Sony's Battle for Video Game Supremacy - MIT Sloan School of ...

SONY'S BATTLE FOR VIDEO GAME SUPREMACY
John Sterman, Kahn Jekarl, Cate Reavis
Sony found itself in an intense standards war with Toshiba, a well-established Japanese electronics
manufacturer, that, in partnership with Microsoft, had developed its own digital video standard, the
HD-DVD that retailed for $500. The battle lines were being drawn as companies including HBO,
New Line, Intel, and Sanyo aligned themselves with HD-DVD and Fox, Disney, MGM, Lionsgate,
Apple, Dell, Pioneer, Panasonic, Philips, HP, and Sharp sided with Blu-Ray. Warner Brothers and
1
Paramount were supporting both formats.F
While winning the digital video format war could prove to be extremely profitable for Sony, the battle
would be hard-fought. Sony, meanwhile, had had some disappointments in the past in estalishing its
own technology formats. In the mid 1970s, it launched the BetaMax, a home videocassette tape
recording format which was quickly outmarketed by JVC’s VHS format largely due to the fact that
VHS tapes held more taping capacity (two hours) compared to Betamax’s one hour. In 2003, Sony
attempted to establish its own music and movie playing format by introducing the Universal Media
Disc (UMD) for its portable gaming device the PlayStation Portable (PSP). Initial PSP units were
sold with the UMD version of Spider-Man to highlight the flexibility of the device. But UMD never
took hold, in large part due to the lack of UMD titles and the number of other devices that played
UMDs.
Stringer was well aware that replicating the PS2’s success would not be easy. The price of the PS3
would be a significant barrier to widespread penetration. At $599, the PS3 could no longer be
considered a toy and would not likely be an impulse purchase for the majority of consumers.
Although compared to stand-alone Blu-Ray players, which sold for $900-$1,000, the PS3 could be
considered a bargain since it could play games as well including some older generation PlayStation
games.
By all accounts, since entering the video game industry in 1994, Sony’s ability to capture the
attention spans of child and adult gamers had been impressive. However, as technology became more
varied and versatile, so did consumer tastes. Stringer knew it was critical that Sony kept consumer
appetites at one and the same time satiated and begging for more.
0BThe Evolution of Home Video Games
During the 30-year history of video games, the industry had experienced significant changes not only
in who played video games— the average computer and video game player in the United States was
2
33 years old while the average age of the most frequent video game purchaser was 40 years old—F F
but in how they were conceived, developed, priced, and ultimately sold, all of which had significant
implications for Sony as it prepared for the launch of the PS3 and the competitive response that would
inevitably ensue. (Figure 1 breaks down video game players by age and gender.)
1 John Wenzel, “The Season’s Main Event: Battle of the Digital Decade,” Denver Post, September 26, 2006.
2 Entertainment Software Association, Essential Facts About the Computer and Video Game Industry 2006
Rev: December 8, 2011 2