Yesterday Sony published figures for the last three months of 2008. They revealed sales of all three consoles were down year-on-year, with only PS3 software showing an increase. Bad news for Sony, you might think - but David Reeves would disagree.
We sat down with the Sony Computer Entertainment Europe boss to ask why he's happy with the figures, and who he believes is winning the console battle. Plus, when we can expect a price cut, what's next for PSP and whether Sony has started work on PlayStation 4.
Eurogamer: What's your reaction to the Q3 financial figures?
David Reeves: On PS3, the target is still 10 million sell-in. PS3 was the number one priority, and the Corporation is going to meet that target. We're very happy about it overall.
PSP was not hit so much by demand, but by economic factors. I can only talk specifically about Europe, but we've lost volume in Russia. A lot of retailers there have been sucked up by oligarchs, and they didn't have the financial support. They were not able to buy in the product, even though the demand was there.
Also unemployment has rocketed in Spain, and to some extent in Italy. The demand was not there. Not just for us - for Nintendo or Microsoft, it's exactly the same.
Eurogamer: Why do you think sales of PS3 have fallen year-on-year?
David Reeves: We've said it would be 10 million, and it is 10 million. We had a price decrease in the previous year, and we didn't have a price decrease this year. Xbox 360 did, and Nintendo was already quite low.
The plan wasn't necessarily to hit sales, it was to hit a profit target - to do better than break even in Q3. The financial results show a break even in Q3 for Sony Computer Entertainment worldwide. So rather than then going for market share and sales, we went for profit, at least to break even.
Eurogamer: But the fact is PS3 sales fell year-on-year. Do you think the console might have peaked?
David Reeves: Absolutely not. We're two-and-a-half years into a ten-year cycle. For October, November and December we were in a holding pattern, especially with the pricing. We had to demonstrate we could make a profit with the business model, and that's what we've done.
Eurogamer: In an interview with us in July 2007, you predicted that PS3 would be "far and away the winner" by March 2008...
David Reeves: In March 2008, we were a long way ahead of Microsoft. We launched PS3 six months later [in Europe] than the US, we launched 18 months later than Xbox 360 and we were beating Microsoft in terms of installed base - so that came true.
David Reeves: I don't want to talk about the competition too much, but Xbox 360 is not ahead by a million units. We sold through 500,000 PS3s in November. We sold through 1.1 million units in December. Our installed base now is very close to 8.5 million units in PAL territories. Our numbers show we are absolutely neck-and-neck.
What happened was, we overtook them, and they dropped the price. It's almost as if we've gone ten rounds as Mohammed Ali and we're still standing, because we didn't drop the price. We held firm.
Now, going into the remaining rounds and the next seven years, we are going to be very strong. The last few weeks have shown we are clearly number two in the market. I'm as confident as I was before.
Eurogamer: Sony Computer Entertainment boss Kaz Hirai was recently quoted as saying the Xbox 360 "lacks longevity". Do you agree?
David Reeves: I'm not going to comment on that. I simply don't know what their plans are. I'm not going to be as arrogant as to comment on either Nintendo or Xbox 360.
Eurogamer: Do you think what Kaz Hirai said was arrogant?
David Reeves: I don't think so. He was probably misquoted, because I don't think Kaz would say that.
Eurogamer: He also said Sony still has "official leadership" of the industry. Isn't it really about who's shifting the most boxes? Doesn't that sound a bit arrogant?
David Reeves: I look at it differently. In the videogames industry, we've all been winners for the last two years. We've had more people coming in who have never played games before. The industry is not recession-proof, but it has done extremely well.
Eurogamer: But there are more and more stories about people being made redundant and studios being shut down. Just today, for example, Kuju has announced impending redundancies. Is the industry really doing well when people are losing their jobs and studios are shutting down?
David Reeves: It's a function of the economic situation that you are going to find people who are resilient, who do not play with their pricing, who are very efficient. Those people in that particular studio, they don't have a job, but I think in a few weeks you'll find them housed in other studios.
Of course there are going to be some people who fold. But the videogames industry is inherently very healthy. It's not a question of survival of the fittest, it's the survival of people who are professional, and don't just go around cutting their prices and destroying the market.
Eurogamer: Is the PS3 going to remain the most expensive console on the market?
David Reeves: I think it will, yes. I'm not saying there are going to be any price cuts at all in the short term or the medium term. I'm not saying we don't need to do it - we are expensive. It is possible that as the cost [of manufacturing] comes down, we will be able to do it.
