In case you're not in the mood to read this post, let me give you the punch line: Nintendo has disrupted the console gaming industry, the responses to which are just now being fully revealed by Microsoft and Sony. And it isn't pretty. This is not to say, however, that Halo 3 hasn't given the Xbox 360 platform a kick in the butt. It has. But hit games are like hit movies - they are hard to come by. And now that we are in the third phase of the Halo sequel, what is the next smash hit in the Xbox 360 pipeline? Because, my friends, the hits business, whether in music, movies or games, is a tough road for building a long-term, broad-based business franchise. And discount rate at which one present values such uncertain long-term cash flows is very, very high.
In any event, you can read more about the impact of the strong Halo 3 launch on Microsoft's Home & Entertainment (H&E) division performance at ARS Technica 10/26/2007. Read some of the comments; there is more than a dose of cynicism related to Microsoft's booking its $1 billion+ in costs for the extended warranty program in the prior fiscal year, giving them a nice clean slate on which to report attractive future period earnings. I'm not saying that anything untoward is going on, but the latitude that exists in financial reporting makes the analysts' job that much harder. Should such costs be spread out of the time period when the services are being delivered, i.e., the period of the extended warranty? You be the judge.
Turning to Sony, one might say that PS3 is in the process of being "Dreamcasted" by Nintendo. Technical achievements are pretty meaningless if people don't care, and I'm sorry, but PS2, the last-gen Sony console, is far hotter than its next-gen brethren. From PS^3 10/24/2007:
The latest BAFTA games award ceremony took place last night, probably to the familiar tune of large amounts of drunken revelry and self-congratulations with much fun being had by all. In short, here’s what happened: Nintendo pwned. Well, Wii Sports pwned, to be precise; it scooped up every award from best casual game to best multiplayer game to best game I would marry to my sister.
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Nonetheless, there is something for Sony fans to be upbeat about – PlayStation did manage come away with several awards anyway: Okami won Artistic Achievement and Original Score, while God of War II won Story & Character and Technical Achievement.
Funny thing is though, these aren’t really Sony’s latest blockbusting’, eye-poppin’ titles. Instead they’re now decidedly old school, being for the PS2. That points (yet again) at a glaring hole in both the PS3 line-up and the idiocy of removing backwards compatibility from the current 40GB models. Those old games still make money, are still very good and apparently still win awards. People want them, occasionally more than all that poorly built high definition crap that keeps being shovelled at us.
Right. PS2 is still pretty hot, while PS3 is, well, not. Now consider what came out of a discussion between my friend, N'Gai Croal of LevelUp, and Sony Computer Entertainment America CEO Jack Tretton 10/18/2004:
From Washington, D.C. to Foster City, California, the word of the day is, apparently, "relevant." An embattled President Bush used the R-word yesterday morning during a press conference to explain why he decided to veto a children's health insurance bill supported by both Republicans and Democrats. That's why it echoed in our minds during a conversation yesterday afternoon with Sony Computer Entertainment America CEO Jack Tretton, wherein he used the word "relevant" ten times in just 12 minutes while referring to the similarly besieged Playstation 3 and its predecessor. Was this a confident recitation of the facts or merely a wishful talking point? We'll let you be the judge. But based on what our sources are telling us, if the PS3 had a power animal, the September sales gap between the Sony's flagship console and those of its two competitors would see the PS3 represented by a duck—one as lame as the current occupant of the Oval Office.
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In determining which were the key features that had to stay and which were the ones that could be allowed to go, what was the thinking specifically on backwards compatibility?
The big difference between backwards compatibility on our machine and some of our competitors, you're talking about a machine in the PlayStation 2 that remains incredibly relevant, has a 120 million unit installed base, is going to go on and sell an additional 10 million units of hardware this year. We're the only company that has two relevant consoles, and we feel that the PS2 remains incredibly relevant and remains supported in the PlayStation 2 itself. In the face of our competition, those machines don't exist anymore at retail, so the only way you're going to be able to support that platform or play that platform is through backwards compatibility. We've chosen to focus on PlayStation 2 through PlayStation 2, and focus on Playstation 3 as part of the future and the PS3 software experience.
Did Jack just learn the word "relevant" and is so excited that he has to use it in any and every context possible? Why can't he just say "We are protecting our cash cow called PS2 while the market (hopefully) catches up with our whiz-bang multimedia player called PS3?" Because that would make Sony look like it failed at PS3, something into which they've got way too much money and way too much ego invested. I recently wrote about this issue of backward compatibility, so I don't need to belabor the point, except to say that Management's rationale for why it has been stripped out is a bunch of malarkey. But anyway...
Happy birthday, PS2. Are you 1, are you 2, are you 3... I'm 7! And even at the ripe old age of seven, you are still kicking a** and taking names. From Destructoid 10/25/2007:
I'm thinking that Sony is not only celebrating an old friend, but also quietly hoping to conjure up images of its future. After all, it was not all that long ago that Sony wasn't feasting on humble pie, and we were all madly in love with everything they threw at us. Things might look a little dim for them right now, but a turnaround is anything but inconceivable.
As the Xbox 360 continues to struggle with hardware failures (warranty or not), Sony has the perfect platform in which to make their rise back to the top complete.
