Saturday, June 20, 2009

Activision Blizzard threatens to stop PlayStation support

Activision Blizzard, the world's largest third party publisher, has warned that they "might have to stop supporting Sony" as early as next year, the company's CEO Robert A. Kotick told the British daily newspaper The Times.

I'm getting concerned about Sony; the PlayStation 3 is losing a bit of momentum and they don't make it easy for me to support the platform. It's expensive to develop for the console, and the Wii and the Xbox are just selling better. Games generate a better return on invested capital on the Xbox than on the PlayStation. (...)

They [Sony] have to cut the price, because if they don't, the attach rates are likely to slow. If we are being realistic, we might have to stop supporting Sony. (...) When we look at 2010 and 2011, we might want to consider if we support the console — and the PSP [portable] too.

Analysts have already predicted doom and gloom for Sony Computer Entertainment, which is nothing unusual. Analysts do not have to be terribly diplomatic and others have voiced similar criticism concerning the other console manufacturers. But this is not the first time that Sony has been confronted with unusually harsh criticism by third party publishers, which is rare in this industry.

Back in May and September of 2007, respectively, Ubisoft CEO Yves Guillemot demanded a price cut for the console ("They have to decrease the price quite significantly") and Square Enix president Yoichi Wada criticized Sony's marketing efforts ("[The future of the PS3] would be tough if its marketing strategy is not straightened up.")

The future of the PlayStation depends on when Sony will reduce the PS3's price tag. The latest guess by an analyst is August. But I maintain that Sony simply has not got the financial resources to reduce the price until Christmas. Sony CEO Stringer has made it quite clear that he puts profitability above everything else.

The real question is, though, whether Activision Blizzard is merely bluffing or if these unusually harsh comments contain a very real threat. Sure, a number of the publisher's games sold more than a million on the PS3. So the console generates revenue for them. We simply don't know what little profit is left. Kotick revealed some of the additional costs of developing for Sony, noting that Activision Blizzard "paid $500 million to Sony in royalties and other goods last year." Again, such a disclosure is highly unusual. What is Kotick up to? Please share your thoughts in the comments section.

EDIT Videogame analyst Michael Pachter has commented on the story, noting:

Of course Bobby’s bluffing, and good for him. (...) I think Bobby’s obviously interested in Sony selling as many PS3s as they possibly can, and he’s not happy with their penetration so far. I think he favours a price cut, and would rather see one sooner than later.

Sony Computer Entertainment has yet to respond in a meaningful way.

I would also like to remind you of the last big debate about whether the PlayStation3 is dead or dying. Back in December, an analyst's assertion that the PS3 was a "sinking ship" which was "flopping so badly" had sparked a lively debate which I quoted extensively.

EDIT As expected, the news of Activision's threat has sparked a lively debate, which I will attempt to capture here, in the familiar style of guest commentary.

Sony's clearly in a pinch

Is the PS3 really losing momentum? It depends, as usual, on where you're standing. Since the system launched in late 2006, it's clearly been growing in year over year unit sales. In 2008--the system's best year yet--Sony sold over 10 million PS3s worldwide. And while sales have been down for all contenders recently, Sony's sold nearly as many PS3s worldwide as Microsoft has Xbox 360s so far this year. Of course Microsoft still has more than a third as many Xbox 360s in the wild, but since 2008, Sony's slowly (very slowly) been gaining. (...)

That said, Sony's clearly in a pinch. Its game division lost nearly $600 million in 2008, the PS3 consistently lags in NPD's US sales reports, and the system charts the fewest high sales software titles month after month.

If Sony lowers the PS3's price, we've been assuming they'll lose even more money. But if they keep it sky-high, they theoretically stifle sales and by virtue thereof, their growth rate, frustrating publishers, who naturally want to sell to as many customers as possible.
PC World

Stark and somewhat surprising

A stark and somewhat surprising statement. (...) PS3 price cut soon, surely?

