Earlier this year, SHU YOSHIDA became president of Sony’s worldwide game development studios. He is a natural to lead that job since he ran the U.S. game studios before taking the worldwide job and was among the original Sony staff who helped get the PlayStation off the ground in the early 1990s. Ever since, he has been involved in making games for Sony. We caught up with Yoshida at the recent E3 conference in Los Angeles. He praised his rivals and talked about how Sony is an underdog again.

VB: How do you describe the situation with Sony’s internal game development studios now? At one point, you were cutting back the studios.
We are not cutting back developers now. It’s common in the industry where we start more projects than we finish. It’s part of our process. When a project reaches a certain point, at the end of a prototyping phase, we show it to marketing and discuss it. We look at how much more money we have to spend and how the other games look. Sometimes, these projects compete with each other for resources. We have multiple platforms: the PlayStation Network, the PlayStation 2, the PlayStation 3 and the PlayStation Portable. So we have to make tough choices on the products we start.

VB: How many developers are there now?
I don’t know our exact number. (It was 2,500 a year ago, before cutbacks, more than double the number at Microsoft’s internal game studios; Update: Sony says its 2,500 now). If we don’t count the PlayStation Network products, I’d say it’s more developers. Each game takes more time and resources. We are working on PSP and PSN games too. We are doing more in pure numbers of titles too.

VB: Do you have to match the game development staff to where the market share is? Because market share has dropped, do you have to cut back on staff?
The industry is growing. So lower market share with PS 3 doesn’t mean we can’t spend more money. We are spending more money each year. It’s a chicken and egg. If we don’t invest in our own development, there will be fewer exclusives on our platforms. That would result in fewer reasons for consumers to choose us. So we spend. So far we have been able to recoup our investments.

VB: Is game development getting more expensive?
Very much so. That’s why we are having fun with PSN titles. The big disk-based titles are so much work. In the past, when we sold a million units of any game, that was great. But now a million is the breakeven point in disk games. It’s a very stressful business these days. It’s much more fun working on small titles on PSN on less than $1 million budgets. As any producer would do, we look at concepts and decide whether titles are in too small a niche for the Blu-ray disk games (which are far deeper than the casual fare on the PlayStation Network.)
But for PSN, we can proceed.

VB: It’s interesting to see game development strategies. Electronic Arts has shifted to original games instead of licenses. Microsoft isn’t greenlighting as many big new titles, especially on Games for Windows. What is your strategy?
From a pure profitability view, one of our big missions is to push our platforms. We cannot just try to get return on investment. We have to help grow the market for our platforms. When the PSN was launching, we went strong on the smaller titles to get the network going. We had to go for it. Once the market is established, third party developers will come in. Then our role changes. Sometimes we decide which games to develop from that standpoint.

We see trends toward casual and social gaming. Like SingStar, Guitar Hero, and the Nintendo Wii. All of those are bringing in more consumers to games. That’s great. Including the Nintendo DS handheld. The gamers might stay there because such games are fun. But they also might leave and stash the console in the closet until next Christmas. The whole industry has an opportunity to cater to the new audience that hasn’t played before.

VB: The thinking used to be that the mass market will arrive late in the cycle for a console. So you would start mass-market games later. It’s hard to tell where the cycle is now.
Indeed. Especially on the portables. The PlayStation Portable is selling well. But the number of games sold for each one isn’t as high as we would like it to be. People are using it for many purposes. It’s surprising that people are using it as a multimedia device. It’s hard to put it into a conventional life cycle. The PSP has a lot younger audience than we expected. It’s very confusing.

VB: Do you need to invest more in mass-market games now? Should you start greenlighting PS 4 games?
I think it’s too early for PS 4 games. But even at the beginning of the PS 1, we were already talking about how we didn’t know what would take off. The [HUH? founding members] noted that every household had multiple TVs. But why did only 40 percent of households have game consoles? It’s always been in our company DNA to cater to the biggest mass audience. Our choices for game production reflected that. We still make games for core gamers. We are hardcore gamers and we make games for ourselves. PS 3 is at that point in my mind where we are now shifting focus to broader audiences. That is why we are excited about LittleBigPlanet and games like SingStar and Buzz Quiz TV for the PS 3.

VB: How do you view Nintendo’s success? Do you want their gamers?
Yes. It’s a great success story. They’re focused on easy to pick up games. With great game play. At one point, Nintendo decided in the last generation that they wanted mature audiences on the GameCube. That made it crowded. With the Wii, they then made the decision to focus on what they do best. That really helped separate the focus of the three platforms in this generation. That is helping the growth of this industry. I think Nintendo did well for themselves and they are bringing in new gamers to the industry for all of us.

VB: You canceled one game, the latest in “The Getaway” series. What did that mean?
Yes, we did. What was unique is that the game was announced early, when we were starting to evangelize the PS 3. We looked at our teams. We had a nice technical demo. It was making nice progress. But it was clear the scope of the vision required lots of investment. We looked at the other titles in development which were competing for resources. We had to make the choice not to continue. Normally, we wouldn’t have announced a title so early. We have canceled other titles but people didn’t notice.

VB: How is Killzone 2 coming and why didn’t Sony show it at E3?
Killzone 2 is coming next February. It has gotten good exposure so far. The choice for this E3 was to show more of the games coming out this Christmas. That was the reason.

VB: There were vague mentions of “God of War III” at the press conference.
It was just to show that we were hard at work on that.

VB: How far along is Massive Action Game that you showed at E3?
[HUH? CUT? It was quite a long time.] We didn’t announce a date. It is quite a challenging project. We have to make sure we go through testing before we set a date.

VB: There are 256 players on that game. Most people would say that is impossible. It will require a lot of technical innovation.
Yes. That is the biggest hurdle. But I think we have passed that part. We feel comfortable about our technology side. That is why we announced it. We are focused more on game play and testing how it works.

