PlayStation's Father Steps Aside

Kenji Hall

In the end, it was Ken Kutaragi himself who felt his creation was better off without him. On April 26, the inventor Sony's iconic PlayStation video game consoles proposed to the games division's board of directors that he step down from his post by summer. Officially, he'll remain an advisor to the parent company and honorary chairman at Sony Computer Entertainment Inc., which he founded back in 1994. But the announcement effectively signals that the 56-year-old Kutaragi will soon be clearing his belongings from the executive suite where he has held sway over a $9-billion gaming empire for more than a decade.

The move wasn't unexpected, coming six months after a sudden shakeup that saw Kutaragi's protégé, Kazuo Hirai, promoted to head the unit's day-to-day operations. Hirai, 45, has had less than six months to learn the ropes--and even less time when you consider that he orchestrated the PlayStation 3 launch in Europe in March. Now that the machines are in stores in the key markets and the pace of production is picking up, there's little need for Kutaragi's guidance anymore. By June 19, when Sony is slated to hold its annual shareholders' meeting, he'll be out and COO Hirai will be anointed the gaming unit's CEO and president.

Whether Kutaragi wanted to go or was pushed has been hotly debated on the blogosphere. One source with knowledge of the transition at the top said Kutaragi had been pressing Hirai to take the helm for years. (Of course, the timing of Kutaragi's so-called promotion and his handing of executive power to Hirai back in November—-so soon after the company had delayed the PS3's launch and cut shipment targets for the yearend holiday season—-was hard to write off as coincidence.) By all accounts, Hirai is no management lightweight. A fluent English-speaker, Hirai's forte has been running a tight U.S. business and keeping the PlayStation's faithful fans happy.

He's been with Sony long enough to recognize that headquarters is a very different environment than the American-styled one from which he came. He also has lived through the company's legacy as a world-class tech hardware maker and recent struggles to master software, and must surely understand that his own boss, Sony Chairman and Chief Executive Howard Stringer, needs him to turn a profit as soon as possible.

Given the PS3's recent launch, Hirai will have a grace period of a couple of years to rebuild. Morgan Stanley analysts predict the unit will lose more than $2 billion on $9.2 billion in the just-finished fiscal year through March. This year, sales will go up 44% but not enough to put the unit in the black, which will likely take another year. By March 2009, Morgan Stanely figures the unit will post a $730 million operating profit, its first in three years.

That's how the PlayStation business model has worked in the past: Spend buckets of money on the development and launch of a new machine, and recoup the money through sales of game software. This time, there's the added bonus that the PS3 can connect to the Internet and download a library of stuff online, including Home, the soon-to-be released online virtual world that will be accessible through the machine's Net link. Plenty of skeptics think Hirai doesn't stand a chance at matching Kutaragi's record of 100-million-plus sales volumes for the PS3's two predecessors.

As for Kutaragi, it would appear that he's saying sayonara just as Sony is recovering from nearly a decade of ho-hum earnings and other problems. It will be years before the PS3 can be ruled a hit or a very pricey stinker. By then, Kutaragi will be long gone. It's a shame that he's leaving on such a low note. His appearance at the Spiderman 3 premiere in Tokyo on April 16 seemed particularly telling. Kutaragi entered the theater lobby but quickly repaired to a dim corner alcove, where he stood alone at a small table, picking absent-mindedly at a tub of free popcorn. A bizarre way for one of the most storied careers in tech history to wind to an end.

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