Console Wars: Sony Fights Back

To win players wowed by Nintendo's Wii, the electronics giant is unveiling tools and games to boost use of its powerful but hard-to-tune PS3 platform

By Aaron Ricadela

Software developers are the catalysts that help keep the video game industry engine humming. By cranking out hit sports, adventure, and shoot-'em-up games, the studios have helped Sony (SNE), Microsoft (MSFT), and Nintendo (NTDOY) sell hundreds of millions of consoles and created a hardware and software ecosystem that generated $12.5 billion in sales last year.

So as console makers engineer new machines every few years, it's critical they ensure that developers can quickly adapt. That's where Sony is bogging down. Sony's hardware has always been tough to program, but developers consider its new machine especially arcane. Nintendo's new Wii console—a low-priced, easy-to-learn system that emphasizes fun over physics—is outselling Sony's PlayStation 3 by a nearly two to one margin.

Now Sony is fighting back. In a Mar. 7 keynote speech at the Game Developers Conference in San Francisco, Phil Harrison, president of Worldwide Studios at Sony Computer Entertainment, said the company will release programming tools that can help developers get the best performance out of PS3's new high-powered processor and graphics chip to create more detailed and encompassing worlds.

Beyond the Teenage Boy

Sony will make the tools, called PlayStation Edge, available free to licensed PlayStation developers. It's an unusual step so early in a system's lifecycle, says Harrison. "We'll be sharing some of our leading-edge technology," he says. Sony's primary development tools can cost as much as $20,000 per programmer. At the same time, Sony will release new games and tools designed to attract more casual game players, borrowing a page from the emerging Web2.0 that emphasizes content created by consumers.

It's about time. Sales of PlayStation 3 haven't set the world on fire, while Nintendo appears to have tapped a vein of interest in simple sports and arcade-style games whose appeal extends beyond young men (see BusinessWeek.com, 12/21/06, "Wii Wants You"). Nintendo says it sold 3.2 million Wii consoles and 17.5 million games in the fourth quarter. By comparison, Sony says it shipped 1.8 million PlayStation 3 consoles, and sold 5.2 million game disks in the same period. Both systems debuted in November.

A loss in Sony's game division sent profits in the quarter ended Dec. 31 down 5.3% to $1.3 billion. Nintendo's momentum continued in January, when U.S. retailers sold 436,000 Wiis vs. 294,000 units of Microsoft's Xbox 360, and 244,000 PS3s, according to market researcher NPD Group.

Time for Something New

It's not helping that game publishers are upping their Wii budgets while taking a wait and see approach to PS3. "The PlayStation 3 in general is as complex to tune as a high-end car," says Bruno Bonnell, chairman and chief creative officer of Atari (ATAR). "That was a clear hurdle for a lot of studios to invest in this machine." Atari won't release its first PS3 game until next year, but doubled its Wii development budget to $20 million, Bonnell says. Starting this Christmas, Atari plans to release five games a year for the Wii, up from an initial plan of two.

Pandemic Studios, which plans to release a war game called Mercenaries 2: World in Flames for the PS3 and 360 in August, is quietly developing a concept title for the Wii that could attract younger players, says Chief Executive Andrew Goldman. "The problem with the game business a couple of years ago is it had just gotten stale. We'd lost ground to MySpace.com NWS and other places where there were innovative experiences being developed," he says. "The Wii does something new, and draws people back in."