{audio:0:00:01} Shawn, can you provide some background to when you joined Sony and how your role progressed at the company?

{audio:0:00:10} I joined Sony back in 1987, shortly after the commercialization of electricity. The course of my career has been, shall we say, serendipitous. I joined in a corporate position, in communications, in Tokyo. I guess you would call it a diversity hire, although we didn’t have that phraseology back in the 80s. Japanese companies were trying to ‘internationalize’ themselves and many of them were doing that by hiring non-Japanese people to come and work at the headquarters, in Tokyo. That’s where I took my opportunity with Sony.

{audio:0:00:56} I came with a communications background and I took a role in the public relations department, dealing with the foreign press, in Tokyo. After three years, I moved into the executive suite, as assistant to the founder of Sony, Akio Morita. I got to work for him, directly, for five years, chiefly in the role of writing speeches or ghost-writing articles for magazines. Sadly, Morita had a stroke and had to remove himself from the company.

{audio:0:01:30} So in 1996, I joined this fledgling new group that had just sprung up, inside Sony, called Sony Computer Entertainment Inc. They had just launched the PlayStation in America, in 1995. It was a very new group, attacking the video game market for the first time, for Sony. I have to be honest with you, it was crazy days, at the time. Essentially, that entire market was sewn up by two big players who were Sega and Nintendo. It was a new piece of hardware, which necessitated a new operating system. You couldn’t just take a Sega game and put it on a PlayStation; you had to code it for the platform. They decided to enter into that market, to see if they could disrupt it.

{audio:0:02:22} Sure enough, 25 years later, I think you could say that they successfully disrupted the video game market.

{audio:0:02:29} What was the strategic position of the PS1?

{audio:0:02:39} PlayStation, as a platform, really began as a joint effort with Nintendo. Sony was on deck to provide an optical, disc-based medium. Up until then, the Nintendo Super Famicom and the Sega platforms were using cartridges, flash ROM. Sony had the innovation of the compact disc and wanted to bring that out. They were working with Nintendo, up until the last minute, when Nintendo stepped away and decided to partner with Philips of the Netherlands, rather than with Sony. Sony had built the guts of a compact disc, optical format-based gaming platform, but just didn’t have an operating system to make it go.

{audio:0:03:30} A gentleman named Ken Kutaragi, commonly referred to as the father of PlayStation, was the engineer behind that. He put a team together that created an operating system that would use that medium. Because it would take the capacity up to 800Mb, because it was a CD, they could put a lot more information on the medium and, therefore, the big hook at the beginning was, bring the arcade home. PlayStation was the first, real 3D graphics home machine. Tekken was big in the arcades and this let you bring Tekken home; it let you bring Ridge Racer home. That was the original pitch for it.

{audio:0:04:13} It came out very strongly. Probably the biggest innovation of all, for the first PlayStation, and then going forward, was the change from flash ROM to compact disc. Not only because of the quantity of data that could be held on a disc, compared to solid state media but, more importantly, the cost of goods. The cartridges were a bit before my time, but they were probably going for $7 to $9 a throw, just for the cartridge itself. Compact discs were $1.50. Cartridges needed to be flash, which means that they had to be programmed or coded, in rather sophisticated facilities, to push all that solid-state memory through. Whereas compact discs, like music discs, just came out of a stamping plant. The idea being that, with flash ROM, you’d have to have a minimum order for it to make sense, whether it’s 80,000 or 100,000 ROM cards. But by going to compact disc, all of sudden, minimum orders could be 10,000 discs.

{audio:0:05:19} You could tell your clients – in Japan, anyway – if you run out by Thursday, I can probably refill it by Monday; it was that quick to turn this stuff around. People didn’t have to buy huge initial lots, with the cost and inventory associated with that. That was probably the biggest catalyst to the growth of this business.

{audio:0:05:45} How do you compare those technical or platform changes then, to today, where we are seeing a shift to digital distribution?

{audio:0:06:05} Every platform shift is similar and unique, at the same time. When we moved from PlayStation 1 to PlayStation 2, PlayStation 2 was going to use DVD technology as the medium of carrying the game code because, again, that can take a whole lot more data than a compact disc can. At the time, when it came out, I think PlayStation 2 was one of the least expensive DVD players on the market. It came out the same year that The Matrix came out on DVD; that was a nice coincidence. The growth of the DVD market, overall, also accelerated the growth of PlayStation 2.

