Sony's PS3 Issues Threaten Revival

More problems. This time it's incompatibility with certain PS and PS2 games. Can Sony crank up the damage control in time for the holidays?

by Kenji Hall

This isn't the debut Sony (SNE) had in mind for its whiz-bang PlayStation 3 game console. First, a scarcity of PS3s created chaos among key retail chains during the Nov. 11 Japan launch of the next-gen game console (see BusinessWeek.com, 11/12/06, "PS3: The Sound and Fury").

Now the world's dominant video-game console maker has confirmed a report that not all of the games designed for the original PlayStation and PlayStation 2 are compatible with the new machine, as Sony had promised they would be.

In a statement in Japanese on its Web site, Sony Computer Entertainment, the company's games division, said the problems differ depending on the game. Titles such as Gran Turismo and the Final Fantasy series sold for previous generations of the Sony console have menu and graphics problems, the company disclosed a day before the launch in Japan.

Same Glitch as PS2

Sony spokeswoman Nanako Kato said some games might not work as they're supposed to on the PS3 because the new machine uses a completely different operating system from older Sony consoles. "There are no problems with the hardware. It's a software issue that we had anticipated from the start," Kato said. "We expect to address the same issues in the U.S."

Kato wouldn't say when the company first knew about the technical snafu but noted that the PS2, released in 2000, initially had a similar glitch when playing some games designed for the first PlayStation console.

Analysts suspect that Sony may have rushed the launch to prevent rivals from snatching market share. They said the bad publicity could ultimately leave Sony at a disadvantage compared with Microsoft (MSFT) and Nintendo (NTDOY), which are cranking out their own new consoles at a faster rate than Sony.

Mostly Minor Issues

"The PS2 still has a big share of the market but if Microsoft's Xbox 360 and Nintendo's Wii were to take some from Sony it might give the impression that Sony is slipping," said John Yang, tech analyst at Standard & Poor's in Tokyo. "The problems are a negative for Sony's brand."

According to a report in the Japanese daily Sankei Shimbun, about 200 of the 8,000 available software titles don't play as they're supposed to on the PS3. On its corporate Web site, Sony has set up a search function that lets you check whether your games have been affected. A quick search turned up mostly minor issues.

A quick review of games entered on the Sony Web site at random by BusinessWeek found that background music would not play on Electronic Arts' Best Hits 007 Night Fire and 007 Everything or Nothing, which go on sale in mid-December, as well as Artdink's Zeus Carnage Heart Second. In other cases, demo videos from older games freeze up, or online games such as Square Enix's Final Fantasy XI by PlayOnline, which used data on the PS2's hard disk drive, can't be ported to play on the PS3 system.

Sony's Revival at Stake

This is not likely to be the last tweaking needed for the PS3. For the launch in Japan, Sony included a software update to let PS3 owners plug into the PlayStation Network, the company's online gaming arena and virtual mall for game downloads. Another update, which is expected to be downloadable in late November, will let anyone who also owns a PlayStation Portable, the checkbook-sized multimedia gizmo, to link the two consoles seamlessly.

With nothing less than Sony's revival depending on the PS3's success, the company will certainly want to fix the glitch before it ramps up production to meet its informal target of 2 million units for the holiday season. The company has invested well over $1 billion on its next-gen game console that features the high-speed Cell microprocessor chip it co-developed with Toshiba (TOSBF) and IBM (IBM), as well as Blu-ray high-definition DVD technology.

Even with this embarrassing setback, Sony's shares finished up nearly 1% in Tokyo trading on Nov. 14. However, the stock is off 31% from its 52-week high set on Apr. 21.

Hall is BusinessWeek's technology correspondent in Tokyo
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