Inside PlayStation's Plans to Lead a $200 Billion Industry

0:00What was the first video game that really hooked you? I believe it was an Odyssey 500. The electronic game of the future. Odyssey easily attaches to any brand TV. This was a flat panel with three dials on each side. And if I recall correctly, it had three or four games, something very primitive. But what shocked me was that I was controlling something on the TV. And TV was something you just sat there and you watched. It was very passive. Now games are more advanced than ever. I mean, they're giant productions. we're trying to show people that gaming is really the best form of entertainment for many.

0:40This week on Bold Names, we have Eric Lempel. He is Senior Vice President of Business and Product at Sony Interactive Entertainment. Now, Sony owns PlayStation, which means Eric spends a lot of time thinking about video games, that booming industry. And because video games and entertainment are increasingly synonymous, even if you're not a gamer, so much of what we all consume every day is affected by video games. From the Wall Street Journal, I'm Christopher Moons. And I'm Tim Higgins. This is Bold Names, where you'll hear from the leaders of the Bold Name Companies featured in the Wall Street Journal.

1:19Today we ask, what does the future of gaming look like?

1:29Eric Lempel, welcome to Bold Names. Can you characterize for me the scale of the global gaming industry? Well, certainly. And first off, thanks for having me. I'm really, really happy to be here talking with both of you. The gaming industry is bigger than ever. If you look specifically at PlayStation, we're currently the market leader. We're the biggest part of Sony, actually. So the PlayStation business, the games and network services. So you're bigger than movies and music in Sony. Exactly. And gaming as a whole is bigger than movies and music. Exactly. Entirely. Exactly. The revenue coming in from gaming is bigger than any other form of entertainment right now.

2:04And I think most people wouldn't believe it. They wouldn't realize it. But gaming is massive mainstream entertainment, and there are more people gaming than ever before. I mean, it's crazy. More than$200 billion last year, according to Bain & Co. And I'm curious what's driving that. Why are people rushing to this medium? Because I think for some, to Mims' point, they don't realize that this has become such a huge way to entertain yourself. Well, I think a lot of people have discovered gaming in various forms over the years. You know, if you go back many years and some of my early days of gaming, you had to really want to play games to play games.

2:41You had to go out and actively buy some type of gaming system, bring it home, buy games for that system. Or you had to sneak out to the arcade like I did as a kid. Exactly. We're going out to the arcade with a lot of quarters at the time, which I did as well. And, you know, so that was kind of you're actively going out to seek gaming as a form of entertainment. But what happened over the years was that gaming became more accessible. Everybody's carrying a smartphone in their pocket. They can download games. Many are free to play. They can try different types of games. And I think a lot of people realized, you know, I like this.

3:13And I also think just games have gotten a lot better. If we think back to the early days of gaming, there were great games, but they weren't anywhere near as sophisticated or as realistic as the games we have today. And so there are big names attached to games now. There are big personalities attached to games. So there's a lot of different things that will draw people into gaming. Yeah, one of the hot ones is Grand Theft Auto V, which just has made a ton of money. More money than the highest grossing film of all time, Avatar, right? I mean, these are huge, huge productions. And Grand Theft Auto VI is supposed to be out.

3:48Now it's being delayed. I know a lot of people are super excited about that for next year now. When we look at PlayStation, you're really the big dog for the consoles, the video game machines, right? You have about almost 50 % of the console market, according to researchers out there. PlayStation launched more than 30 years ago. What's keeping PlayStation so relevant, especially in an era where it's so easy to get onto the internet, so easy to play games with your iPhone or your Pixel or whatever you want out in the world? Well, I think it goes back to the origin of PlayStation. So when we entered the market in 1994, in Japan, 1995, and the rest of the world, we We were the underdog and we were coming into a space that already had big players in it.

4:32Nintendo. Exactly. Nintendo, Sega. Remember, Sega was a big console maker. And then here comes Sony with a brand new project and something different. And others have tried. There were other Japanese electronic companies that tried to enter the space. So Sony comes in as the underdog and looks to do things really different and really just changing the way they interact with the publishers who are working with the other console manufacturers, but also changing the game for the consumer. And that's something that we've kept with us our entire history. We still have a very big challenger spirit. So we see our place in the industry now as the company that has to lead the industry forward through technology and creativity.

5:17So much growth in the industry. It makes me wonder how the business model of gaming has changed over the years, right? It's a long way from going to the arcade and putting your quarter in. Now you can buy the game, but there's also free-to-play where the companies make their money inside the game, whether with loot boxes, what we call microtransactions, maybe such as in Fortnite, you get a special outfit or something like that. Maybe it makes you look cooler. How do you think about the ways to figure out how to make more money or how to generate new kinds of money inside the gaming environment and also making sure you keep your cut of it?

5:53So for us, you know, we lead with a great experience. We lead with creativity. And then fortunately, the business model follows. And I think there are many ways to monetize. You know, right now we sell individual games. We've got free to play games with add-ons. And, you know, the add-ons aren't required. Someone can have an incredible time in Fortnite without buying some of the cosmetic items. But fortunately, a lot of people do. And they enjoy buying that stuff. But then, you know, beyond that, we have add-ons to games. We can build upon a game that's already released and add to it and add new chapters, add new levels, add new characters.

