PlayStation Nation's Civil War

Some PlayStation fans are starting to notice the rough patch, while others still have the blinders on, but unfortunately these Lemmings are already off the cliff as this is the culmination of many years of strange business. If we take a trip down memory lane, it will not take much to see the cliff before the horizon. 

If we set the way back to 17 years ago, PlayStation was coming off of the most successful console ever made in the PlayStation 2. The Nintendo GameCube, Sega Dreamcast, and Microsoft Xbox struggled to compete with the DVD player masquerading as a video game console. Ken Kutaragi had gone from making the SNES audio processing chip to making Sony a video game giant. With all the money from Sony Music helping push PlayStation into the stratosphere, it seemed Ken Kutaragi could do no wrong. 

Then they announced the most advanced piece of hardware a person could buy for $600. Designed with IBM, the PlayStation 3 featured CELL architecture (basically designed like a giant, clusterable GPU) and Blu-ray. More data storage and processing power than any contemporary PC. However, game development was still a garage hobby at the time. Engine developers were barely financial tech grade and struggled to grasp the industrial standard of real-time code execution. Embedded engineers; they were not. Quickly the price point and lack of expertise made a negative impact on PlayStation profits. This led to the beginning of bad times as PlayStation's parent company, Sony, hired a Welshman (like Jim Ryan) named Howard Stringer to "save" the electronics portion of the business.

PlayStation under Ken Kutaragi was a technology company. PlayStation consoles came packed with patented parts. PlayStation was so good at technology that they were performing better than the electronics side of Sony while using the parts and products from Sony electronics. Unfortunately, Howard Stringer didn't seem to understand this and began preparing PlayStation for an eventual split and sale. Ken Kutaragi, engineer and leader, resigns and Kazuo Hirai, a marketing executive from Sony Music, takes over Kutaragi's responsibilities over an advanced technology company. The road is starting to crack at this point as the two sides are pulled apart.

Luckily for Kaz Hirai, Shuhei Yoshida was able to fill a piece of the technical knowledge gap left after Ken Kutaragi leaves. Shuei Yoshida had been working within PlayStation, specifically with third-party developers, for many of the RISC chip years of PS1 and PS2. It is thanks to Shuhei Yoshida that PlayStation was able to rebound and squeeze all that juice out of the PlayStation 3. Things were good, but third-party relations were strained and Shuei Yoshida is more diplomat than technical advisor. He wanted to make third-party developers happy. Yoshida didn't have the technical knowledge to care about the very serious technical limitation of the aging X86 PC architecture. At the end of the PS3 era, Howard Stringer was ousted and Kazuo Hirai elevated to take his place. The TV CEO was out, the Music CEO was in, and Shuhei Yoshida was left to launch the next PlayStation chapter. All Yoshida had was disgruntled, unskilled third-party developers, a music exec trying to make big money, and an American software developer named Mark Cerny. Oh..and another Welshman, but we will come back to that.

Mark Cerny's resume at this point was making games for Atari consoles, Sega consoles, 3DO consoles, and PlayStation consoles. Every other console maker Mark Cerny had made games for at that point had done so poorly they had stopped making consoles all together, even folding in the case of 3DO. It may not have been his fault, but it was obvious that identifying well-made, successful hardware wasn't Mark Cerny's strongest area. But Shuhei Yoshida was a developer's executive and Mark Cerney was a developer's developer, so the team had star appeal. Together they decided to make the PlayStation 4, practically a Sony Vaio PC with a mid-range GPU, to appease a mass of PC developers. Luckily for them the wheels fell off the Xbox train and Nintendo was busy experimenting, very publicly. The PS4 would be successful. But the PS4 era wasn't all sunshine and sushi.

Mark Cerny started his weird journey as the head hardware designer at PlayStation with the Vita. This is where we start to see how self-destructive PlayStation would become. PS1, PS2, and PSP all used various versions of RISC architecture. How they worked at the board level was similar enough that it didn't require a fundamental shift in how engineers built the game engines. PlayStation 3 was a full-scale change to CELL and did require a very intense change in how game engines were designed. Now imagine having a team with RISC and CELL experience and having the new head of hardware design abandon both architectures and ask you to make a system seller on brand new architecture. The Vita started the odd trend of dividing the internal developer base across separate hardware and architecture platforms. 

Early in the Cerny era, PlayStation would lose 3 incredibly instrumental studios to the (un)Vita struggle. Bigbig, Lightbox, and Eat, Sleep, Play stopped working for PlayStation after 2012. Talent from these 3 studios would go on to make games like Metroid Prime: Remastered, Rumbleverse, Halo:Infinite, Forza Horizon 5, Dirt 5, and The Division 2. Evolution Studio, survived just long enough to be closed after the PS4 launch. Some of the team would go on to make Project Cars 3, while others would contribute to the Dead Space remake, and others to Hogwarts Legacy. In just 4 years the Cerny era led to an immense amount of talent lost. Not all of this could be contributed to Mark Cerny's odd choice of hardware initiatives, though. 

