Monday Musings: Activision Declares War On Sony

So, Activision have threatened to pull support from the PlayStation 3. But what did they really mean?

It's pretty clear what Activision CEO Bobby Kotick said in an interview with the UK's Times newspaper:

“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 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."

Kotick wants a PS3 price cut. And he's threatening to pick up his ball - the largest ball in the industry - and go home unless he gets it.

Activision sells most of its games in the United States and in Europe. Western-focused games like Call of Duty and Guitar Hero sell best on Xbox 360 and Wii, respectively, in those territories. Activision doesn't sell a lot of games in Japan. Sony is languishing in third place in the two territories in which Activision does the vast majority of its business.

So why does Kotick care? If the PS3 has lost momentum and the world's biggest third-party publisher is getting a better return on the other two platforms, why does Kotick want a price cut?

Why doesn't he just do what so many third-party publishers did to the Gamecube last generation and simply walk away?

The PS2 was ideal for third-party publishers. It was the clear winner last generation and it made things easy. You made your game for PS2 and then ported it elsewhere. You made all your sales on PS2. In effect, it was the only platform you had to worry about.

Thing is, Kotick knows that there are still tens upon tens of millions of PS2 owners out there who have yet to upgrade to the current console generation. And these PS2 owners are brand loyal to Sony. When they do upgrade, they'll want a new PlayStation.

Right now, these PS2 owners see the PS3 price tag and say "Hey, I can wait". They don't care about the value of the system - about Blu-ray or wi-fi or free online play - they just see that price tag sitting at two or three times what they paid for their PS2.

Sony responded to Kotick's bold statements with some PR fluff:

“PlayStation has tremendous momentum coming out of E3, and we are seeing positive growth with more than 350 titles slated to hit across all our platforms, including many anticipated games from our publishing partners. We enjoy healthy business relationships with and greatly value our publishing partners and are working closely with them to deliver the best entertainment experience.”

But you can bet that they're worried.

But you can bet Microsoft was also given pause for thought. Kotick clearly doesn't think the Xbox 360 is going to be this generation's PS2. After all, if he did, why would he care about the fate of the PS3?

And there's also doubt over whether the Wii will be this generation's PS2. Even the world's biggest third-party publisher still struggles to sell games that aren't Guitar Hero on Nintendo's console.

Activision has made an aggressive move. It'll be interesting to see if Sony - or even Microsoft - can respond in kind.

What do you think will happen? What price do you think the PS3 needs to hit in order to start competing with the Wii and Xbox 360?



    I must say that this is a complete bluff.
    Activision is making millions from the PS3, Just not as much as the 360 Wii and DS. Why would they stop wanting to make that money? Its like saying
    "oh im making money in Adelaide, but my other shop in Sydney is making more money than the Adelaide store so im going to close my Adeliade store"
    It doesnt make any sence to drop the support if they are making a profit. They just want sony to drop the price so they can make more money. But if sony listend to them they may not even have a platform; because of the amount of money they were loosing on the PS3.
    Also If they dropped PS3 support they would drop below EA as the biggest publisher. A lable they would want to keep.

      This isn't cutting the nose of to spite the face, this is business and you've failed to grasp one of Kotick's main points. "Games generate a better return on invested capital on the Xbox than on the PlayStation." It's not about whether Activision is seeing profits from the Playstation, it's about making the most money out of the resources you invest. He's talking about shutting down his Adelaide store and opening a second Sydney store.

        But the Sydney Store is already running at full capacity. Adding a second one will split the market and reduce their returns. So both a ModernWarfare and A Call of Duty Every year exclusive to 360? They would make more Profit with MW and Call of duty on alternate years on both platforms.

        If a Modern Warfare 3 was to be made an Xbox 360 exclusive Total Revenu, Profits and sales numbers would be down.
        Compare that to MW 2 they want to be the biggest game launch ever. If it was exclusive it wouldnt happen.

    I reckon PS3's got a better line up in the next 6 months than the 360 does. So I'm starting to want one.

    But there is no way, in the high hell, that I will pay any more than $500 for one. I already have a 360 with plenty of good games. There's no compelling reason to drop so much money on a PS3 yet, good games or otherwise.

    Wow, Activision are so aggressive these days huh,
    but I kind of agree.

    I just recently got a PS3 to compliment my PC and Xbox360 and I havn't been playing much of either consoles, I always end up going back to PC. I'm a PC fanboy lol.

