GAMING THE SYSTEM
Big mistake by Nintendo executives led to creation of Sony Playstation
The Sony Playstation was released in Japan 25 years ago. By all rights, it should never have been released at all. The story of how one of the most successful video game consoles of all time came to be is a matter of industry legend — because it is a story of corporate hubris so extraordinary that it almost defies belief.
It’s impossible to calculate the influence the Playstation has had on video gaming, or indeed on popular culture at large. And yet it owes its existence to a mere misunderstanding — a ludicrous fluke of arrogance and greed.
On June 1, 1991, Hiroshi Yamauchi, president of Nintendo, was set to make a presentation at the Consumer Electronics Show, a trade expo held annually in Las Vegas, to announce the details of an arrangement to produce a new console with Sony Corporation of America, which had revealed the partnership a few days before. Instead, Yamauchi announced that Nintendo had struck a deal with Philips, the Dutch electronics manufacturer — and Sony’s biggest rival at the time.
“Under the deal, Philips technology will be used to produce an add-on device for Nintendo game players, allowing them to use optical compact discs,” The New York Times reported at the time.
Sony, meanwhile, had “announced an arrangement with Nintendo under which Sony will introduce a machine called the Game Player.” It wasn’t immediately clear what was happening. Even executives from Sony, questioned by the Times, seemed bewildered.
Nintendo had pursued Sony, aggressively, to work together to develop a new console that could use compact discs instead of the cartridges familiar to its Super Nintendo Entertainment System; Sony had consented to the deal, if somewhat reluctantly, and had been working on the hardware under the terms of a contract agreed to by both parties. Sony’s executives turned up to the Consumer Electronics Show expecting to listen to Nintendo’s promised presentation of the partnership. When Sony’s then-president Olaf Olafsson heard Yamauchi announce on stage that Nintendo would be working with Philips, it was the first he had heard of it.
“We view this as a very serious matter,” was all he could tell stunned journalists after the announcement. He said it was “not clear” whether Nintendo had breached its contract.
Some time before the Consumer Electronics Show, Nintendo had suddenly and inexplicably stopped communicating with Sony about the console the two companies were meant to be collaborating on. In an obituary for Wired magazine published shortly after Yamauchi’s death, a longtime friend and colleague of the Nintendo president remembered hearing that Sony’s engineers were left “in limbo without Nintendo’s co-operation” on the design and manufacturer of the machine. Asked to step in and investigate, he found the issue was a dispute over terms: “According to the contract, Sony could make and sell CD -ROM games without buying them from Nintendo. Nintendo wanted a monopoly on manufacturing games for its hardware.”
Rather than bring this disagreement to Sony directly — rather than attempt to work out a new arrangement that was more favourable on the terms Nintendo demanded — Nintendo elected to abandon the deal and strike a better one with a competing manufacturer, leaving Sony in the lurch. Nintendo felt it was better served focusing its efforts on a CD-ROM peripheral that could be manufactured by Philips without compromising its monopoly on first-party software. Nintendo was already trouncing its only major competitor, the Sega Genesis. No one seemed capable of threatening its dominion — and so, making decisions cavalierly, executives at Nintendo felt they had nothing to fear.
Of course, their betrayal created a new adversary, as if their business plan was ripped from one of their games. After its humiliation at the Consumer Electronics Show, Sony was left with an all-but-finished video game console and a harsh lesson in the realities of the business. Execs had invested millions already, so rather than squander it, they decided to put it to good use — by releasing an original console of their own. They actively sought some of the most visionary game developers in the United States and Japan, including Electronic Arts, Konami and Namco, and endeavoured to keep manufacturing costs low, to ensure an economic price point when the console came to market.
When the Sony Playstation was finally released, 25 years ago, it was an instant sensation, far outselling its only competitor, Sega’s wildly overpriced Saturn. And because Sony had already spent so much time developing the Playstation on behalf of Nintendo before the latter company backed out of the deal, they had a huge head-start on any other competition.
Nintendo’s own next-generation console, the Nintendo 64, wouldn’t be released for another 18 months, giving Sony a year and a half to impress consumers and win invaluable market share. Sony sold more than 100 million Playstations worldwide over its lifetime. Nintendo — in one of the most devastating demonstrations of an error in judgment — sold a little more than 30 million.
It’s hard to imagine what the course of video game history might have looked like had Nintendo honoured its deal with Sony. But we owe the last quarter-century of Sony’s supremacy to its mistake.
Their betrayal created a new adversary, as if their business plan was ripped from one of their games.