At the same time that Cerny was heading hardware design, Andrew House, a Welshman with experience in marketing took the reigns as Kaz Hirai stepped up. Alongside House, the North American operations would see PS3 stalwart Jack Tretton leave and Shawn Layden enter.  Under Andrew House and Shawn Layden, PlayStation started its foray into VR. It was a big unproven trend that produced a memeable Time magazine cover, but not much else. It did serve to further split PlayStation's internal developer base with major studios like London Studio, the talent behind PS2 series The Getaway, making the incredible Blood & Truth all so it could be locked behind PSVR. As PlayStation killed the PS Vita and all associated studios, it kept supporting PSVR despite the fact that it sold less units than the PS Vita. Meanwhile internal studios, while less and less, were devoted to larger and larger projects. Internal studio production rates starts to dive.

With Vita dying and PSVR becoming PS Move 2, Cerny's third-party friends seemed to be struggling with PlayStation relations as well. Adam Boyes, head of PlayStation's third-party relations, left in 2016. He stated it was because he wanted to be more involved in making games. However, going on to become CEO of Iron Galaxy and handling the business operations at a studio doesn't seem to support the claim that he wanted to be more involved in making video games. The strangest part is that Iron Galaxy has been involved in making successful ports of games like Skyrim, Diablo III, and Overwatch for the Nintendo Switch while being infamously involve in porting The Last Of Us Part 1 to PC. Usually it takes some pretty serious technical know-how for a studio to port PC games to mobile architecture. Porting an X86 game to X86 shouldn't be so tough. Whether the bad port was an Iron Galaxy issue or a PlayStation issue will probably be discussed in some autobiography eventually. Either way, it does point to more issues.

As PS4 wraps up a decade of easy wins and studio closures, Andrew House leaves unceremoniously and John Kodera is left as interim CEO. Kodera is short-lived and makes a statement about the importance of portable hardware before being removed and replaced by Jim Ryan, just in time for the launch of PlayStation 5.  Layden takes one last E3 before bowing out and Kaz Hirai exits the day-to-day parent company operations and his place is taken by money manager Kenichiro Yoshida. Kenichiro Yoshida, the former CFO, comes from So-net, an old branch of Sony that ran ISP services in Japan. Again, he has no experience in engineering, nor does Jim Ryan. Mark Cerny is allowed to launch the PlayStation 5 with a proprietary, integral SSD drive with wonky specs, a board by the same company that makes the competitor's equipment, and a light launch library in the face of a now run-away Nintendo Switch. 

Luckily for PlayStation, Xbox is still struggling to get their business together while a pandemic slows everything down. Nintendo takes the Japanese market, almost completely, but PlayStation is still leading Xbox in every territory. Somehow, first-party output is way below the PS4 generation and, in fact, more releases in the beginning are cross-gen. Jim Ryan is busy pondering why backwards compatibility matters, aloud for some reason, while Xbox is banking on it as their new releases struggle. Everyone except Nintendo is in a weird lull, but the PlayStation Nation is still loudly proclaiming that things are good. Meanwhile, Kenichiro Yoshida is quietly chopping Sony Group Corp into tiny little pieces. 

By 2021, Shawn Layden is talking about how unsustainable PlayStation is while Jim Ryan is dumping copious amounts of money into preventing Microsoft from buying Activision/Blizzard. People are so wrapped up in these legal proceedings that they aren't paying attention to the Investor Relations material coming out of Sony Group Corp. In one brief there is a single slide about PlayStation 5, then an entire section about using PlayStation Network and GAAS in synergy with Sony Music and Sony Pictures to make PlayStation's own metaverse. Direct-To-Consumer is the phrase of the day as Kenichrio Yoshida sells the idea that PlayStation could become a metaverse Steam-like. Log into PSN, shop on PSN, watch Sony Music artist concerts on PSN, Play games on PSN, never leave PSN. Who needs hardware when you have the metaverse? That So-net section Yoshida used to run is investing heavily into NFTs and Blockchain. Not surprising that his plan involves the word metaverse.

A year later and Jim Ryan is clinging onto hope that someone will deny Microsoft their acquisition. A Bungie purchase and a big announcement about GAAS start tying Kenichiro Yoshida's plan into a nice little bow. A split-by-absorption transfers all the hardware sourcing, manufacturing, and patent rights from Sony Group Corp to a new entity called Sony Corp (July 27, 2022). It doesn't make much sense on the surface, but Sony Group Corp does have a chairperson that is also on the board over at Logitech. That might explain the weird and sudden creation of the Inzone brand. The new Sony Corp is run by Kimio Maki and it sounds a lot like the Ken Kutaragi's Sony. It is the technology part of Sony. On Kimio Maki's side of the business, Sony is using AI to analyze the markets and help make business and investment decisions. It is Kimio Maki's part of Sony that is making the displays for Apple's Vision Pro. A display so advanced that Apple can only get it from Sony and they are nearly begging Sony to make more. A display that is not in the PSVR2 and nowhere near an Inzone brand display.

