Sony, Nintendo, etc.

For those of you who've been bothered by my near-obsession with the run-up to the launch of the next-generation videogame consoles, the reason I've paid so much attention to the industry is because (1) It's typically covered poorly by most mainstream press outlets, who don't understand the business; (2) The PS3 is going to be seen in retrospect as an enormous story, since it is going to hobble the entire Sony corporation; (3) The industry itself is fascinating on its own terms. (Actually, I think that's true of most industries: The closer you look at automakers or airlines or coffee products, the more interesting they are.)

You're now starting to see the effects of the launch. Yesterday Sony fired the head of its PlayStation unit. Barely two weeks after the launch of the PS3. It's difficult to overstate the importance of this move: Remember, just a few years ago PlayStation was accounting for more than half of Sony's profits.

How big a deal is this for Sony? This morning we have an industry press piece suggesting that Sony might be forced out of the hardware business altogether. It sounds like an outlandish charge, but maybe not--Sony actually responded by put out a statement saying that they're still committed to making a PS4. That they even have to give that reassurance is a sign of how dire the situation is for them.

And on the other side of the coin is this New Yorker item about the Nintendo Wii, which notes how smart the company's business model is:

Sony and Microsoft are desperate to be the biggest players in a market that, in their vision, will encompass not just video games but “interactive entertainment” generally. That’s why the PlayStation 3 and the Xbox 360 are all-in-one machines, which allow users not just to play video games but also to do things like watch high-definition DVDs and stream digital music. Sony and Microsoft’s quest to “control the living room” has locked them in a classic arms race; they have invested billions of dollars in an attempt to surpass each other technologically, building ever-bigger, ever-better, and ever-more-expensive machines.

Nintendo has dropped out of this race. The Wii has few bells and whistles and much less processing power than its “competitors,” and it features less impressive graphics. It’s really well suited for just one thing: playing games. But this turns out to be an asset. The Wii’s simplicity means that Nintendo can make money selling consoles, while Sony is reportedly losing more than two hundred and forty dollars on each PlayStation 3 it sells—even though they are selling for almost six hundred dollars. Similarly, because Nintendo is not trying to rule the entire industry, it’s been able to focus on its core competence, which is making entertaining, innovative games.

Expect to see more stories like this one in the coming weeks--and keep an eye on Sony. It's a giant corporation in an enormous heap of trouble.