{audio:0:06:52} Moving on, PlayStation 3 adopted Blu-ray as its medium, again increasing capacity on the disc. There is a symbiotic relationship, I think, between the growths of the Blu-ray market and PlayStation 3.
{audio:0:07:10} PS4 came out to great success, five years ago. Every iteration of the platform involves higher rate clock speeds, more powerful CPUs, GPUs, the graphics engine and the underlying code to provide a more immersive and spectacular experience. That’s probably the expectation every time a new platform comes out; how is it going to blow me away?

{audio:0:07:40} Has the position of the platform owner changed much as the platform shifts?

{audio:0:07:50} There are many ways to measure that, depending on whether you are talking about market power or about changing the whole idea of entertainment itself. We used to say, when I was at PlayStation – because we were a platform holder and we were a game developer, at the same time – as a first party, our job really wasn’t to capture market share from other players, whether that be Electronic Arts, Square or Capcom. Our job was to grow the pie and not to steal somebody else’s piece of it. As a platform holder, our job is to create a wider audience, continually.

{audio:0:08:46} In that vein, I think Sony brought a lot of innovation such as, back on PlayStation 1, a game called PaRappa, which was very successful and it introduced the whole concept of a rhythm action game. Later on, on PlayStation 2, Sony brought out something called SingStar, which allowed you to have that karaoke experience at home, with a microphone. All these kinds of innovations are very difficult for third parties to do, because the ROI is hard to predict and growing the pie, overall, is not an imperative for third party developers. But Sony took it on to do that, to bring new innovation.

{audio:0:09:24} Things like PlayStation Virtual Reality, PSVR, was a whole step change in the gaming community, which platform holders are obligated to do. We’re obligated, as a platform holder, to continue to bring innovation, bring newness, bring excitement to the overall platform while, at the same time, in the studios, making awesome games which show the power of the technology.

{audio:0:09:52} When we look at the strategy of growing the pie or, effectively, growing the units sold for the platform owners, there’s that embedded network effect where more users, more third-party developers, better games, more users. Obviously, you need to kick start that so when you are at a platform, what is the core driver of that network effect? What did you really focus on?

{audio:0:10:19} Back on PlayStation 1 and PlayStation 2, games were, typically, a single-player experience. It was before the widespread networking of game platforms around the world. The games had to find their audience. You had a lot of couch two-player, back in the day; two people, sitting on the sofa, playing FIFA, but there was no online gaming. That didn’t really start kicking in until the PlayStation 3 era and then took off with PS4. Certainly, with PS4, we see what you call the network effect. Not just that ecosystem building upon itself, but also, players connecting with each other. If four of your friends have a PlayStation and they’re all playing games together and you’re going to get a console, you’re probably going to get a PlayStation, because you want to play with your friends. That tends to accelerate the growth around any single platform.

{audio:0:11:21} We certainly found that in PS4. Having to, not only bring out great games but, also, because of that network effect, with people playing online with more multi-player games out there, people are spending more time with single games. You used to play a game, finish it and then get onto the next game. It’s really hard to now know if you have finished a game or not. How do you finish FIFA? You don’t. People are playing Fortnite for years and they keep on going, so it becomes more of social interaction, than just the game itself. You go on Fortnite to meet with your mates, have a little banter and play a little bit of the game and move on. I think the community builds itself that way. Certainly, the added phenomenon now of things like Twitch and streaming games across the net, so people can watch, is still, fundamentally, surprising for me, because I think I come from a bygone era. I’m still impressed when I see people go online to watch other people play games.

{audio:0:12:35} Have we seen a shift in the value or power of the first-party content, for the platform owner? Or is cross-play more important than actually having exclusive content?

{audio:0:12:53} I think both are important. Certainly, cross-play was a big change, over the last generation. I was delighted when Sony took the lead to finally support that feature. But I think, what really gets the excitement around any particular platform, is the exclusive content. Nintendo certainly shows that, with Mario and Zelda and Pokémon; only available on Nintendo. At Sony, I think we did a really good job about having very strong, exclusive titles.

{audio:0:13:35} When I was the Chairman of the studios there, we used to see our business through a lens. When you think about it, with 13 or 14 studios, spread around Europe, America and Japan, we had to come up with a rubric that was easily translatable into every language and people could understand, fairly clearly, what the purpose was. We boiled that down to three words; first, best and must. The idea around that is, if you have a game concept, it had had better be the first of its kind. Like rhythm action gaming; we’d never seen that before, so let’s try to build it. Or it’s got to be the best. If you’re going to make an action game, you’re going to make God of War or something along those lines. If it’s an adventure game, it’s going to be Uncharted or something of that caliber. If you’re going to make a racing game, it’s going to be Gran Turismo, because there’s no better racing game in the world.

