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20 years later, here’s why the PlayStation will save Sony

September 9, 2015, 9:00 PM UTC
Sony Corp. PlayStation 4 As Game Console Goes On Sale In U.S.
A logo sits on the front of a Sony PlayStation 4 (PS4) games console, manufactured by Sony Corp., in this arranged photograph taken in London, U.K., on Friday, Nov. 15, 2013.
Photograph by Bloomberg via Getty Images

Twenty years ago, the Sept. 9, 1995 U.S. release of Sony’s PlayStation ushered in momentous changes to the video game industry—and set the company on a path to becoming a superpower in the entertainment field.

The system had made its global debut in Japan in December 1994and was an instant hit there, selling 2 million units in the first six months. But by launching sales in the larger U.S. market, the PlayStation became a global phenomenon, ultimately knocking Nintendo off of its perch as the industry leader and ushering in a new distribution method for video games that continues to evolve today.

“Sony brought a super friendly and encouraging approach to developers and third party publishers in a way that Nintendo did not,” says John Taylor, managing director of Arcadia Investment Corp. “Back in the old days, when Nintendo and Sega dominated the market, there were these things called slots. Publishers were restricted to releasing a set number of titles. … Sony brought open arms and a lot of flexibility to the model.”

That openness won the PlayStation a lot of support from third-party publishers, like Electronic Arts (EA). But the success of the console ultimately can be traced to two important firsts. It ushered in the era of 3D graphicsand it was the first game machine to focus on the CD as a storage medium, rather than clunky cartridges.

Using CDs greatly reduced manufacturing costswith publishers paying between $1.50 and $2 per disc at the time instead of $8-$12 for chip-based cartridges. It also gave retailers more flexibility on close-out pricing, letting them offer deeper discounts on older games.

Ironically, Sony (SNE) never really wanted to go into the video game businessat least not the way it ultimately did. In 1988, Sony had hoped to partner with market leader Nintendo (NTDOY) on a CD-ROM player for the SNES. Three years later, Sony debuted the machine at CES.

But the day after that reveal, Nintendo dropped a bombshell, declaring it would not work with Sony and would instead partner with Phillips. Furious at the slight, Sony then-president Norio Ohga assigned Ken Kutaragi to develop a system that would compete with Nintendo.

As tempers cooled internally, Sony began to second guess the directive as officials grew skeptical about the profitability of the video game industry, but Kutaragi successfully lobbied to keep the project alive.

“The mid-’90s were an exciting time for game developers, driven by the explosion of powerful but affordable 3D graphics rendering hardware and the birth of many young and adventurous development studios,” said Shuhei Yoshida, president of Sony Computer Entertainment Worldwide Studios in a blog post last year. “The original PlayStation was meant to embody that sense of adventure and discovery, that sense that anything was possible.”

Today, the PlayStation is a lynchpin in Sony’s future plans. The most recent iteration of the systemthe PS4has sold more than 25 million units life to date.

Sony CEO Kaz Hirai (who ran the PlayStation division during the glory days of the PlayStation 2) has made it clear that he sees the console as one of the tentpole divisions that will lead the company back to prosperity. Since the early 2000s, the company has been losing ground in many fields. Rivals like Samsung took away market share from the company’s electronics business. Apple and others dominated the portable music space. And the company’s ADR stock fell below $10 in 2012.

Hirai’s turnaround efforts are starting to bear fruit. One of the keys to that is his use of the PlayStation 4 as a way to break down the company’s silo mentality—integrating marketing efforts for other units, like film and music, into it to create a more cohesive entity.

“Sony made hay on the Walkman decades ago,” says Taylor. “And it made hay on TV sets a decade or two ago. But the one dependable, bankable division providing both industry leadership and profitability has been the PlayStation division.”

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