Sony Computer Aims to Develop PlayStation Industry
March 27, 2000 (TOKYO) -- Sony Computer Entertainment Inc. (SCE) released its PlayStation 2 game machine on March 4, at a price of 39,800 yen, and it now seeks to build an industry around the device.
As had been expected, the next-generation game machine drew considerable attention. Some customers even stood in long lines in front of retail shops on the night before the release.
The sales start was favorable for the game machine, except for lower shipments than were planned. Shipments totaled 720,000 units in the three days after the release, which was below the initial estimate of 1 million units in the two days after the release. This was due to a shortage of parts of a memory card that comes with the main body of the game machine.
With its PlayStation 2, SCE aims to jump beyond being a mere player in the game industry, and it intends to nurture and build up the so-called "PlayStation industry."
As a first step, SCE decided to secure sources of profits from non-game industries. One such example is various royalties that the leading game maker is arranging to obtain.
SCE has been gaining profits from sales of its own hardware and software products as well as royalty income from sales of software products developed and sold by other software developers.
For the first time, upon the release of PlayStation 2, the game maker started to supply a game software-development machine to game makers. Then the company also had middleware developers build and supply middleware products that can run on the proprietary game software development machine. SCE established this arrangement to bring in royalty income to the company.
As a next step, SCE started to sell to companies in the film industry a server that it had devised based on a software-developing machine. SCE aims to sell many units of the software-developing machines, servers and middleware products, to further bolster its profits.
Additionally, SCE intends to receive royalties from DVD makers. Currently, the game maker does not receive royalties from such makers. DVD makers will need a new microchip, the heart of the PlayStation 2 game machine, to realize some advanced capabilities on DVD software. And for this reason, SCE is likely to demand royalties of these DVD software makers, as well.
The same can also hold for a PC card with communications capabilities, which will be released in the next year. The PC card will be used to connect the PlayStation 2 to the broadband Internet. Also, it is likely that SCE will demand royalties for the PC card to be used by software makers and other companies for the communication capabilities.
Moreover, SCE's boundless quest for higher profits can be seen in its dealing with retailers and wholesalers. According to industry observers and related parties, retailers generally sell the PlayStation 2 for about 92 percent of its official price, which means they can earn profits of only about 3,000 yen per unit. (107.41 yen = US$1)
Nevertheless, SCE will allow PlayStation.com (Japan) Inc., a newly established company for sales of the new game machine over the Internet, to sell the main body of the game machine for 38,800 yen. The new company apparently said it may introduce a price system for software products under which the price will fluctuate depending on demand for software.
"This is nothing more than a clear message from SCE that any retailers that disagree with the SCE's way of doing business are not allowed to sell hardware products at their shops," said an executive of a retailer specializing in game products. He said that it has been thought among retailers that demand for retailers selling hardware products will remain even after sales of software products go online. However, judging from SCE's strategy, even that is not absolutely certain, he added.
SCE is ready to compete even with its parent company, Sony Corp.
The company will not supply PlayStation 2 for Sony's online shopping site. What is striking is that the company opted to provide a DVD playback capability for PlayStation 2 in the form of firmware. In this way, users will be able to continue to utilize the game machine simply by installing DVD software. This may be interpreted along the lines that consumers will not need to purchase next-generation DVD players from home electric appliance makers if they have a PlayStation 2 unit.
SCE can be so aggressive because "there's no rival now," an executive of a game software developer said.
Thus, the company's vision of the "PlayStation industry" appears to be gaining momentum.
Sony apparently intends to let SCE do whatever it wants to do and use the subsidiary as its advance guard before it decides to enter and explore a market itself. However, it is not certain that Sony can control SCE once the subsidiary has established an industry by itself.
In any case, industry observers fear that SCE will be the sole winner in the market, and other companies will be forced out of the market if the current set of conditions continue to prevail.
Under such circumstances, the entire game industry is waiting for the next move of Microsoft Corp. of the United States, which has released its first game machine, called X-box. Industry experts also will watch the formation of any alliances that Microsoft may form with other companies. |
