Interview with Ken Hirai

[gunnerhkjp]

Japanese interview here.

Secrets of the new PS3 and its future

Asking SCE Kaz Hirai about the reason for 39,980yen

The new 39,980yen PS3 "CECHH00" goes on sale on 11th November. The big price reduction comes one year after launch, making the price similar to what the PS2 price was on its release.

There has been concern about the new model regarding the removal of the PS2 compatibility and SACD playback. We ask Kaz Hirai about how the PS3 will progress in the future, and developement of the AV side of the console.

-The new PS3 with 65nm Cell. Noise reduction of 6db

Our first concern is the internal structure of the new PS3. Hirai explains the secret of the lower price as follows.

PLAYSTATION 3(CECHH00series)

"Ofcourse, this is not the sort of hardware that gets developed overnight, so it had been in development targeting the year end for some time now. During the internal discussion regarding the new machine, we looked at the realistic cost reduction possibility, and reached the 39980yen, US$399 figure. From there, we determined what what hardware we can offer."

"We determined that silicon process shrink was necessary. The new machine carries the Cell developed with this process"

"With the cost reduction of process shrink, we also get reduction of power consumption. That means we can use a smaller power supply and heat sink, leading to cost benefits."

This is the same path that PS2 has taken. The graphics chip still remains at the 90nm generation, but the effect of process shrink can be seen. The maximum power consumption has been reduced from 380w to 280w.

There has been benefits in the area of noise. From another material obtained from the SCE technical side, the maximum fan noise is now at 30db, compared to the older model maxing out at 36db.

The change is probably most noticable during playback of movies where noise is a big factor.

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- No change in PS3 quality, discussion leading to "no-compatiblity" model

Cell shrink was not the only aspect of the cost reduction.

With the new PS3 model, PS2 compatibility chips (EE+GS for Japanese model, GS+ for European model) and SACD playback function has been removed. As for SACD playback, it seems a hardware change was made making later addition of the function "difficult" according to the SCE technical side.

"There is no change in the core game experience of PS3 games running at 1080p" according to Hirai.

Regarding the concern of the Audio/Visual quality, "there is no hardware change in that area, so there is no change in the quality level" (SCE technical side). Ofcourse, it is yet to be seen what kind of real life effect there is in high end audio space where even a slight change in the power supply "changes" the sound for better or for worse.

The change getting the most attention is the removeal of the PS2 compatibility. Backwards compatibility was one of the "culture" of the playstation series. PS1 compatibility played a big role in the success of the PS2.

"Ofcourse, there was extensive discussion. We all acknowledge that backwards compatibility is an important function. But we also considered price reduction to be more important at this stage." says Hirai.

He continues. "The reason for the decision was not only cost. After my return to Japan, we have changed many things. We discussed about the permanent necessity of backwards compatibility, and the mentality of -not changing something because it has been like that until now-. There is no fun in that kind of mentality, and business cannot grow like that. I felt that drastic changes were necessary, and I made the decision."

"The lineup of online and offline PS3 games are coming together. Although removed functionality gets a lot of attention, what is most fun about the PS3 is PS3 games. I regret that a lot of focus has been diverted to the wrong areas."

There is a reason for Hirai's frustration. PS3 model with PS2 compatibility has NOT been phased out.

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-Current models co-exist with the new one. The future of PS2 compatibility and SACD playback "depends on the user"

"In Japan, 3 models will continue to be sold, and production will be decided according to demand" says Hirai.

The current PS3 with PS2 compatibility (20GB CECHB00, 60GB CECHA00) are currently not being manufactured. This has lead to the incorrect assumption that these models have been phased out.

Similar stories have arised in the US. 80gb version was released there along with the 60gb price reduction and cancellation of 20gb shipments.

Rumour spread that all that was left of the 60gb version was the limited stock.

"The truth of the matter is that even now, you could still purchase a 60gb PS3. 20gb model has been officially discontinued. After E3, there was a rumour that the 60gb model will disappear in 2 weeks. That was obviously not the case. In Japan, there will be 3 models on sale for the year end season. If there is demand, we will manufacture whichever model is necessary. However, if most of our customer request the 39,980yen model, we may phase out models that are not in demand."

The reason for this course of action is to let the customer choose the model they want, says Hirai.

"When we add or remove models, we decide according to the choice of the consumer. We discontinued the 20gb model in the US becuase there was little demand. Dualshock 3 was introduced because consumers wanted it. That is our basic stance. The same goes for PS2 compatibility. We haven't decided if it is completely necessary or not necessary. We are monitoring the demand."

- PS3 is game console first, but development of the AV features will continue.

"The main reason we moved for a price reduction is because of the improvements to the PS3 software lineup. Software is more important then price. Without software, we can't be on the starting line. With the increasing software lineup, we moved on to price reduction."

"PS3 is a game console. If someone asks me what the PS3 is, we have to be able to define it as a game machine for it to be marketable. If the message is -game/AV machine-, it leads to confusion. So the message is that it is a game machine."