Could seriously hurt console sales

That’s pretty serious considering Activision is the largest video game publisher in the world. It probably won’t come to that — I can’t see them not lowering the cost in the next year or so regardless of what Kotick thinks — but if I were Sony I would definitely be a little nervous about this. If this inspires some bravado in EA and they make a similar statement it could seriously hurt console sales.
A+E Interactive

The pressure is on

For its part, Sony, which is mired in third place behind Nintendo and Microsoft in the next-gen game-console wars, keeps saying it won't be pressured into trimming the price of the PS3. But with industry heavyweights like Activision making these types of remarks, it's becoming more and more clear that the pressure is indeed on.

Ever saw a publisher threaten a platform holder?

In that absolute worst-case scenario, that would mean no Call of Duty for Sony consoles. No Guitar Hero for Sony consoles. No Tony Hawk, either. It probably won't ever come to that, of course, but Kotick's words are still worth noting. After all, when was the last time you ever saw a third-party publisher so openly threaten a major platform holder?

A huge bomb

Activision boss Bobby Kotick has dropped a huge bomb on Sony. (...) While Kotick may sound a bit cocky here, I don't think Sony wants to sit on statements like these. And no one is going to argue about the PS3 needing a price cut either.

Nintendo has issued similar denials

Sony has continued to insist that it will not be pressured into lowering PS3 prices before the 2009 holiday season.

"I think everybody but us would love to see it given away for free," Jack Tretton, president and CEO of Sony Computer Entertainment of America told CNBC. He added that cheapest wasn't always the most successful, but rather, "what you get for your dollar."

It should be noted that Nintendo has issued similar denials regarding a lowered Wii price tag, despite confirmation of a (May) 57 percent year-on-year drop in sales.
TG Daily

What if EA said the same thing?

Now, Kotick's words are just corporate smacktalk (bottom line: Activision still makes money on the platform). But what if a company like EA came forward and said the same thing? No good can come of this for Sony.

Activision Blizzard needs the numbers Sony delivers

Is it a credible threat? That is hard to say, but the industry has ample evidence of just how ruthless Activision Blizzard has become. (...) By slamming the console maker in public it creates a perception of weakness witih Sony's platforms. Now the developer is in a very good position to bargain for lower licensing fees, help with advertising dollars, or other financial rewards to "stick with" the PS3 and PSP platforms.

It's doubtful Activision Blizzard has lost money by supporting the PS3 and PSP as platforms, and again, the company needs the numbers Sony delivers to meet its goal of having Modern Warfare 2 be the "biggest property launch of all time." What Kotick can do is attack Sony in the press and create a perception of weakness and then exploit it for better terms when releasing these blockbuster titles, and that's what we're seeing here.
Ars Technica

A crazy precedent

Activision is the world's largest third-party publisher, with huge franchises like World of Warcraft, Guitar Hero and, most importantly, Call of Duty under its belt. The loss of even Call of Duty seems to me like it would significantly hurt the PS3. Still, the big question everyone is wondering is if Kotick has enough sway to actually force Sony into a price drop. Maybe Kotick's just blowing steam, but it'd be a crazy precedent for the largest publisher to drop the system entirely.

Cutting prices would be difficult for Sony

Kotick's comments have weight because of the market strength of Activision. The company is the world's largest independent computer games company and has a market value of $16 billion.

Cutting PS3 prices would be difficult for Sony. The company last month reported its first annual loss in 14 years, caused by a strong yen and a sales slump in its consumer electronics business. While the economic downturn hurt sales, Sony also suffered from competitors' lower prices.

As a result, sales in Sony's electronics business fell 17% from the previous fiscal year, and revenue from its game unit fell 18%. While Sony sold more units of the PS3 and PSP, the company saw a drop in software sales.

PS3 could be Sony's last big console

Could Activision really be considering ditching the PS3? If so, this concept breathes a lot of life into the possibility that the PS3 could be Sony's last big console. Sure, the company would stay afloat if Activision was the only publisher to back away, but that might encourage a lot of publishers to get out of Dodge. Is Sony a sinking ship? (...)

I'm a firm believer in the idea that all three console makers should have a spot on the market. Competition breeds excellence and innovation. Sony cannot disappear, if they do... what would happen to gaming?

A total bluff

Sounds like a total bluff — I can’t see Activision pulling support from Sony, but I can see them attempting to influence PS3’s price by publicly threatening to.

Sources: The Times, VG247
Thanks to: Joystiq

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