a pretty good lead there with Xbox Live. How are you hoping to close any sort of gap there?

 

A: Well, again, the thing I dwell on most is the PlayStation consumer. And what has me very encouraged about the PlayStation consumer is we’ve got 3 million registered users on the PlayStation 3, and more importantly, they’ve downloaded 50 million pieces of content. And I can just tell you from a consumer standpoint, my interest in a machine is based on the packaged media that’s offered for it, but the experience I’m having for the first time with PlayStation 3 is I go online, I look in the PlayStation store, I’m downloading playable demos, I’m downloading smaller games that are developed specifically for the PlayStation 3 that are 1080p games that are great value for under 10 bucks, and they’re not an arcade classic or something that was out on a platform 10 or 15 years ago. They’re original games developed for the PlayStation 3, and it’s a really nice palate cleanser in an addition to a full-blown console game that you pay $59.99 for. So, I’m starting to become a fan of online content really for the first time to any great relevance, other than head-to-head game play.

 

Q: Do you think consoles are taking some audience away from the PC as far as online gaming goes? And do you think things like MMOs are going to move to the consoles?

A: I think gaming in general has been a threat to all forms of entertainment. And when I say a threat, I mean in a positive way. I think gaming is meaning that consumers are spending less time watching TV, less time going to the movies. I think with a multi-functional machine like PlayStation 3, there’s more and more things that you did on a PC that you can do as well, if not better, on a PlayStation 3. I come home from one of my kids’ sporting events, I’d load the pictures up in the PC and kind of click through them. Now I come home, I pop it into the PlayStation 3, it launches into a slide show on a high-def TV, and it’s a much more attractive way to view and edit your photos. And that’s just one example, but I think the console, and our console is becoming more and more relevant for things beyond a casual gaming experience.

 

Q: Do you think the console will take over the living room?

 

A: Well that’s been the Holy Grail. And I think there was a theory that the PC would take over the house, and I don’t know that that’s come to fruition. But I think there’s clearly devices like the PlayStation 3 that are capable of enhancing, if not providing the majority of the entertainment experience in the living room. I think that’s a very fair statement at this point.

 

Q: How’s Sony’s overall fortunes affecting the game division?

 

A: Well, I think there’s very good news there, because there were clearly times when other divisions of Sony were not as strong as they are now, and our division was providing upwards of half the bottom-line profits as a company. Now I think the other divisions are extremely strong: We’re having a great deal of success with Sony Pictures, our electronics division is doing extremely well, and I think that affords us the opportunity to really be momentum focused as opposed to bottom-line focused right now and doing everything we can to position the PlayStation 3 to be successful. And I feel good about that. And I’m thankful for the fortunes of the other divisions that have allowed us to be able to do that.