Sony vs Nintendo: Giant Sony is hard to kill

First impressions of visits to Sony and Nintendo could not be more different. At Sony’s hi-tech HQ, young engineers sporting jeans and dyed hair come out to collect their suited visitors. At Nintendo’s base in southern Kyoto there are suits, austere white walls, and not a videogame character in sight. Yet it is Nintendo, not Sony, which is currently feted as the most innovative company in Japan.

To add insult to that injury, Nintendo, which only employs a couple of thousand people, has a higher market valuation than Sony, with a global workforce of 180,500. The market says Nintendo is worth Y5,185bn ($52bn) against the Y2,396bn value of Sony.

The reason is the extraordinary success of Nintendo’s Wii and DS videogame consoles compared with the struggles of Sony’s PlayStation 3.

The story of Nintendo’s triumph begins in 2001 with a failure. Nintendo’s last home console – the GameCube – flopped and ended up being outsold seven to one by Sony’s PlayStation 2. Nintendo resolved to do something different; at the same time Sony’s game division fell prey to an overweening hubris.

The “something different” is visible in the revolutionary design of both the DS and the Wii. The handheld DS has two screens, one of them a touch screen used to control it. The Wii is controlled by an accelerometer in the player’s hand, so instead of pressing a button to make a game character swing a sword, the player makes that movement with the controller.

The DS and the Wii use relatively unsophisticated electronics, and are cheap as a result, but connect with a range of people who do not normally play games.

At the same time, Sony’s game division, then run by “Father of the PlayStation” Ken Kutaragi, was setting out to create the most powerful console ever made. Its “Cell” processor cost hundreds of millions of dollars to develop, and combined with a Blu-Ray DVD player as standard, that meant a November 2006 launch price of $499 in the US.

Videogame fanatics bought the console, but it has still not made the transition to the mass market, and criticism of Sony and its strategy is harsh.

One executive close to Sony says that the only use he can think of for the Cell processor apart from running the PS3 is “as an electric heater” – because it uses so much power.

Sony acknowledges the criticisms but insists that it has a strategy. The cost of producing the Cell is falling steadily, while the Blu-Ray disc and high-definition compatibility of the PS3 mean that Sony thinks it will sell for 10 years.

The challenge for Nintendo is that the Wii, without high-definition capacity, a hard drive or much processing power, turns into a disposable novelty. Casual gamers may have flocked to buy a Wii, but it is not clear that they will spend heavily on software, which is where the real profits are made.

The risk – with Nintendo entirely focused on videogames – is that today is as good as it gets.

For Sony, videogames are only one of many product lines, albeit a crucial one. To become a stock market giant again, Sony will have to turn around profits in its core electronics business of televisions, mobile phones and cameras.

The company’s sheer size makes that hard work. The triumph of the Blu-Ray DVD format is a boon, but more than offset by the struggles of Sony Ericsson, its mobile handset joint venture.

Anyone who feels that Sony is finished, though, should consider the words of a rival executive: “Sony is a real software company: they understand how to make something that looks and sounds interesting, something that consumers cannot resist.”

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