{audio:0:14:29} The third category was must. Must is really a first-party obligation and it goes back to what we were talking about earlier. We must continue to innovate. We must support virtual reality. We must get ready to launch a new platform. These are things that third parties don’t have to concern themselves with. For a first party, that must category is still pretty important. I used to finish those discussions with my team saying, the idea of being here is, if you come to me and say, Shawn, we have this concept and I promise you it will be the third best racing game in the world. I can’t find a budget for that; somebody else can do that, but not the platform.

{audio:0:15:11} Do you think Nintendo are going to have to open up more of its IP to other platforms, in this new world?

{audio:0:15:20} I think you’re seeing some of that, certainly between Nintendo and Xbox. One of the biggest differences between Nintendo’s and Sony’s models is that they relied less on third-party content than Sony does. The Nintendo platforms are largely driven by Nintendo games. There are some opportunities for third parties to get in there and make some coin, but the bulk of the opportunity still lies with Nintendo-developed titles. Whereas, on PlayStation, I think that the studios that I was in charge of, on a worldwide level, probably never took more than 18% to 20% of the market share. It was the inverse of what happens at Nintendo.

{audio:0:16:10} PlayStation began back in 1994, in Japan, as the people’s platform. Sony had no internal game development, at the time. It was super important to get the support of third parties, such as Namco, Square, Koei and Takara, in Japan. The company really spent a lot of time and energy appealing to the development community, to get them to come on the platform, come with us; here’s a new way to reach a wider audience. Sony relies a lot more on the support of third parties and, maybe, is a bit more open to collaborations, with the wider group, than someone like Nintendo, who is primarily a first-party driven platform.

{audio:0:17:08} Do you think that gives Nintendo and Microsoft an advantage in having a deeper integration between the hardware and software layers, as we see the threat, potentially, from cloud gaming?

{audio:0:17:26} Every first party studio, whether it’s Nintendo, Microsoft or Sony, does have a slight advantage in that they get an early good look at the technology, they get some input on what they would like to see in the next platform, in the next generation of tech. They can then code exclusively to that. If you’re making a game that is supposed to run on multiple platforms, inevitably, you have to make some compromises around that. Some of that is going to be the lowest common denominator construction and if you are on a single platform, then you can just push everything to the limit. You don’t have to worry about, wow, if we do another version, we’re not going to be able to use that kind of high res. That’s why, arguably, some of the best looking and playing games out there, do come from first parties.

{audio:0:18:21} What about the approach that Nintendo has taken to console development, given that they have a different philosophy and history in gaming?

{audio:0:19:02} A few years back, I think that Nintendo took some decisions to really lean into their strengths, around very accessible gameplay, delightful characters and very family friendly content. They have also had a long and successful history with handheld platforms. Sony tried that for a while and, eventually, pulled out. I think that Nintendo has found a really good place in that arena. I don’t think they are in the, chasing the edge of technology business, like Microsoft and Sony seem to be; ever faster, ever stronger. I think Nintendo is happy to be in its very lucrative and fan-friendly place that it is. But I don’t see it getting back into the mix, with the other platforms.

{audio:0:20:16} It’s almost as if they are playing their own game. As you said, Xbox and Sony are fighting on the technical side of things, with those AAA games and the high res graphics. Nintendo are almost standalone, in the way they develop their consoles, but also the gameplay. It seems to make them a very unique proposition, in the market?

{audio:0:20:44} Yes; I think that is maybe their key to success, right now. Sony needs to come out with things like the Ghost of Tsushima and Microsoft needs to get behind some of their big titles and Nintendo can come up with Animal Crossing and make the world stop. They are the masters in this field; they have been in it so much longer and they have such a good understanding as to who their fans are and how to keep them happy, all the time. It’s extremely impressive.

{audio:0:21:29} And such a unique philosophy, which seems so long-term focused?

{audio:0:21:36} It’s an old company. I think Nintendo is about 100 years old. They have a long-time horizon. The same could be said of PlayStation; Sony has been around for over 75 years. Because ‘generations’ of consoles, typically, take six years, plus or minus, before they come out again, you do have to have a long-time horizon to set against that. You have to create a technology that is also ambitious enough that, six years from now, it will still feel solid. I look at PlayStation 4 games, right now, and they are amazing. That technology is, arguably, six or seven years old.