    Anyways, the PS3 does seem to lose momentum even though they showed some amazing games at E3, however most of those games aren't coming out for another year or two. Only a few are coming out this year if we're lucky, the same could be said with Microsoft.

    PS3 needs a price cut real soon and I know some of you are going to say it deserves the current price tag for the value your getting but to be frank, I've had the PS3 for few months now and I havn't even used the bluray movies functionality of it. They need to pricecut bluray movies too! lol..

      Pc Fanboys, the ones who will always end a start the agument with a quick and fatal zerg rush <('.')^

      I'm not a fan of steam though (even though its a must have.) i prefer Rts...
      ...and i enjoy long walks down the beach

      Total Annihilation was my first memory! 4years and pee wee rushing XD

    Sony has tremendous brand loyalty. It doesn't matter how lackluster their current and future games selection is, the PS3 will sell well following a price-cut. That's a definate in Asia, Europe and Aus. I think the brand loyalty isn't as strong in the US so they'll have to offer something more substantial over there.

    I'm more than happy with my 360 but I still wish they'd offer a bit more for my gold subcription especially as I'm not really playing online much these days. Thats the only complaint, 360 rocks my world otherwise.

    There's no point for either 360 or PS3 to compete for the Wii market. There's lessons to be learnt and adopted sure but directly going after those markets is a waste of time. The Wii has a huge base, and several titles have sold kajillions, but its namely first party titles.
    But still, the size of the market is worth drooling over I guess :/

    Don't worry. It won't be long before you all come crawling back to the ol' PC.

    $500AU, but will that help sell those extra Guitar Hero's that are laying around all the retail stores?

    I'm guessing along with others that we will see a price cut announced at the Tokyo Game Show but realistically I really don't by how much (OK at a guess whatever $500AU is in YEN or USD.

    The point where I think the PS3 needs to be before reaching a critical mass of sorts is $450 with bundles (I was going to say $500 but that is still psychologically half a grand).

    Although now if it happens Activision can look on their outburst as what spurned it on (even if it was already on the cards). So either way the relationship between Sony and Activision is going to be icy and I'm not too sure what that will mean for John Q. PS3owner.

    $500AUD and PlayTv would help me consider buying a PS3.

    Coming out of E3, PS3 does look to have a killer line-up. $500 is around the price I would consider picking one up as well.

    I'd have to say that the PC is 'this generation's PS2'. Hell, even Street Fighter is on the PC in this round.

    I opted for a PS3 over the 360 last year, and haven't had any regrets, but I agree that the price needs to drop to make it more popular - only 2 of my friends also have a PS3, everyone else has a 360.

      List of all games I've bought on the PC in the last 2 years:

      Sounds like a massive ROI for PC.
      Although to be fair the number of PC games I've bought in recent history will be tripling when Starcraft 2 and Diablo 3 come out

    $450 and I'd line up outside the store the very next day. Anything more would need a bundle because once Sony does drop the price there's little doubt Microsoft is in a prime spot to do the same.

    PS3 is definately an expensive peice of hardware. I paid $799AUD for mine.

    But my choice in the end was the same as in the article, brand loyalty from being a satisfied PS2 owner.

    All Sony products are priced at a premium from Walkmans, to TV's and cameras, but there's a perception, that isn't ill founded, that your paying for a high quality device. All my friends who own PS3's, which is pretty much all my friends who have a console, were all once PS2 owners.

    I'm waiting also for the price to drop, the financial year is about to tick around and it would be great to get this into this years return. But alas there is no chance atm.

    The price is so abnormally high and no backwards compatibility also hurts.

    I'm considering getting an ebay 60gb one with backwards but not sure as warantee etc will be null in void methinks :(

    If Sony can keep getting games like Heavy Rain to come out, then I think they can justify the price tag. To be honest, I have no intention of getting a PS3 anytime soon, but Heavy Rain & LittleBigPlanet are strong arguments in its favour.

      So you've played Heavy Rain then? How can you comment on a game you haven't even seen with your own eyes? That's got to be one of the stupidest things I have read. Heavy Rain is basically Dragon's Lair, the game is full of QTEs.

    Your analysis of Kotick's statement hinges on the assertion that PS2 owners are "brand loyal" to Sony, and are an exclusive 'reserve' of customers untapped by Sony.