But we're protecting ourselves with a very hard shell to get through the next one or two years of an economic situation. If you're experienced, you know you have to go into that mode - it's like being an armadillo. You have to be hard, and then you will come out when the sun comes out.
If, as an industry, we can get through the next six to seven months, we're going to find a massive uplift in September and October. I'm very optimistic about it.
Eurogamer: Let's imagine an average consumer, someone who's not an early adopter, not a hardcore gamer, who doesn't care about Blu-ray. They walk into a shop and see three games machines on the shelf, and yours is the most expensive. At times like these, aren't you concerned the price will affect their decision?
David Reeves: The price will affect their decision. Yes, if I haven't got that much money to spend, I will go for, let's say, the green machine. Because the salesman will say, "Well, it's got all the games," and he wants to sell that machine.
But there are people who come in having done their research, thinking, 'PS3 has got all the games, it's free to go online, it's got a Blu-ray player. I know I'm not going to have to ring up the customer careline saying I've got three red lights.'
We recognised that those numbers would go down because we did not drop the price. But we reached the targets we expected to reach under those assumptions.
Eurogamer: Will you cut the price of PS3 this year?
David Reeves: As the cost of manufacturing comes down, we will look at it, as we've looked at it in the past. I'm not going to say we're going to do anything short term or anything long term on the price. At the moment, we have a value-added strategy.
Eurogamer: So can we expect to see more SKUs, perhaps with different hard drive specs, sold at different prices?
David Reeves: I'm not going to comment on that, simply because I don't have that detailed knowledge.
Eurogamer: Would Sony ever consider licensing out the PS3 technology? Could we see a Sony laptop or Blu-ray player, or even a machine manufactured by another company, which plays PS3 games?
David Reeves: I wouldn't rule it out, but I haven't thought of it myself. We don't have any plans to do that.
Eurogamer: Let's talk about software, specifically with regard to exclusivity. In the US, GTAIV sold 3.3 million on Xbox 360 and 1.9 million on PS3. When you look at those figures, do you regret giving up that exclusivity?
David Reeves: Those are US figures, right? Well, it wasn't the same in Europe.
I don't think we were in a position not to give up exclusivity. You can't live on exclusivity forever; in the end, you've got to be master of your own destiny. We've invested in studios like Media Molecule and gained exclusivity that way. We've made studios like Evolution and Guerrilla wholly-owned.
At the beginning, we had very few IPs and relied on other people for exclusivity. Now, our strategy is to have 15 to 20 IPs by the time we get to 2009, 2010. We don't have to go to Capcom or Take-Two and ask for an exclusive. And I don't think we could afford it anyway. In the cold light of day, I would do exactly as those publishers have done and go multi-platform.
Eurogamer: So what if, say, Konami came to you and said, 'We want to take Metal Gear Solid multi-platform'?
David Reeves: That's totally their decision. We're not going to fall over ourselves just to try and keep that exclusive. We have to stand on our own two feet.
Eurogamer: So you wouldn't spend a lot of time and money trying to keep MGS exclusive to PS3?
David Reeves: I don't think we would. I'm not ruling it out, but we would sooner invest that money in two years' time, in having another major IP like Resistance or LittleBigPlanet.
Heavy Rain is a good example. That will be, de facto, an exclusive; we haven't just given them a paper bag full of cash, we've built up a solid, long-term relationship.
Eurogamer: Speaking of LittleBigPlanet - did it sell as well as you expected?
David Reeves: It exceeded in the post orders and online. Selling it in, during peak, was quite difficult, but we sold in exactly what we thought we would. Subsequent orders have been very high; LittleBigPlanet has a very long tail.
Eurogamer: What did you think of the reaction to PlayStation Home? Do you think the release came at the right time?
David Reeves: I would have liked to introduce the open beta at the beginning of September. We wanted to make some modifications so gamers could take more advantage of things like Trophies that were in place, but weren't tested.
Now we're trying to sprinkle the dust over. We've got avatars, pavilions and spaces, and now you're going to see the content. It's still only open beta, it's not a full launch. I don't know how long it will remain in open beta, but we're now starting to get the rich content.
You talked about people going into stores - I've heard people in GAME say, "But this one's got Home. I've heard of that, I'll buy that." I don't know how many people buy PS3 because of Home, but I'd like to think it's a lot.
PR Executive: We've got 1.5 million unique registrants in the SCEE areas for Home, and more than 3.4 million worldwide.