{audio:0:22:28} Do you think there is a law of diminishing returns to the incremental changes you can have to Xbox and PlayStation, in terms of better graphics, better tech?

{audio:0:22:50} I think you will see that curve start to flatten, because we are hitting some theoretical limits, around not only what can be developed, but can you perceive the difference? If it comes into the category that only dogs can hear it, you’ve probably topped out. I still think there is more power to squeeze and more progress to be made and in what platforms can bring to gamers. I think we’ll see that with the next iteration of both platforms. But going on from there, I think the challenge gets really significant.

{audio:0:23:41} There’s been a view around the console business evolving to more of a recurring revenue business model and being less cyclical. What’s your view on that?

{audio:0:23:57} You’re seeing recurring revenue, already, with anybody who has a subscription program, a Battle Pass and things of that sort. Even games that rely heavily on downloadable content and add-on packs. I don’t think it’s an either/or question. I think console gaming has grown, from the PlayStation 1 days of, you put a disc into this thing that looks like a bagel toaster and you play Ridge Racer, to now, where I am logging in and I am running the code off the disc drive and tapping into another session of Fortnite. I think there will always be an appetite for the spectacular God of War kind of experience on games. I think that will always be the case. I think these different ways of getting your game, whether it’s through the cloud, a download or having a code base that is updated every six months, with new stuff, I think that world grows and lives right beside the traditional epic gaming experience.

{audio:0:25:21} Do you think cloud gaming is a risk to the core console business?

{audio:0:25:27} I think it’s an addition to it. While the cloud sounds wonderful, it really just depends on how good your internet connection is. Certainly, during the time of quarantine and coronavirus, we’ve all found out that none of us have a very good internet connection. If there’s three people doing Zoom calls and two kids watching Netflix in your house, it becomes a horror show experience. For the next couple of generations, anyway, the hardcore gamer will always want local source code on their local machine and they’ll have to depend on the vagaries of their ISP.

{audio:0:26:19} How do you look at the opportunity of the Switch to target the non-hardcore gamers?

{audio:0:27:15} Now we’re talking about a different concept, which is the gamer versus the non-gamer. I think there are recent studies, in America, that have shown that something crazy, like 75% plus, of Americans, have played games. If you play Candy Crush on your phone, you’re a gamer. If you play Red Dead Redemption 2 on your console, you’re a gamer; and all things in between. If those facts are to be believed, the non-gaming community is less than 25% of America. How do we get the Candy Crush gamer to level up into being a FIFA gamer?

{audio:0:28:03} What about the non-hardcore gamers? As you said, those gamers that don’t really want the source code on their device, but are willing to play on a Switch or a PSP on the train, for example. For instance, can Sony launch another PSP? What was the reason they didn’t decide to continue that?

{audio:0:28:41} What can I say, publicly, about that?

{audio:0:28:47} What are the challenges in that market?

{audio:0:28:53} When you make a AAA game, like Assassin’s Creed or God of War or Red Dead Redemption, you’re talking about an investment of double digit or, more likely, triple digit millions. It’s very difficult to then take a game like that and drop it into a subscription formula. How are you going to make that money back? I think we’re seeing an interesting phenomenon with Hollywood, with all the movie theatres being closed. Instead of launching their tentpoles, they just keep pushing them out, two months at a time, because they’re also realizing that they can’t make their money back on a $150 million movie, by putting it into a subscription service and earning  two cents every stream it goes down; there are not enough people on the planet to manage that kind of costing.

{audio:0:30:12} I’d just prefer not to talk about the handheld anymore.

{audio:0:30:17} I guess I’m curious about Nintendo’s launch of their portable handheld device and why Nintendo seem to have cracked that market? Is that because of their first-party content and the history? What’s your view on that?

{audio:0:30:37} They’ve been in handheld devices since the 80s. 40 years of experience means something. I think they’ve had their content which is based on, or optimized around, or targeted to, that kind of handheld experience. Creating games for the handheld is very different from doing it for a console, such as the concepts around that and game design. Typically, people won’t be spending four hours, staring into a handheld screen. You have to make your gameplay accessible, snackable and you have to be able to get a quick sense of accomplishment.

