For a man whose employer has just recorded its worst Christmas in years, David Reeves seems surprisingly calm. Indeed, speaking last Thursday, the day Sony announced third-quarter losses of Y18bn (£141m), he sounded more like a corner-man psyching up his fighter than the president of Sony Computer Entertainment Europe (SCEE).
"We simply have to suffer a little," he explained, "go down in market share and mind-share. It's like Ali v Foreman - go eight or nine rounds and let him punch himself out. We're still standing, we're still profitable and there's a lot of fight in us. I don't say we will land a knockout blow, but we're there and we're fighting."
Number crunching
Even so, the figures do not make encouraging reading. In the latest quarter, PS3 sales were down by 8.9% to 4.46m units, PSP down 11.8% to 5.08m and PS2 down 53% to 2.52m, albeit at the end of its mammoth eight-year lifespan. This compares with 10.42m Wiis, 11.89m DSs and 6m Xbox 360s sold in the same period. Sony's games division saw operating income fall by 97% in the quarter, yet Reeves doggedly maintains that everything is going exactly to plan.
"My objective is financial - to make a profit in our territory by the end of March, and we will. Our priority has always been the PS3; the forecast was 10m at the beginning of the year and it's still 10m. If we'd cut the price, lost another billion dollars, we might have had a huge Christmas but it would have been followed by a huge loss. The company could have thought: 'Hmm, I'm not sure I want to be in this business at all.' But we've shown Sony this is still a good business to have."
A good business, perhaps, but also one in which the PS3 is now firmly third in a field of three and widely perceived as a luxury brand in frugal times. So how can he justify selling the most expensive console in the midst of a global recession? "How do I justify it? Look at the capability of the machines. With PS3, you can go online for free, it's got all the games you want, it's got a Blu-ray drive so you don't need a new player, you can store photos on it, and you've got Home [Sony's recently launched online lobby-service].
"Admittedly, in the current climate, more people will go for the lower price, but we still make a profit and that is our objective." In fairness, currency changes mean Sony's pain is shared by many Asian companies dependent on overseas sales, including Samsung and Toshiba who have also posted heavy losses. Even Nintendo has been forced to slash its net profit forecast for 2008 by a third, despite now outselling Sony by nearly 2:1 in both key formats.
And there are some encouraging signs for SCEE, which Reeves understandably wants to focus on. While PSP and PS2 software sales have fallen (by 15% and 51% respectively), PS3 games sales are up 53% and there's a healthy 1.1m pre-order book for Killzone 2, the first of a new batch of IPs that Sony will be counting on.
Then there's the success of PlayStation Network, which overhauled the massive headstart of Xbox Live to amass 17.5 million users, 55% of all PlayStation owners, increasing revenues by 200% in 2008. When downloadable movies roll out in Pal territories later in the year, Reeves believes the PS3 will fulfil its promise as a lucrative home-entertainment system.
"We introduced PS3 as a multimedia device - we had to because it had a high price tag. But now you're going to see non-game apps appear: video downloads, music and, of course, it will still play Blu-ray. Will it be the cheapest player by end of 09? Probably not - but it will make progress."
Three's a crowd?
What is beyond doubt is that SCEE is no longer dismissing the uphill struggle it faces in markets it used to dominate. While his boss, Kazuo Hirai, was declaring at CES: "It's difficult to talk about Nintendo, because we don't look at their console as a competitor", Reeves himself now strikes a more realistic and conciliatory tone.
"We've learned from Nintendo how to grow the market and move from handheld device to device - they've done it brilliantly. And we've learned an enormous amount from Microsoft, too. Overall, the market has sharpened up individual competitors to do better - we should celebrate the industry and how we've collectively grown it beyond all recognition."
But can the industry still accommodate three rival standards? As Sony anticipates a record full-year loss of around £2.1bn and gears up to shed 16,000 jobs and six production centres by 2010, Reeves is adamant that SCEE can survive unscathed while resisting the urge to reduce and re-price as the 360 did last spring. For now, at least, he insists the label's not for turning.
"We took our cuts in 07 and 08, we restructured and streamlined and we're as lean, as mean as we can be. I have seen no plans to cut jobs and it wouldn't be productive to do so. We're always looking at ways to reduce costs, replacing the current 65 nanometre Cell chip with a 45 nanometre one probably in middle of year. But will it be anything as off-strategy as releasing a PS3 with a DVD rather than a Blu-ray drive? I doubt it."
