LGS: PS3's Business Strategy Dependent on Niche Market

At his keynote address at the 2006 London Games Summit, Sony Computer Entertainment Worldwide Studios [Europe] Vice President Michael Denny outlined Sony's belief that the future of game publishing is, more than ever, in the hands of the consumer. The speech focused mainly on online issues, such as digital distribution, stating that broadband usage has majorly penetrated the computer market, and that its growth shows no sign of slowing. "It is becoming unlikely that any new computers purchased will not be used standalone, without the internet," said Denny. "This is how we feel about the PlayStation 3." Denny's speech argued that a major change in how developers and publishers make games will be driven by consumers. "They have more choices, want better things, and have louder voices," he said, giving the example that within one month of iPod Video launching, it served over 1 million videos, and that within two months of the European PSP launch, over 700,000 files were downloaded from yourpsp.com. Denny reminded his audience of industry professionals of the standard "80/20 rule" of entertainment products, which states that 20% of products account for 80% of sales and, typically, 100% of profits. He followed this up with a newer rule, the "98 percent rule." A digital jukebox company called eCast, he said, reported that in 2004, out of the ten thousand tracks it offered on its digital download service, only two percent were never played. Those 9,800-plus tracks were, of course, not composed entirely of hit songs. This, he says, is tangible proof of an emerging niche market, which is finally - collaboratively anyway - competing with the major hit market. "The new niche market will not replace the traditional market," said Denny, by way of concluding remarks. "However, they will start to share the stage with them for the first time in a very significant way. Traditional high budget big hit products are absolutely essential. These large hit products will now have to compete with an infinite number of niche markets, and in this new era where one size does not fit all, we need to come up with relevant content in commercially viable ways." "It may be in the new era that consumer is king, but our content will remain our most valuable asset. We will need to extend our product offerings and ranges. In addition, we must create active communities of loyal consumers. In order to compete in this era, we need to make our content more relevant to our consumers than ever before." As far as how to address creating a sustainable product, by way of creating online communities around shipped game titles, Denny says that game makers "will need to plan in advnace." Downloadable demos and additional content must, he says, be a part of game design and product development from the outset, and must incorporate player feedback. "We need to inspire new gamers, connect new gamers in new ways, and extend both the gameplay and value of our game franchises," said Denny. "This requires the most fundamental shift that our industry has ever seen."