{audio:0:31:27} Whereas you might sit in front of your console, playing an epic narrative game and not be too fussed that you’ve just spent 30 minutes riding your horse across a desert, you probably don’t want that same experience in a handheld. I think Nintendo has just really polished that model, over time, and really understands the game design maxims for a handheld platform and then how to leverage their very powerful IP vault in that medium.

{audio:0:32:09} What makes Nintendo’s intellectual property so everlasting and powerful?

{audio:0:32:26} Again, they’ve been at it for a very long time. I think Mario certainly captured the playfulness of video games. Miyamoto-san is the most brilliant game maker for a reason. He really understands the rhythm of game design and the risk and reward around the design. He knows when you need to give the player more rewards and feedback and gather up all those stars and move your way across the levels. Someone said that he designs his games from the controller out. He knows how that is going to feel, to the player, in their hand, which is your only real input device, for gaming. Miyamoto-san has been very smart about that.

{audio:0:33:41} I think, in the end, that’s what has given them their great successes; they’ve had a genius at the helm.

{audio:0:33:52} How do you view the power of the characters and the narrative around the characters, today? We’ve seen new types of intellectual property in gaming, such as Fortnite or Roblox, that is very popular with young kids. How do you view that difference in core intellectual property?

{audio:0:34:16} Certainly, as the platforms have become more powerful over time, the technology allows us to be more expressive in the kind of games we make. It is no coincidence that, in the first generation of PlayStation, back in the late 90s, two of the biggest genres were fighting games and racing games. Those two genres hardly crack the top three these days. Action adventure and first-person shooters have really taken off and are probably the biggest genre today. This is largely due to the fact that we can express that more now. You can have characters that are so vibrantly realized that people can really fall into these games. If you look at something like The Last of Us, it does feel as if you are in a great Hollywood, epic film, when you are playing something like that.

{audio:0:35:19} Back in PlayStation 1, you look at some of those games now and you squint and see all the pixels; all the low-res sprites. Back then, it was really more about the gaming experience and how you felt. Did you feel awesome when you were playing Ridge Racer? Did you feel powerful when you were playing Tekken? Now, you want to identify with the characters, much as I can do with film or television. You attach yourself to them and you want to see what happens to them. You’re even more involved because, in many cases, you are controlling these favorite characters, so you feel a great responsibility to protect your character and take him or her to a successful end.

{audio:0:36:05} The IP around that has become more powerful and not only in what they can reveal in games. 25 years ago, if you were at a dinner party, you weren’t talking about games. Even if you were a gamer, you kept it to yourself, unless you heard somebody else mention Tomb Raider or something. Society’s embrace of gaming has changed 180 degrees since I started in that business. Now, it’s on your clothing, your mom is playing with you. Parents who are having kids now, grew up with games themselves, so it’s losing so much of the negative connotation.

{audio:0:37:01} Back in the 90s, gaming was like Elvis Presley was in the 50s. Everyone was saying, you’re going to rot your child’s brain; it’s going to be terrible for them. I think we’ve gone past that now and gaming has become something that we talk about and we celebrate. It’s gone from being something you got at Toys “R” Us to where, in America alone, it’s an over $50 billion business. It’s bigger than movies; it’s bigger than music. It is the biggest entertainment platform now. Everyone has come to realize that gaming has a growing place in people’s lives and it’s not a passing fad.

{audio:0:37:46} When you look at the value of the intellectual property, which is a function of eyeballs or engagement from gamers, it’s a fact that Fortnite and Roblox are consuming a lot of the attention of young people today. Does that reduce the lifetime value of Mario Cart or Zelda or any of these narrative-based games or characters?

{audio:0:38:21} No; I don’t believe so at all. Again, because of its basis in technology and bringing technology and entertainment together, which is the essence of the video game platforms, I think it really allows it to become a much wider church. In film, the success of The Lord of the Rings didn’t mean that people stopped watching Star Wars and vice versa. There are a lot of places for people to go.

{audio:0:38:47} In gaming, it is the same. People who are involved in the world of Fortnite, or dive themselves into the world of Roblox or Minecraft, are also playing huge narrative games, when they arrive. The typical gamer has a very diverse palate. The only thing that you look at, from the perspective of what takes away from other things is, yes, of course, some of these games consume a vast amount of time. Time is the one resource which has its own limitations. Unless you are Dr Who, you can’t bend it. It used to be the same thing with Call of Duty and FIFA. You would spend all your time playing FIFA, that you don’t play any other games. I think that’s probably true. I think the number of discrete games that are released in any given year, on the consoles, is probably not growing and I think it’s getting harder and harder for what you would call AA games to get their proper recognition.