    But a major factor of the PS2's success was its casual lineup, with things like Guitar Hero, Singstar and Buzz. Figures for the Wii suggest that there must be a significant segment of PS2 owners who have already gone with the Wii, and for those in the hardcore crowd, figures for the 360 suggest some of those owners have departed from Sony.

    There probably is a segment of the PS2 userbase who is 'brand loyal', but see the price to be too expensive. But taking away people who have gone to the Wii, 360, PC or have just outgrown video games, this segment really isn't 'tens upon tens of millions' at all. This generation of consoles has been the most competitive ever, and there won't be a super-dominant market leader like there was in the previous generation - simply because the three consoles compete in different market segments.

    So the reason why Kotick doesn't just 'walk away' is likely to be much more simple than you presume.

    He made the statement publicly to turn the screws on Sony's management. If he and the public succeed in getting a price cut, his company will be much richer because they'll just sell more consoles to anybody, which includes the minor segment of PS2-owning Sony loyalists and anyone else interested.

    Regardless of how Kotick feels about the 360, this is exactly way Kotick cares about the PS3. Activision is always going to make profits from the 360, but they'll have more if the PS3 has a large enough user base for profits to be made on it as well. The reader who used the analogy about Adelaide and Sydney was spot on.

    Kotick's right, and they should have pulled support for the PS3 long ago. It's tougher to develop for, it's got a tiny install base, it's not making up the ground it lost at its disastrous launch and Sony aren't making any real change-of-direction moves that are going to turn that situation around.

    The reason why Activision haven't already jumped ship will be because some or all of those high up in the company believe that Sony still have the market position to reverse their fortunes in the next generation, when they're not so heavily focused on winning a format war, and Activision is going to want to be in on that. They don't really expect Sony to turn things around on the PS3; they want Sony to expertly placed for the PS4, and they want to be ready to hit the ground running for that generation in the way that Ubisoft really capitalised on this time around.

      Tiny install base? ...Exaggerate much? I'm looking at the latest install base figures and the Wii stands at 50.86M, XBOX 360 at 30.75M and PS3 at 22.75M. Clearly the PS3 isn't winning at the moment (by a long shot). But 22.75 Million consoles is not a tiny install base. Especially when there are still well over 125 Million PS2s sold.

      The XBOX only sold 24 Million consoles for it's entire lifecycle. The PS2 is still selling, at a reasonable pace, last month it sold over 100,000 worldwide. There is no way Activision would leave behind a company that can still hold sales like that on a 10 year old console.

      And I agree Truncheon, how is it people can justify large sums of money on other small items like iPods and yet they can't do it for a console? I had one friend spend $900 on a snowboard which he only uses for about 3 days a year but he still won't get a console, of any sort, as he thinks they are too expensive.

      I don't get people.

    I dont get it! People want to pay $450 for a PS3 while they happily shell out $549 for an Ipod touch. 1000's of games and applications doesnt mean value, its not like grocery shopping or a McBurger combo.

    PC developers and publishers whinge constantly about PS3 as being expensive and time consuming to develope for which is puts the fear into the media and thus consumers, but if publishers had their way the market place would be FLOODED with product which is terrible for consumers as well as all console manufacturers. And besides, the same guys still refuse to develope for vista. Good on ya Sony.

    The fact that PS2 consoles and games are still being bought up says a lot about the value of the brand, over the weekend I borrowed my big old PS2 to a mate so he could play FF12 and hes loving it. Sony needs to let people born into Microsoft land that quality software is more important than lots of software.

    $500 AUD, and the price should have been cut long ago. Sony are just cutting their own throats by keeping the price high as they continue to lose market share and alienate gamers and developers. I'm happy with mine but I definitely see Kotich's point of view.

    I paid $532 for my Japanese Play Station 3 last year - Landed (so that included everything - shipping, tax, etc)

    A better question in Australia is - why is the PS3 still so expensive here compared to everywhere else?

    As for Kotick - he wants something from Sony. A price cut, some development money - whatever. Kotick (and Activision's) actions over the last 12 months have made it brutally clear that they are strictly about the bottom line. He may actually cut PS3 development because of the ROI but I very much doubt that that will be a good move for Activision long term.

    The market is best served by the situation we have with the PS3 and the Xbox360 still battling over supremacy because it means that neither Sony nor Microsoft are able to completely dictate terms to the industry at large.

    Why did I leave Nintendo out of that statement? Third parties haven't been having a very fun time (on the Wii at any rate) so I'm not sure they really care about the Wii :)

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