VB: The quality of the cinematic was very good. Is that what we should expect?
Thank you. Yes, that is what the final game should look like.

VB: It is above the quality of the current “Socom: U.S. Navy Seal” shooting games?
Socom has been criticized because it always put game play above the graphics. That’s one thing we realized we needed to change because the expectation from the consumer is quite high for this generation.

VB: Is there any one thing that allowed this leap from 16 players to 32 to 256 players.
There has been lots of work done on the server-side technologies.

VB: It looks like Sony still believes very strongly in massively multiplayer online games (MMOs). Microsoft keeps canceling theirs.
Yes, we have Sony Online Entertainment which does our MMOs. It’s not an easy genre. It takes lots of money. You have to be extremely patient and have trust in the teams. Because of Sony Online Entertainment, our side has not been making MMOs. MAG is our first of sorts. And Sony Online Entertainment is moving to consoles as well.

VB: Do you have largely separate management?
Yes. Now the group structure has changed so we are talking a lot. They are developing the back end of the PlayStation Network. That helped the two companies communicate much better.

VB: What is the minimum a game has to sell these days?
Disk-based games? I would say a million. If you spend $20 million to $30 million, with marketing investment, margins of $35 or $40 on a $60 game, then the recoup point is really high. It depends on the platform. For PSN games, it is $2 million tops. That is a more relaxing experience.

VB: What is the status of the Sony virtual world, Home, on the PlayStation Network?
We are seriously hoping we can open up Home to PS 3 users this fall. We are taking one step at a time to get more people into the closed beta. The focus for the initial release is to create the community for game users. We are really focusing on how fans of the same game can have a place to go talk about their favorites. And maybe play games online together or learn more about the back story of the games. Home has a lot of potential. We tried to go too many places at once. We are now focusing on the game users and PlayStation fans.

VB: Do you see console MMOs succeeding soon?
It’s a different mindset for consumers. Some like the PC. Some like consoles. The game design has to be tailored. You can’t just port a PC online game and expect it will work well. From a consumer’s view, there will be a lot of novice MMO gamers on the console. There will be a lot of learning.

VB: What’s the expectation for the mix of first party and third party?
We have been very modest as a first party group throughout the history of PlayStation. But first-party presence is important to show what the platform can do. We complement the third parties. In time, we would target 20 percent first-party as a good number. It’s easy to increase the first-party market share if the platform is failing. Third parties would just stop making games. Higher market share for first party wouldn’t mean it’s doing good. We need a balance.

VB: How do you run things different from your predecessor Phil Harrison?
Phil was a great visionary and he showed where we should be going. That helped us to focus. We are continuing on the path he showed. Product by product, Phil’s is more high concept and artistic view-oriented. I have been more game mechanic and nuts-and-bolts focused. That’s why it was great working with him. I’m moving to Japan this September to join the studio headquarters management. One of my missions is to get the software view into the Tokyo office. It’s not like they don’t understand software. But it helps to have software represented. What we need from first party’s view is almost the same as what third parties need. That’s very important to the company moving forward. Kaz Hirai has been supporting that view. From (PlayStation founder) Ken Kutaragi’s days, he was the genius.

VB: He had a hardware focus.
Yes. Kaz is changing the way the company works. I’m moving to Japan to take advantage of that. A lot of my time will be spent working with the hardware or operating system people to shape where we should go as a company.

VB: How did you get into gaming?
I joined Sony in 1986. At that time, I believed Sony would go into games. It’s amazing to say I believed that.

I joined Sony and decided I’ll join the project for the PlayStation. I was the first non-technical guy to join Ken Kutaragi. My first task was to make the case to top management why Sony should go into games. At that time, many Sony people believed we shouldn’t go into games. They thought it was a toy and that might not work for the Sony brand.

VB: Did you run certain parts of it early on?
I managed the third-party relations group. I was a lead manager among the account managers. I worked with Namco, Konami, Square, Enix.

VB: You had to convince them to join the PlayStation effort?
We didn’t have a first-party operation. Our success had to come from the third parties. It was really fun. Namco was a believer because on Super Nintendo they had no outlet for their 3D arcade technology. We really targeted them as a launch partner. The biggest challenge was to get Square and Enix to make games for PS. We had to prove ourselves and it took a couple of years. They made the decision to make games like FFVII. So then I got to move to product development.

VB: Do you feel like you are an underdog again?
Yes. We were not taken seriously by the industry at first. Because I was there at the time, the difficulty with PS 3 reminds me of our roots. We should work with our partners and find out what consumers and developers want.

VB: So what is the lesson for today?
We really focused on learning what our partners needed, from both a business and a creative standpoint. That drove decisions in our early days. We had our own core technologies and business plans. But we constantly modified them. We lost that focus for the last couple of years before the launch of PS 3. That really hurt us. Our focus for the last year was to try to regain the confidence of our development partners. They are the core of what we do. They provide great content. They are thankfully acknowledging our efforts and helping us make choices and priorities.

VB: Today, many of the most interesting things in games have to do with social networks. Social gaming summits are drawing a lot of people. Non-game companies are jumping into social games. Should Sony invest in those?
From the platform view, I upgraded my iPhone to the new OS. I downloaded a bunch of applications. Some of the non-game applications are fun. These things are as much entertainment as games are. When we started our company, we called it Sony Computer Entertainment. We didn’t call it a game company. The vision was to use computing to make something entertaining. In that sense, we always try to redefine what a game is. So we are very excited about social networking. It’s engaging and fun for us as well. That’s why in this generation, we have to engage better with consumers on user-generated content, sharing and critiquing. We can use these to make our games more fun.

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