When he wasn’t swashbuckling pirates in the court and in the press, Sony Computer Entertainment managing director, Michael Ephraim, spent most of 2003 preparing the channel for the converging home entertainment market.
The highlights and lowlights in the Sony camp this year included winning the Eddy Stevens mod-chipping case (which effectively banned modifying chips to play overseas games), and losing the battle over parallel importation.
The main drive for Ephraim during the year was to prepare the local channel for the launch of Sony’s online gaming service and its new product line due in 2004, but his efforts were, at times, sidelined by his sense of responsibility when it comes to piracy and intellectual property issues.
Over the last four years, he has become a vocal advocate for tougher anti-piracy measures.
“The best example of the problem here in Australia was when Richard Alston released a statement saying that piracy was declining,” he said. “We were telling the Government the opposite – that piracy wasn’t going away. Privacy cuts across so many things so fighting against it is something I needed to champion. The industry was more than willing to contribute [to the fight] but we need to work together with Government. We need the resources of the Federal Police, we need legislation and we need the courts to hand down more severe penalties.”
The distractions did not stop Sony from launching into the online gaming market, a move that has already began changing the shape of the channel.
The combination of gaming consoles with connectivity had created new opportunities and challenges, Ephraim said.
“Convergence has created a whole new level of intricacy," he said. "It is moving companies like us closer to IT. We already have a device to support that is connected to broadband.”
This convergence is likely to become more profound when SCE launches its PSX and PSP products next year. The PSX, which has some of the functionality of a PC built into a gaming console, is expected to revolutionise the industry. The PSX is Sony's first attempt at tying the world of consumer electronics and games together and combines a hard disk drive video recorder, DVD recorder, music player, photo viewer and PlayStation 2 games console in a single box.
In preparation for its arrival, SCE has begun discussions with IT distributors, who will have 12 months to consider the vendor’s plans (the new products are now not due to hit Australian shores until late 2004).
Sony’s first step into the convergent channel was to sign a distribution agreement for its Playstation 2 console with Tech Pacific. The vendor has also begun trialling the sale of Playstation 2 consoles, now able to be connected to broadband, through alternative channels such as Telstra Shops.
“Consoles are converging with home entertainment and IT,” Ephraim said. “There will be a need to educate consumers – not because the products are complex, but because there has never been so many of these applications offered by one product. We need to start developing a new retail channel. We will need to involve a lot of PC stores that have not been included in this kind of thing in the past.”
Ephraim said that those resellers with a consumer electronics or an IT background would have the kind of knowledge that would be an asset when talking to customers about convergent devices. Those with experience in home networking, for example, were likely to be successful than those who were not.
“Some retailers will excel, some will fall back,” he said. “Those that succeed will have built up a foundation of knowledge in the direction of where these devices are going.”
Ephraim said decisions on the PSX’s distribution are yet to be made. Sony will need to assess which channels it should use – drawing from both Sony Computer Entertainment’s channel and Sony Electronics (notebooks division) channel.
“The PSX clearly by its own design will require a different approach to channels,” he said. “Right now it is all very early days. We all realise that we are in business now to prepare for when the products come out. This way, we go in to this with our eyes wide open.”
Convergence will also have a profound effect on Sony itself. The company has already solidified its staff around the new opportunities – revamping its customer service operations, even bolstering its own internal IT department. Worldwide, the convergence phenomenon has created an upheaval for the company - 20,000 redundancies are already planned for the next four years.
“The PSX and PSP are truly category-definers,” Ephraim said. “When Sony comes out with products, we re-invent how people access entertainment.”
Ephraim is excited about the challenge ahead.
He said that gaming formed an important part of his youth - he used to play Pong, the first video game ever released for the home, prolifically.
“I was also a Pac Man freak,” he said.
“The consumer electronics and IT industry is really exciting at the moment but it is also a real challenge.
"We are in unchartered waters. No one knows where home entertainment is going to be in five years. We are not selling a me-too product, we are defining new product categories. This is the most exciting job anybody could hope for.”