How the PlayStation Took Over the World
Will the strategies that have powered Sony’s success in gaming for 25 years translate to the streaming generation?
It’s hard to overstate Sony’s success in the world of video games. The company dominates the list of best-selling home consoles of all time, occupying four of the top-five slots. From the beginning, Sony has set itself apart by courting (and sometimes buying) game developers and making the PlayStation experience less expensive than other options. As streaming platforms gear up for war in 2020, the question it faces now is whether the same strategies can carry the company to success in the future.
One of Sony’s key strategies in the past has been to undercut its competitors when pricing its consoles, even selling them at a loss to gain users. But in the near-future world where game streaming finally works, that strategy might not work. To wit, Sony preemptively undercut Google’s Stadia, slashing the price of its streaming platform PlayStation Now in half from $20 a month down to $10 for 720p gaming with a bunch of games included. But Stadia is already set to give its platform away for free in 2020. The race to the bottom, at least in terms of platform pricing, might come to an end soon.
If history is any indication, that might leave Sony with only one very important arrow left in its quiver: The games that no one else can get. Currently, game developers tend to pick markets where they can get the most favorable deal or sell the most copies. Platforms like Stadia and Microsoft’s xCloud are promising to widen that base farther than it’s ever been, turning every laptop, phone, and TV into a platform for the best AAA games. If they catch on, it could make developers second guess whether taking an “exclusive” deal with a particular platform is worth the sales they might miss out on by not being on a competing platform. Fortunately, thanks to some smart bets in the past, Sony might be prepared for this.
Sony set its strategy of focusing on games almost by accident. Back in the early ’90s, just before the first PlayStation came out, consoles were mainly built to sell their manufacturer’s own games. The Sega Genesis was built to sell Sonic games, and the Super Nintendo was a Mario and Zelda platform. Sure, players could also play games from Konami, Capcom, or Treasure, but that was a bonus. If a console manufacturer wanted to sell hardware, they needed the games that people were buying. And Nintendo and Sega were keeping the biggest hits all to themselves.
That’s why Sony initially planned to enter the gaming market not by making its own console, but by developing an accessory for the Super Nintendo called the “Play Station” that would sit underneath the console and play games from CDs. Unlike cartridges, which were the standard method for distributing games at the time, CDs would allow much greater storage for games, enabling far better graphics and designs as the gaming industry transitioned from 2D sprite-based games to the 3D formats that are standard today.
But it was never to be. Nintendo didn’t like the terms of the contract Sony had negotiated, which would have allowed Sony to make and sell CD-ROM games without buying them from Nintendo first. Traditionally, even third-party games were manufactured as Nintendo cartridges — giving the company a cut of the profits — but this arrangement would’ve allowed Sony to draft off the success of Nintendo’s games, while still making money on third-party games on the side. Rejecting the deal, Nintendo cut ties with Sony, leaving the project dead in the water. Sony took the idea to Sega, in hopes of partnering on a console, but according to former Sega of America CEO Tom Kalinske, Sega’s brass didn’t go for it.
“They said, ‘that’s a stupid idea, Sony doesn’t know how to make hardware,’” Kalinske told UK trade magazine MCV in 2013. “‘They don’t know how to make software either. Why would we want to do this?’”
This left Sony with half-developed, cutting edge technology and no games to use with it. So the company decided to develop its own console and, in a risky move for its time, turn to other companies to make most of its games.
Most of the best-selling games of the first PlayStation were neither made by Sony, nor were they even launch titles. Square’s Final Fantasy VII, VIII, and IX; Core Design’s Tomb Raider series; Namco’s Tekken; and Naughty Dog’s Crash Bandicoot franchises topped the original console’s best-sellers list. The lone exception was Sony’s internally-developed Gran Turismo franchise, which it developed under the studio name Polyphony Digital, but this series alone wasn’t enough to carry the console. Instead, most of the original PlayStation’s greatest hits came from outside the company.
Instead of developing games in-house, Sony simply made its house bigger.