{audio:0:40:30} It is true that the phenomenon that is happening in Hollywood is also happening in gaming. Taking the coronavirus situation out of it, which is a strange, random act, movies have slowly started turning to this world where, either, you are a Marvel Cinematic Universe or you are a Sundance Film, an indie film. All that stuff in the middle has started to lose its audiences. For example, the romantic comedies are struggling to get that kind of attachment. Gaming is, kind of, seeing that phenomenon, as well, with a healthy indie movement and then these huge AAA titles, such as Assassin’s Creed or God of War. A lot of those middle players are struggling. In fact, many of them have disappeared.

{audio:0:41:30} There are the examples of Acclaim or Gremlin or Ocean, who were such big players in, let’s say, PlayStation 1 and 2, and are no longer to be seen. I think that is due to the fact that the economics around the model became difficult. When I started in this business, 25 years ago, to buy a console game was $59.99. If I go to buy a console game now, it’s $59.99. Except the game that I bought, on PlayStation 1, even the big games cost $6 million or $7 million to make and now those tentpole games cost over $100 million to make. Yet, you can only charge $59.99.

{audio:0:42:29} But it’s a much bigger market?

{audio:0:42:35} Not to two orders of magnitude.

{audio:0:42:43} But you are getting in-game monetization prospects which can increase that opportunity then, especially for the AAAs?

{audio:0:42:53} For some of them. Not all AAA games have a narrative which can support add-on or downloadable content. Other games do; certainly, the sports titles, like FIFA or MLB. You have player cards, just like Top Trumps and that kind of stuff. You can build that into the experience and it doesn’t seem too jarring. But you don’t want to go on God of War and have them try and sell you an axe, for $1.99; that would just take you out of the story.

{audio:0:43:43} Certainly, the worst place to be is to spend a lot of money to develop a game that isn’t very good, because you definitely won’t even get the $59.99 people through the door, let alone be able to sell them something extra.

{audio:0:43:57} Do you see a lot of pressure on the publishers? I guess, there’s this view that gaming IP is everlasting, especially the tentpole franchises where year on year, where they are pretty much the same. Do you think that, even though we are seeing this shift in the economic model, towards more recurring revenue in game monetization, it’s actually becoming harder to launch those new AAA games and get the required ROI on that?

{audio:0:44:38} It is challenging. I think those economics have squeezed a number of people out of the business, because they can’t make it work. Different teams are tackling it in different ways. The growth of the independent game developer community, which are usually teams as small as eight people, or up to 50 or 60 people, making games on a low budget, have got to be cleverer; and they are. They are finding ways to either design themselves to better solutions or are just using better tools or better technology, to find ways to make the game development process itself more efficient.

{audio:0:45:29} The economics in gaming are difficult. That’s why, perhaps, we’re seeing less innovation at the high end than we probably should do. I think more teams are making safer decisions and not being quite as daring as they might have been a couple of generations ago. I hope we find a way to overcome that, because game design shouldn’t be led by the ROI cow. When you start leading your design based on the return, I think you get less ambitious design.

{audio:0:46:17} Do you think this is going to lead to those tentpole franchises remaining at the top, year on year?

{audio:0:46:36} The difference, again, between gaming and movies, is that because gaming is so tied to technology and technology has to keep moving forward and getting more powerful, in order to bring more immersive experiences through your game, we have this phenomenon which is that previous generation games are not compatible with the new technology. Typically, when a new platform comes out, all of a sudden, everything from the previous generation gets locked in a box, because you can’t take your PlayStation 3 game and put it in your PS4.

{audio:0:47:26} When we came back and made Ratchet & Clank for PlayStation 4, I remember going into a meeting where someone had said, no one wants to play that old game. I said, look, a great game is great forever. The opposite, of course, is true as well. A bad game is shit forever. We looked at the market and found out that for a PlayStation 4 owner, something like 20% actually recognized Ratchet & Clank. So for 80% of the PlayStation 4 owners, Ratchet & Clank was a completely new concept for them. With that in mind, we went out, the game was extremely successful, as a remake on PS4 because, again, great games are great forever.

