Sony's Jack Tretton thinks the company has the right strategy this time around.
FORTUNE — The battle between a new generation of video game consoles is, in reality, still months away. Consumers won’t be choosing between Microsoft’s Xbox One and Sony’s Playstation 4 until later this fall, when both devices become available. But the contest between the two has already heated up online, as the details of both devices have come out. Microsoft’s media-friendly box will cost $499, while Sony’s game-oriented machine will cost $399. Fortune caught up with Jack Tretton, president and CEO of Sony Computer Entertainment America, to talk about how the company sees its position going into another round for dominance in the $78 billion games market. A lightly edited transcript follows:
Did Sony win E3 (the Electronic Entertainment Expo)?
I’ve referred to E3 as the Super Bowl for our industry, and people grade everything. I certainly read a lot of positive reports about us. As far as I’m concerned, we got our message across.
How did the launch strategy for the Playstation 4 come together?
We’ve really been planning [the Playstation 4 launch] since 2008. We spent a lot of time talking to consumers. We also spent a lot of time talking with the development community, asking what they wanted. The E3 press conference in the spring and the rollout was a culmination of that vision. The reaction is a testament that we got the strategy right. It’s a long, ongoing process. The work going into E3; the presentation was months in the making.
There’s some conjecture out there that you’re putting stuff up and pulling stuff down five minutes before the doors open. It just doesn’t work that way. You’ve got to execute against a strategy. If you start second-guessing and looking over your shoulder, you open yourself up to mistakes. If you did your homework the consumer is going to respond.
Speaking of mistakes, your chief competitor Microsoft MSFT had to backtrack on some policies consumers seemed to reject pretty loudly. How did you react to that?
I’ve followed [Microsoft] closely; and, I watched their reveal. I’ve read the stuff that’s been online and in the press. I haven’t watched their entire press conference. I’m so caught up in executing our strategy that I haven’t spent a lot of time looking at their strategy from anything other than a consumer perspective.
OK, but did you feel any validation of your strategy in the changes of direction Microsoft ultimately announced?
Yes. I firmly believe we had the right business model and the right vision for Playstation 4. The validation of that was from the analyst community, the press, and most importantly the consumers out there. You don’t know what your competition is going to do, but we felt we had the right plan.
How early in the planning process did Sony SNE settle on the $399 retail price?
You look at the feature set first. Then you look at manufacturing costs, and you’re trying to manage P&L. You’re trying to get to the most consumer-friendly price you can. The goal is to always get as low as you can without breaking the bank. At $399 we had a proposition consumers would respond favorably to. We honestly didn’t know whether that was going to be more aggressive or less aggressive than competitors.
Will you turn a profit at that price?
We’re not commenting on that.
You got credit from the gaming press for showing off a lot of smaller, independent games. Why do they matter?
Looking back, the fear was always that you’d have a few giant publishers making middle of the road games. But the opposite has happened.
Thanks to independent developers and smaller studios, you have the Steven Spielbergs of our industry coming out of one- and two-man teams, out of university development projects, where somebody just has a really creative mind and they come out with a game that maybe doesn’t have $100 million, 300-person team polish but is absolute genius. That bodes extremely well. You’ve got creativity flourishing. It’s great for the medium and validates that this is mainstream entertainment. It guarantees there’s going to be something for everyone.
What’s your long-term outlook on physical vs. digital media?
The mantra we’ve always had is “choice.” Never try to shove something down a consumer’s throat that they don’t have an appetite for. It goes back to when we first introduced online gaming. We allowed a gamer to get involved without paying a fee, we allowed a gamer to get involved with an analogue connection vs. a broadband connection. We’ve also offered consumers a choice, whether it’s movie format or game format. Do you want to buy digital goods or physical goods? The choice is yours.
You’ve been with Sony since 1995. How would you size up your position with this launch compared to the Playstation 3 launch?
We’re in a much better position. There are a couple of key factors: We came to market later than what proved to be a formidable competitor in the Xbox 360 — that won’t happen this time around. We came to market at $599 — that’s obviously not going to happen this time around. In spite of all that, we went on to sell 70 million units. There were a lot of lessons learned in things we did not want to repeat. I really relish the opportunity to come to market in a timely way at $399.
The current hardware generation was remarkable for lasting so long. Do you think the PS4 will last as long?
I believe it will. The irony is that the PS1 and PS2 didn’t go away for lack of consumer interest. They went away because of the ability to manufacture them profitably. As the technology got longer in the tooth, the cost of goods and the chipsets that were state of the art when you originally launched the Playstation become difficult to manufacture cost-effectively. So in both cases, there was still plenty of demand out there. If we could have manufactured it profitably, there’s no reason why it couldn’t still be out there on retail shelves.
Your boss, Sony CEO Kazuo Hirai, oversaw the Playstation unit during the PS2’s heyday. Seems like that would create a lot of pressure.
It’s a dream come true because when I first started at Playstation, you questioned the level of understanding and support for gaming in the corporation. To now have somebody who understands gaming and understands its importance to the corporation in the senior-most position is everything you could hope for. He understands the challenges; he understands the opportunities. He deserves a lot of credit for the focus of our division.