In order to get developers like Core Design, Naughty Dog, and Square on board, though, Sony needed a lure. Sega’s newest console, the Sega Saturn, was outselling the PlayStation in Japan in 1994. At the first E3 conference, Sega announced it would be releasing the Saturn early in North America, at a price point of $399, giving it months to sell units before the PlayStation would ever hit U.S. audiences.
But Sony had a secret weapon up its sleeve. At its own E3 keynote — the same day that Sega announced it would ship the Sega Saturn early — Olaf Olafsson, head of Sony Computer Entertainment America, summoned head of development Steve Race up to the microphone for an announcement. Race stepped up to the microphone and delivered his presentation in its entirety:
Sony had undercut the price of a Sega Saturn by $100 — the equivalent of around $175 in 2019 dollars. While Sega was rushing units to stores — something retailers didn’t appreciate, leading KB Toys to drop Sega entirely — Sony gave every gamer outside of Japan a reason to wait a few months before buying a console. The original PlayStation released in September, and by November it was already vastly outselling the Saturn. It would go on to become the first home console to sell more than 100 million units. This single decision, some have argued, eventually killed Sega as a hardware manufacturer.
By setting the price so low — a decision only finalized the morning of the infamous, if brief speech — Sony guaranteed it had all the customers it needed to lure in plenty of third-party developers. But now the company had a new problem. It was selling hardware with thin, or even negative margins, in order to sell games for other companies.
This led to the next major leg of Sony’s strategy: buying those third-party developers. In 2001, Sony acquired Naughty Dog, developer of the Crash Bandicoot series, which would go on to create other Sony exclusives like Jak and Daxter, Uncharted, and the modern smash hit The Last of Us.
Over the next two decades, Sony expanded its library of studios that produced megahits for the platform. In 2005, it acquired Guerilla, responsible for Killzone and Horizon: Zero Dawn. In 2010, it acquired Sucker Punch, creators of the Infamous franchise and the upcoming Ghosts of Tsushima. And most recently, Sony acquired Insomniac Games, developers of Spyro, Ratchet & Clank, and the recent Spider-Man. Instead of developing games in-house, Sony simply made its house bigger.
Sony continues many of its major strategies — undercutting its competitors on price, courting (and then buying) third-party developers, and putting games first — to this day. The few times that the company has strayed from these methods is when things have gone awry. For example, when the company attempted to release the PS Vita for $250 in 2012 — at a time when anyone could play free games on their smartphone — the console sold poorly compared to its older brother, the PlayStation Portable.
When the company released its PlayStation 3 in 2006, it cost as much as $599. Compared to the Xbox 360, which cost $399 for the premium version of the console, and as low as $299 for a stripped-down version, Sony was asking for a small fortune. It wasn’t without reason, as the PS3 was the first console to include a Blu-ray player, and had the horsepower to handle big games. But games that utilized it were absent in the PS3’s early days.
With a series of price cuts, new game releases, and eventually a slimmer, cheaper version, Sony managed to recover, but it wasn’t the company’s finest moment. Around the same time, the Wii was selling circles around both the Xbox 360 and PS3. Even Sony Worldwide Studios president Shuhei Yoshida admitted the launch price was a mistake, calling it “horrifying.”
Today, Sony seems back on track with its deceptively simple “good games and low prices” strategy. And it couldn’t come at a better time. Sony and Microsoft are set to launch new consoles in 2020, but they’ll face competition from a new direction as game streaming becomes feasible.
Sony’s price cut on the PlayStation Now was a good start, but including a large library of games with it already forces competitors to rethink their business model. By the time Stadia made it to market, consumers already questioned the value of paying for a subscription that still makes you buy games. Microsoft even announced that it would eventually roll its streaming service into its Game Pass subscription, matching Sony in pricing structure, if not in game library.
Whether it will pay off the same way is still yet to be seen. Sony’s streaming service still needs a bit of an upgrade from the relatively low-quality 720p, and neither Sony nor Microsoft have revealed too much about their next generation consoles due out holiday 2020. But by building a solid fanbase, and then buying many of the developers that make those fans’ favorite games, Sony gave itself a war chest that might be the key to transitioning into the next phase of the games industry.