{audio:0:48:17} We did a number of those, during my time at PlayStation and other companies have done the same. If you talk about the IP power of gaming, it’s true, but it has these breaks in the cycle, where entire franchises can disappear, because you can’t access them anymore. I can always watch The Godfather; I can always watch Gone with the Wind. I can find it somewhere and one of my devices will be able to get it. I couldn’t play Battle Arena Toshinden anywhere now. It was a great fighting game on PS1, but it was never updated and it’s gone forever.

{audio:0:48:59} What would be the risk to those big franchises today, like COD or Mario? What could, effectively, wipe them out?

{audio:0:49:09} Mario is probably impervious to extinction.

{audio:0:49:18} Because we all love the Italian plumber. What’s not to like? What puts all great IP at risk, of course, is a bad iteration. Mario is safe in the hands of Nintendo because they know exactly what he is supposed to do and how he does it and when you bring him out. Throughout my career, about every four or five years, someone will come up and say, hey, I’ve got this great cart-based racing game; it will be just like Mario Cart. I’ll say, is Mario in it? Of course not; then it’s not Mario Cart. Everyone has tried to make a cart-based racing game but if you don’t have Mario, then it’s not Mario Cart. That’s exactly what it comes down to.

{audio:0:50:11} A bad iteration of a game can be deadly, just like a bad iteration of a movie can be deadly. For many of us, there were really only ever two Alien movies. I don’t know about the other ones such as Alien 3 and everything after that. For me, there are only two Godfather movies. A bad iteration can be very damaging to a franchise.

{audio:0:50:37} Do you think it’s harder to do a bad iteration with Mario, versus the likes of COD? Or does it just depend on the developer and the owner of the IP?

{audio:0:50:48} It all depends on the developer and the owner. Given their history, I think it would be very difficult for Nintendo to do a bad iteration of Mario. I think they’ve got that one dialed. First-person shooter games are really about telling a story. They are about implementing a mechanic – in this case, shooting – and different modes, such as Death Match, Domination, War Zone. They all have some similarities. I think the attraction of those titles are just about what the particular gamer sees in that. I’m not big into Fortnite, because I don’t like building. I don’t mind the shooting part and the Battle Royale part, but I’m not attracted to the, collect wood and build fences and staircases and things like that. So I augur more towards a Call of Duty Battle Royale experience, because I don’t have to do those things.

{audio:0:52:22} First-person shooters have been around since the time of Doom. I think that category is fairly evergreen. It’s a game mechanic that people understand fairly easily and can hone their skills, over time.

{audio:0:52:40} You mentioned a step change before. You talked about how now, action adventure and shooting are popular but previously it was fighting and racing. Could we see, potentially, in the future, another step change from action adventure to another type of game, where the technology evolves to suit that mechanic?

{audio:0:52:58} Sure. I think, right now, a lot of narrative games are also slamming up against this, what they call the uncanny valley, where the characters look almost real, but they’re just not. The reactions are natural, except they’re not. To get to true photo-realism in games and to create characters that are indistinguishable from real humans that, in and of itself, should generate new forms of gameplay and interaction. I think the social aspect of gaming becomes more and more important all the time. People can even do rock concerts, inside Fortnite.

{audio:0:53:45} How do you look at the core IP of Fortnite? I’ve heard it being referred to as a blank canvas IP. You almost give the user the ability to create and build their own IP?

{audio:0:54:00} Correct; that’s emerging gameplay. It happens, organically, in that space. I think we’ll see more of games that leverage that opportunity, a sandbox, if you will; you put everyone in there and they create some activities. I think it’s got an interesting future, in virtual reality. I think that’s a platform that is in its very nascent phases. Some people are ‘believers’ and others are ‘non-believers’. After a bunch of fits and starts, I think VR is finally here to stay. I think people will begin to embrace it. Once you get more players into the VR world, then you will get lighter headsets and wireless rigs and it becomes less forbidding as it seems to be to some people. If we can make those VR headsets just like putting on a pair of glasses, then I think we have a whole new world to explore. When that world intersects with a social media dynamic, it could be super interesting.

{audio:0:55:08} Where does that leave the likes of the traditional narratives, like Mario or some of the older ones?

{audio:0:55:13} Again, it’s not an either/or. It’s just an expansion of the base. I think there will always be a market for the Mario type of games and the narrative games that Sony excels at doing. Is that market 100% of the players? Absolutely not. But in a world where, right now, 120 million PlayStation 4s are out there, if your game can capture 10% of that market, you’ve had a good day.

{audio:0:55:52} You’ve referred to music, films and TV, already. How do you look at the evolution of gaming IP and content, versus distribution, in the gaming world?

