SONY HAS SOME VERY SCARY MONSTERS IN THE WORKS
Video game monsters may soon look and act a lot more menacing. Sony Corp. is set to enter the global video game market with a new machine, dubbed the PlayStation, that offers a startling new generation of 3-D computer graphics. The 32-bit player capitalizes on Sony's knowhow in compact-disk technology and is backed by an army of game developers. Even before it hits the Japanese market with the PlayStation around the Christmas holidays, says Baring Securities Inc. analyst Joseph Osha, "Sony is a front-runner for the next generation."
Sony's entry comes at a turning point for the $11.3 billion game industry. Until now, Sony has had no leverage over industry kingpins Nintendo and Sega Enterprises Ltd. But many other gamemakers are now moving into compact-disk formats, Sony's strength. It is a powerhouse in every step of the CD food chain, from optical components to CD players to recording stars such as Mariah Carey. With PlayStation, Sony hopes to repeat the formula. "Game technology has risen to a level where we have something unique to add," says Teruhisa Tokunaka, deputy president of Sony Computer Entertainment Inc.
DISK POWER. Sony isn't the first to trumpet dazzling 3-D graphics. Sega, Nintendo, and 3DO have made similar claims for upcoming products. But Sony has pushed the technology the furthest. In one interactive demo, a player can draw a dinosaur out of its lair, walk it through 3-D space, and send it charging in any direction--teeth gritting and gnashing. Sony says that its game player will process images faster than many high-end workstations yet fit into a console that industry experts expect to sell for about $300--less than half the price of the lower tech CD players already out.
Sony's CD prowess helped attract 164 Japanese game companies to produce titles for the PlayStation. For those companies, disks pose fewer risks than cartridges and mean higher margins. Just to get a title on the store shelf, game companies must pay Nintendo and Sega a fortune in license and manufacturing fees. CDs, in contrast, cost just $3 to produce, and Sony has promised to keep the license fee very low.
Even so, games for the PlayStation will be pricey. The CDs will cost anywhere from $50 to $100, vs. $40 to $60 for the newest cartridge games. But low production costs mean that prices will come down fast. "Game companies are rushing to Sony because they have fantastic command of CD distribution," says Kazumi Kitaue, general manager of video game pioneer Konami Co. in Tokyo.
Not that Sony will have easy going. It must still help game developers exploit the PlayStation's capabilities. Neither Sony nor its licensees have yet produced a finished game. When they do, players may be baffled. Sega has produced similar 3-D effects in the lab but questions their appeal to consumers. "Will the ability to rotate fighters in 3-D space make the game more fun?" asks Sega designer Toshiya Inoue. "Or just make it more difficult to play?"
MORE HEAT. Sony must also overcome a late start. Sega has an installed base of 13 million Genesis machines in the U.S. alone. True, its 16-bit technology is growing long in the tooth. But as early as this fall, Sega could launch a new 32-bit machine called Saturn, which is drawing rave reviews from software makers. In late 1995, Nintendo hopes to leapfrog its rivals with the 64-bit "Project Reality," co-developed with Sili-con Graphics Inc.
Matsushita Electric Industrial Co. is also turning up the heat with its Panasonic CD-based game player, licensed from 3DO. After a slow U.S. launch last fall, Matsushita shipped 100,000 units to Japanese retailers in March and April. In the U.S., the company boasts 100 software titles from 20 different companies.
Sony says that the PlayStation will debut with 27 game titles. Some 50 more are in development. The initial sales goal in Japan is 3 million consoles in 1996, worth at least $90 million.
Sony has given its electronic publishing subsidiary the go-ahead to create a new video game division to market the PlayStation next year in the U.S. The company also plans to build a CD stamping plant in Oregon. With that kind of commitment, Sony can expect to share the U.S. market for next-generation players with Sega and others. Barring a huge foul-up, Sony will probably walk tall among the video warriors.
WHAT MAKES THE PLAYSTATION TICK
-- A 32-bit processor plus 20 custom graphic and sound chips
-- A double-speed CD-ROM drive
-- An army of Japanese software designers
-- A $300 price tag
DATA: BUSINESS WEEKNeil Gross in Tokyo and Richard Brandt in San Francisco