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PlayStation Sees Changes

San Diego — Ken Kutaragi, the acclaimed “Father of the PlayStation,” announced that he will be leaving Sony Computer Entertainment (SCEI).

The representative director, chairman and group CEO of SCEI will be stepping down from his executive position, effective June 19, which coincides with SCEI’s annual shareholder’s meeting.

Kutaragi, who will continue to serve as “honorary chairman” and support Sony CEO Sir Howard Stringer in the capacity of senior technology advisor, was responsible for launching the PlayStation business back in 1994.

Following last November’s shuffle at SCE, Kaz Hirai was promoted to president and group COO of SCEI, while Kutaragi was promoted to chairman. Hirai will now step into the position of president and group CEO.

Kutaragi isn’t the only body that will be leaving Sony’s game division. Just weeks after the release of Sony’s PlayStation3 in Europe came news that Sony Computer Entertainment Europe (SCEE) may cut up to 10 percent of its workforce, which is estimated to be around 2,000 employees in total.

The company defends these layoffs as part of the company’s efforts to stay competitive in the video game arena.

“In recent years Sony Computer Entertainment Europe has faced a number of significant changes, challenges and developments, both internally and throughout the gaming industry,” said SCEE spokesperson Satoshi Fukuoka of corporate communications at Sony Computer Entertainment. “This year, SCEE needs to redefine the company position with the skill sets and structure to take a leadership role in exploiting a future of increasingly networked and converged entertainment.

“In order to be able to do this SCEE needs to significantly reduce the cost base of the company. SCEE has therefore taken the decision to make some of the major structural changes necessary within the company now. The company is being both strengthened and streamlined.”

While the timing of the news is a surprise considering that this was one of the most successful launches of a video game console ever in the U.K. market, it is not entirely unexpected.

“Sony’s structure was fine when it was clearly dominating the market,” said Dean Takahashi of the San Jose Mercury News, and author of “The Xbox 360 Uncloaked: The Real Story Behind Microsoft’s Next-Generation Video Game Console.”

Sony’s domination of the video market is not as secure has it had been during the era of the PlayStation2, and the company has lost market share to not only Microsoft, but also to long time rival Nintendo.

Takahashi adds that it is also unlikely that Sony will gain the same level of market share that they have had with either the PlayStation or the PlayStation2. “This restructure says that they might be getting ready for the market to be much more competitive,” Takahashi said. “Sony has always had more employees, in game development, but if they don’t have 70 percent market share they really have too many people.”

The latest round in the seemingly never-ending video game wars also has its latest casualty, namely the 20GB version of Sony’s PlayStation3 console system. Released last fall in North America for a suggested retail of $499, this system lacked some of the more advanced functionality of the step-up model with an internal 60GB hard disk drive, notably the built-in Wi-Fi adapter, memory card slots and HDMI output (HDMI was later added to the entry model after negative reviews).

This was not the first time that a company attempted to roll out two models of a video game console, as Microsoft took the same approach with their Xbox 360. “The tiered pricing was on the urging of big box retailers due to the high price of the system,” said Billy Pidgeon, program manager of consumer markets gaming at research firm IDC.

He said that in practice, however, consumers have tended to go for the higher configuration, and if only the lower model is available, it typically stays on the shelf.

“Sony and Microsoft both noticed and cut production of the lower system,” Pidgeon said.

With the pricing difference of only $100, many consumers opted to wait when they couldn’t find the “deluxe” version, or, worse for Sony, they tended to look elsewhere for even more affordable systems.

“A $500 box does Sony no good, but a $300 box would do them a world of good,” said Takahashi. He said the decision to retire the 20GB model has mostly to do with costs.

“Sony wanted to provide an option for consumers who didn’t want to spend as much money, but it became an unnecessary cost in the supply chain for Sony. The cost conscience consumer is going to the Nintendo Wii or Microsoft’s Xbox 360.”

The move toward the larger hard disk drive may also show the Sony has confidence in the PS3 evolving beyond just a gaming system. The unit already features a Blu-ray optical disc drive, and has been one of the factors cited in a sudden surge in Blu-ray software sales. The larger HDD will be crucial if Sony moves forward with plans for downloadable media including games and other entertainment, including long form video.

A price cut may also be in the works, and could be one of the points discussed at this year’s Electronic Entertainment Expo trade show in July.

“I can foresee a face saving price cut,” said Pidgeon, suggesting that the 60GB version could be lowered to the $499 price point, while a model with an even larger drive is introduced in the $599 price point. “This would let Sony make a price cut without making a retreat.”