{audio:0:56:10} Right now, aside from being able to go to a store and buying a game, more people are now downloading those games, whether it’s from Steam or the Xbox platform. I think the convenience of downloading and having the game resident on your disc drive is hard to beat. The distribution model probably continues along that line. It would be interesting to know, when does the physical medium for gaming end? If you are a game publisher, you’re probably ready to go completely digital, right now. If you are a platform holder, those relationships with brick and mortar are still super important, because you can’t download a PlayStation 5 or a new Xbox, through your 3D printer, in your kitchen; that’s not available to you now.

{audio:0:57:23} Those retailers, as well, still look at it as the razor and razor blade market. They don’t want to only have razors; they want to have blades too. It’s important to keep them in the ecosystem, full stop. When people come into buy their game system, that’s one of the best times to sell them a game. You can’t remove all of that opportunity from physical retail; certainly not in the next two or three years.

{audio:0:58:06} Distribution, over time, yes will be largely digital, but physical will remain, for the reasons we have just spoken out. Also, in terms of localities, PlayStation is available in 170 countries around the world but it is not possible to download 50Gb in all those countries. It’s still faster to go to a store, buy it on a disc and bring it home. Those realities exist.

{audio:0:58:36} The cloud presents an opportunity, for people who have a decent connection, to have a streaming experience, with their game, off a system. There are still unresolved questions around that such as, what is the real price point that will attract people to come in? People will say, I don’t have enough money for a console. That’s okay; you can just get this dongle and you can stream this service. That’s awesome; but the service is $20 a month. It’s still going to cost me $240 in subscription, just to stream this thing. Then you have to have a decent connection, in order to do that. It’s kind of at odds. Cloud gaming promises to bring gaming to the masses, but the masses who aren’t in gaming right now, are not being prevented by the cost of the console. They just want to do other things with their time or with their money. For the hardcore gamer, I don’t want to stream my Call of Duty experience from the cloud, because my ISP may just choose to throttle me at 9PM. I would rather have my code, on my machine, in my living room and I can control those circumstances.

{audio:1:00:16} It’s hard to say; it’s hard to think, how do you launch a game into a subscription service, without giving it its chance to enjoy the income from a standard release?

{audio:1:00:34} We’ve seen the shift to subscription models, such as PS Now and Nintendo Switch Online memberships. How has that changed how these companies look at the console business model, in terms of changing the price of the console or moving the profit pool and margin for those razors and blades?

{audio:1:01:02} The subscription model, again, is more just growing another arm, if you will, to the business. I don’t see a shift of people going away from the discrete purchase into a subscription only package. I think some services that have come out have struggled with that. PlayStation Now started the subscription service back in 2015 or 2016, well before the other people started playing with it. It reached a certain level of success, largely because the original premise of PlayStation Now was, play PlayStation 3 games on PlayStation 4. It was a way to actually have access to a catalogue which you were now blocked from because, if you bought a PlayStation 4, you couldn’t just throw a PlayStation 3 disc in there. But through PlayStation Now, you could actually get some of that great content from the PS3 era. It appealed to a lot of nostalgic gamers and to a lot of people who didn’t have a PS3 and just wanted to find out what that was all about.

{audio:1:02:16} I still think it’s a very difficult model, right now, if you’re going to take a frontline game, that you’ve spent $100 million making, and forego the discrete release of the title, in favor of putting it into a subscription service. There is still a lot of work to be done on how the numbers work on that.

{audio:1:02:41} How has that influenced the way that gaming IP is actually created now?

Nintendo: Everlasting Gaming IP

Evolution of gaming from cartridges to CD-ROM, DVD, and now cloud gaming

Importance of first-party content for console owners

How gaming is a media deeply intertwined with the evolution of technology and implications on value creation

Why Nintendo’s intellectual property is so powerful and eternal

Risks to narrative-based IP versus no-IP types like Fortnite or Roblox

Economics of AAA publishing and importance of cross-play

Outlook on the value of gaming intellectual property and risks to certain franchises

Nintendo: Everlasting Gaming IP

Former Chairman and President at Sony Computer Entertainment

inpractise.com/articles/nintendo-intellectual-property

Why is this interview interesting?

Executive Bio

Shawn Layden

Former Chairman and President at Sony Computer Entertainment

Interview Transcript

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Nintendo: Everlasting Gaming IP(September 16, 2020)

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