Another year later and the Xbox deal has closed, Jim Ryan is resigning, the PSVR2 is outniched by the Quest 3, the PlayStation Portal is out and beyond niche, and the PlayStation 5 has to come with a Blu-ray drive ala carte because that split-by-absorption moved the patent to Sony Corp and PlayStation has to pay to use something they were responsible for popularizing. Sony Group Corp buys Audeze-Maxwell to make audio equipment for PlayStation, since, again, Sony Corp owns all the headphone technology. Sony Corp is growing and PlayStation looks like it is being used to prop-up Sony Pictures. Those GAAS games are delayed out past 2025. Kenichiro Yoshida is passing the baton to another money man, Hiroki Totoki. Things in general are looking rough for PS5 faithful.

The division of Sony has weakened PlayStation. While Yoshida desperately wanted PlayStation to be a digital services and entertainment company, the fact is PlayStation was strongest as a technology company. If PlayStation were purchased by Apple or Amazon, it might actually be a good thing at this point. With a global economy teetering, a post-covid populace screen-burned, and Xbox and Nintendo gearing up, it seems that PlayStation may be another company that Cerny made games for before they stopped making consoles.

Update: The Insomniac Leak

I do not support leaks, unless they include emails that shine a light on things that should already be in Investor Relations presentations. So I want to strictly focus on how these revelations relate to the current state of Sony Group Corp.

Let's start with the breach itself. A ransomeware breach is a pretty serious breach. This goes well beyond the DDOS attack that took PSN down. Internal data storage systems were accessible and unencrypted. When these things happen there is a lot of chatter in InfoSec offices. I have seen contractors lose their contracts over smaller breaches. I have seen very expensive Chief Information Security Officer positions made in response to smaller attacks. So where is the CISO at Sony Group Corp?

Unlike other corporations that make the CISO an actual executive level position, Sony Group Corp, in a move that confounds some InfoSec experts, put their CISO under their Chief Information Officer, John Kodera. A reminder that Sony Group Corp is being led by the former leader of Sony's Internet Service Provider brand, So-net, now Sony Networks. Kenichiro Yoshida led a company that built part of Japan's internet infrastructure and has somehow failed to keep Sony Group Corp's internal network secure. 

The breach has led to employee information being leaked, which will probably be bought by fraud groups to commit government assistance fraud, like false unemployment claims. It will become a massive headache for the employees, talented employees, that may consider taking positions with other studios that have better security track records. Talent retention in a skilled work force business is an important investor metric. Talent leaving is a portion of the Elon Musk Twitter failure recipe. The other part of that recipe is talent exiting through layoffs.

The leaks exposed a plan to layoff "low performers" under Ted Price's Insomniac staff. This can sometimes be a reasonable response if the cuts are precise and meant to reduce the number of people that bring down the performance of an entire team. We often see it in sports when team leadership talk about attitude or "locker room issues". These cuts, however, don't seem to be solving any issues as they also include a consolidation of teams working on other base PS5 projects. It does not include any inclusion of London Studios, which means no reduction of VR output. It is continuing the tradition of splitting developer talent, but adding a new wrinkle of reducing developer output.

This strategy is also in direct contradiction to suggested future guidance of smaller projects. Insomniac is reportedly at capacity with licensed projects until 2031. Consolidating Insomniac puts the responsibility of smaller projects on other studios. We know Naughty Dog isn't included because they cut their multiplayer TLOU add-on because it was too ambitious and resource intensive according to Naughty Dog. It can't be Bungie, because they are being threatened by Sony Worldwide Studios that they will lose thier independence if they can't make Destiny 2 successful, which means Sony Worldwide wants more Destiny. Guerilla and Santa Monica are tied to cross-media IP and unlikely to be producing less major titles in the God Of War and Horizon IPs. Asobi and London are now VR studios. That leaves Bend, Housemarque, Media Molecule, and Sucker Punch. With Bend, Housemarque, and Media Molecule having no announcements within the past two years, I expect that any change now means cancellations and major budget losses from those teams. Maybe it will happen, but logic is currently against it.

Nixies and the PC port initiative doesn't seem to be going well. The leaks included PC port sales and the numbers are sitting below 5 million a title. Not bad for a port, but for a 200 million dollar development cost, they are supplementary at best. PC isn't going to be a main business for PlayStation anytime soon. Especially with fumbles like TLOU Part 1.

At the end of the day, PlayStation's strategies seem to be a problem for PlayStation. As the GAAS plan is cancelled, Bungie fights to stay independent from studio leadership that is struggling to produce enough games, and PlayStation is worried that Activision Blizzard (a company that also uses layoffs and consolidates studios to "improve" output) being under Xbox is going to further hurt their ability to compete, there is no sign of leadership that can guide PlayStation into the future. Unless Nexon's departing CEO takes the helm at PlayStation in March, the ghosts of the past will keep pulling the once great PlayStation down.