David Reeves: Between 13th December and 13th January, there were over one million dollars' worth of micro-transactions in Home. So don't forget, it's a commercial venture as well.
Eurogamer: How's the software line-up looking for Christmas 2009? Have you got many big titles still to be announced?
David Reeves: There are a couple. You can probably guess, but we have not formally announced them. They will most likely be announced in the next four to six weeks. They may even keep some for E3 or Cologne.
Eurogamer: Moving on to the PSP - also back in July 2007, you said it needed "better and more original games". Do you think that need has been met?
David Reeves: No, I don't.
Eurogamer: Why do you think that is? What could Sony be doing to solve that problem?
David Reeves: The competition has been such that publishers have had four consoles, plus PC, to publish for. They did not put their chips on PSP, certainly in the US and Europe.
In Japan, a lot of publishers put their chips on PSP. So games like Monster Hunter, Phantasy Star Portable and Dissidia have caused enormous spikes for PSP in Japan. But there haven't been big platform drivers in Europe.
Now I can look you in the face and say, the line-up for PSP in 2009 is two or three times stronger than it was last year. We ran out of steam on games around August, September last year. We didn't have a Monster Hunter or a Dissidia. But probably from March to July, you're going to see that type of thing starting to kick in.
Eurogamer: I did a quick search of all the announced games on Games Press the other day. There are 44 listed for PSP, and 185 for DS. That's a worrying margin of difference, isn't it?
David Reeves: I don't know. It depends on the quality of the games, doesn't it? People come out on DS and want to compete against Nintendo first-party, and that's a tough thing.
It's like when you watch six year-old boys play football, and they all follow the ball right the way across the field. Sometimes developers and publishers do that, and that's what they've done with DS.
Eurogamer: Publishers have even stopped doing PSP versions of their biggest titles. The most recent Tomb Raider, Call of Duty and James Bond games didn't come out on your handheld - but they all came out on DS. How concerned are you about that?
David Reeves: I worry about it, but it comes back to how thin they have to spread the butter. It would have been nice if some of those had come out, and I think they will eventually, but they can only place their chips on so many slots.
Eurogamer: The iPhone and the App Store are doing very well at the moment. How do you plan to compete?
David Reeves: If you look at the statistics, more than 80 per cent of those games come in through telecommunications, as opposed to being downloaded. We are not planning to have any SIM card in any of our devices, so we have to think whether it would be as successful if we did something similar.
Eurogamer: There do seem to be some issues with your download service. For example, when LocoRoco 2 came out, it was cheaper to buy the boxed version from Play.com than to buy it as a download from the PlayStation Store.
David Reeves: I was not aware of that... How do we anticipate how much the retail trade is going to discount? That's an art, not a science. It may be that we have to have differential pricing.
Eurogamer: Shouldn't the prices be different anyway? If you buy the download version of a game, you're not paying for the production of a disc, box or manual, nor are there any retailer overheads. Shouldn't you be getting it cheaper?
David Reeves: You could argue the same with iTunes. You don't have to get in your car and go out, queue up at the store, buy it and come back. You can just download it, and there it is. That's what children do all the time. If we have to think boxed products, I think we're dinosaurs.
Eurogamer: Back in 2007, you said it was "definitely possible later" that we could see a PSP with a built-in hard drive. Now it's 2009, are we talking sooner rather than later?
David Reeves: It's still possible, but it's going to be later rather than sooner.
Eurogamer: Not this year, then?
David Reeves: No, I'm not saying that. You didn't give me your timeline - whether it's minutes, weeks, months or years...
Eurogamer: Is it minutes, weeks, months or years?
David Reeves: There is no timeframe. I stand by what I said. It is possible, yes, to have a fixed hard drive or flash memory. But what's happened is, the rate at which memory stick prices have come down have surprised everyone.
Eurogamer: You were recently quoted as saying Sony's priority for 2009 is to "start making money". How do you plan to do that?
David Reeves: Europe certainly will make money this fiscal year, from Sony Computer Entertainment's point of view. We are already on track to do that. Even with the recession we've got to ramp it up, to keep that install base and that momentum going. The priority now is still to make money, or at least to get to break even.
Eurogamer: Have you had your first meeting about PlayStation 4 yet?
David Reeves: I have never even heard it mentioned. I think people are concentrating so much on what's happening now that they're not even thinking about it.
David Reeves is president of Sony Computer Entertainment Europe.