Such comments are worrying to the AV fans that have seen the PS3 as an evolving consumer electronic machine with firmware updates adding DVD upscaling and DLNA client feature. There are PS3 users that see this a priority.

"Ofcourse, development on the AV side will continue. There is limited resource, so I have to prioritise. If I had to choose between a game feature update and a CD playback improvement, the former will be chosen. If I don't do this, it will be irresponsible towards the PS3 game developers. But I have never once said that the development of the AV side had been terminated."

It seems that AV related updates may take longer to come out, but not stopped.

"This is often misunderstood, but when I say that the PS3 is a game machine, I mean that PS3 is primarily for games, and that should be the where the fun is. People should purchase it for the games. But customers who purchase the PS3 will see that it has many other functions and I'm not saying those should be ignored. After all, enjoyment of the PS3 can come from games and AV."

Regarding updates, there are 2 questions that need answering.

First is whether the drive can be made compatible with the new LTH BD-Rs.

Second is compatibility with AVCREC and HDRec.

Enquiries were made to the SCE technical side. LTH BD-R compatibility and AVCREC playback is currently under consideration, but HDRec playback may be difficult since it is a HDDVD specification.

-Sale of Cell manufacturing facility has no negative effect, and the business model remains the same.

On 18th November, announcement was made by Sony, Toshiba, and SCE to create a joint venture for the development and manufacture of semiconductors. With this move, the semiconductor facility will be sold to Toshiba.

The strengh of the playstation business model is in the semiconductors. Inhouse development and manufacture leading to cost reduction has always been the basic concept. The new low cost PS2 SCPH-90000series shows the tremendous cost benefit of inhouse manufacturing. According to Hirai, "the total worldwide sales has been good, and target total sales have been increased from 10 million to 12 million."

However, if the semiconductor is going to be sourced from its joint venture with Toshiba, the benefit of inhouse manufacturing may diminish. It means there is a change in the semniconductor model that had been supporting the playstation model.

"To be honest, there is only positives in this decision (for a joint venture). If the agreement was detrimental to us, I won't sign it and Stringer won't sign it. The change is positive"

"To explain, this move was taken to maximize the profit from PS3 semiconductor business. Even during the age of the PS2, there were times when the factory was run by SCE, and there were times when we were supplied from Sony. If you take a dry perspective, SCE was "purchasing" the chips from another company called Sony which happens to be our parent company. Even with the PS3, we were purchasing from Sony line. With the joint venture, we could purchase it under better conditions."

"What has changed is that we could now leverage the core competancy of Toshiba's semiconductor technology, which is immense. That is where the cost merit comes from. We can now source cheaper and with greater consistency"

What this all means is that decision was made to increase cost effectiveness by utilizing the semiconductor manufacturing expertise of Toshiba. Looking at the "Cell" and the "RSX" as a discrete component, this framework will work as explained by Hirai. But we will have to see how changing the inhouse developement model will affect the future playstation business.

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-"Number of PS3s sold" over "short term profit"

Looking at all the marketing options, another option could have been to make a smaller reduction in price (about 44800yen) to improve the financial numbers for Sony and SCE.

"If you tell me that smaller reduction in cost will improve numbers, you are right. But that also means missing out on people who might have otherwise bought it for 39980yen. Those people may move on to other game consoles, or to other entertainment products. There will be a opportunity cost"

"What PS3 needs is to have machines out there. What is necessary for that is first software lineup, and secondly price"

Currently, the PS3 sales target for the financial year is 11 million. Hirai is optimistic about the number.

"If we chose a path to sell 8 million with better financial numbers, we may alienate third party developers who may delay multiplatform titles or not supply at all. If we factor in these negatives, we may suffer 5 year later. I will not make decisions that will take the short term numbers over the possible market in 5 years."

Hirai's determination shows the difficulty of the game business. SCE's current financials are not great.

But Hirai confidence comes from the response from the price reduction. "As a price level of a machine 1 year after launch, it offers a lot of value which will boost the PS3"

"399" model was released in Europe in October, and US in November. In Europe, the sales have doubled. In Japan, the price reduction of current model prior to the release of the 39980yen model has increased sales. It goes to show how big a problem "price" was to the PS3.

Comparing the "next gen" worldwide sales, PS3 is at the bottom. What is required by SCE is to improve this position as early as possible.

Says Hirai.

"I don't have a crystal ball to tell me the future, so I can't tell you when our position will improve. What is definate is that we will strive for positive effects with sales numbers and financial numbers doing the best we could possibly do, taking whatever action is necessary and as quickly as possible. We will do all that we can do today and tomorrow. And all that hopefully will accumulate into a positive result."

PS3 is in a difficult situation. But SCE has acknowleged that and have taken action to improve. 399 is the first step.

Edited November 8, 2007 by gunnerhkjp