BUS602: Marketing Management

As Sir Howard Stringer, CEO of Sony Corporation, settled in for his flight back to Japan from New York, a number of pressing issues occupied his mind about Sony's future. At the forefront, Sony's next generation video game console, the PlayStation 3 (PS3), was set to launch worldwide on November 17, 2006, a mere week away. Despite PlayStation 2's (PS2) dominance in the last generation of gaming consoles, Stringer understood that past successes were no guarantee of future success in the intensely competitive game industry.  

Microsoft had launched the first volley in the last console war by releasing the Xbox 360 in the fall of 2005. Within one year, almost 4 million Xbox 360s had been sold worldwide, giving Microsoft a significant head-start in the race for market dominance. Meanwhile, Nintendo, a competitor thought to be dead due to the lackluster sales of its previous console, the Nintendo Gamecube, had generated significant "buzz" around its new entry, the Nintendo Wii (pronounced "we"). Targeting more of a mainstream audience than Sony and Microsoft, the Wii, scheduled to launch just two days after the PS3, posed a serious threat to Sony's market share, particularly due to its $249.99 retail price, half the price of the PS3.  

Stringer also knew that there was much more at stake than winning the console war. The next generation of the DVD market was at stake as well. In addition to being a gaming console, the PS3 was a Blu-Ray disc player. Blu-Ray was a next-generation optical disc format that held more than five times as much information as DVDs and allowed high-definition television (HDTV) owners to watch movies with an unprecedented level of image quality. The PS3 was, in effect, the "Trojanhorse" for the Blu-Ray format. 

Sony found itself in an intense standards war with Toshiba, a well-established Japanese electronics manufacturer, that, in partnership with Microsoft, had developed its own digital video standard, the HD-DVD that retailed for $500. The battle lines were being drawn as companies including HBO, New Line, Intel, and Sanyo aligned themselves with HD-DVD and Fox, Disney, MGM, Lionsgate, Apple, Dell, Pioneer, Panasonic, Philips, HP, and Sharp sided with Blu-Ray. Warner Brothers and Paramount were supporting both formats. 

While winning the digital video format war could prove to be extremely profitable for Sony, the battle would be hard-fought. Sony, meanwhile, had had some disappointments in the past in establishing its own technology formats. In the mid 1970s, it launched the BetaMax, a home videocassette tape recording format which was quickly out-marketed by JVC's VHS format largely due to the fact that VHS tapes held more taping capacity (two hours) compared to Betamax's one hour. In 2003, Sony attempted to establish its own music and movie playing format by introducing the Universal Media Disc (UMD) for its portable gaming device the PlayStation Portable (PSP). Initial PSP units were sold with the UMD version of Spider-Man to highlight the flexibility of the device. But UMD never took hold, in large part due to the lack of UMD titles and the number of other devices that played UMDs.  

Stringer was well aware that replicating the PS2's success would not be easy. The price of the PS3 would be a significant barrier to widespread penetration. At $599, the PS3 could no longer be considered a toy and would not likely be an impulse purchase for the majority of consumers. Although compared to stand-alone Blu-Ray players, which sold for $900-$1,000, the PS3 could be considered a bargain since it could play games as well including some older generation PlayStation games. 

By all accounts, since entering the video game industry in 1994, Sony's ability to capture the attention spans of child and adult gamers had been impressive. However, as technology became more varied and versatile, so did consumer tastes. Stringer knew it was critical that Sony kept consumer appetites both satiated and begging for more.