6:29So there's a number of ways to do that. But on the whole, the value the consumer gets from the games themselves is bigger than ever. I mean, people can play these games longer than they ever have before, just given the sheer size of them. And then something else we do very well is a membership service. We've got something called PlayStation Plus. Plus, it's been around for 15 years, and it's a way for consumers to get more out of their gaming experience. They can access a library of games and other features to enhance the experience. And we found that consumers have really adopted this product and they really enjoy the experience they get from it.

7:08After the break, the future of gaming is wrapped up in the future of technology. How is AI going to change the ways we make and play games? I'm pretty confident we're going to need people involved in making these things because, you know, that's where the stories are. That's where the emotion is. Stay with us.

7:40Now, a lot of technologies, I mean, they tend to follow the same pattern, right? There's this kind of explosive radiation of innovation, new forms. People perfect those forms. Arguably, gaming consoles and online gaming haven't changed that much recently. PlayStation 5, it's been around a few years. It's kind of the perfection of the form, arguably. But we are at a moment where there's going to be big change. And some of that is driven by AI, by generative AI. It's changing, notably, how games are made. but it also seems like it has huge potential to change what games look like. I'm really curious how you're thinking about generative AI, how it might transform the gaming experience that Sony delivers in the future.

8:29So one thing we've been really good at is looking at all the technology out there at any given moment and seeing what future technologies are available to create a great experience. And, you know, if you think about the consoles over the years, they've evolved significantly. You know, we went from standard definition to high definition to now 4K. We've changed our interface and we have this dual shock controller, which would vibrate at certain points of the game to kind of make you feel like you're closer to the game. And then with PS5, we introduced something called the DualSense, which really has haptic feedback.

9:04So as we look forward, it doesn't change. We're going to look at the latest technology, including AI, to see how we can use that to enhance our developers' ability to make great games. It's really about how can we get there faster? How can we do something even bigger with gaming based on the latest technology? I'm looking forward to smell mode or something like that. I've seen it proposed many years ago, but I have seen it proposed. I'm just throwing this out there. Can you imagine being in Fortnite? night, how much money that they could make in fart mode for the kids, right? I mean, that just seems like you can keep that idea for free.

9:42Give it to Tim Sweeney over at Epic Games. There's a patent there somewhere, Tim, and I think you just gave it away. But yeah. But seriously, but in the applications in AI, what's exciting you right now when you look at AI? I mean, we're outside of the industry. Are you seeing anything in AI that you're saying, oh, this is going to be just the next thing. I haven't seen anything that's game changing yet, but I'm sure it will come. And I'm sure there will be great use of this again to enhance the creativity, to enhance the efficiency, to really just see how we can make things even better. Maybe you haven't seen something game changing yet, but I mean, I'm seeing interesting experiments all the time.

10:22People saying, oh, I'm going to use AI to like interpolate between these keyframes and this is going to speed up generating these sprites. are these three-dimensional objects. I mean, surely there's something going on there where you're finding that it can maybe at least marginally enhance the productivity of your developers, your designers? Definitely, definitely. It's absolutely enhancing their productivity. I was more thinking of the consumer. You know, what is the consumer going to see that's different? You know, this might help them get there faster, get there more efficiently, but I'm thinking there's going to be technology that's going to make the games even better in time, and our developers can lean in on that technology and use it in ways that we probably don't fully understand yet.

11:03One of the promises that AI holds out there, at least in Silicon Valley, among a lot of the startups or even the established players, is they see it as a potential to disrupt the platforms, the gatekeepers to these worlds. And in a lot of ways, PlayStation is a platform. It is a gatekeeper into a video game world. There's hope among some that I think Mark Zuckerberg over at Meta Platforms, He's hoping that his AI smart glasses, for example, will be a new gateway into the digital world that will displace this product, the iPhone, right? And the iPhone has become a huge video game machine for a lot of people too.

11:39I'm curious, when you think about how PlayStation, the hardware, evolves for this future of AI, are you concerned about its place in the living room as the gateway to the video game world? Is there a disruption that could come? It's quite possible disruption will come, but what's great about the way we think about things is that we're not locked to any specific direction. We are always going to see what's out there, continue to see where the consumer is going or wants to go where we think they should go, and develop around that. So we love all of the competition and the creativity coming out because it just inspires us to think about things differently and push harder.

12:21And I think that's good for everybody. One of the other things that I think about when I just look at the industry is you got these great games. People are excited about them. But they're – it's more than just games, right? I mean it's this fundamental issue of who we are as a species. Even – I think even non-humans play games. My puppy is always playing games. I wonder if AI – if there's a threat that AI-developed games almost feel soulless, right? When you look at such hits like Grand Theft Auto, would there be a Grand Theft Auto without humans involved? Could a computer, could a robot do that?

12:58I think we're going to need people to tell these great stories. And if you look at a lot of the games that have been successful on PlayStation, it really is about human stories. And in some cases it may be aliens, but still some form of being that is going through something in their world that's a challenge. So I'm pretty confident we're going to need people involved in making these things because, you know, that's where the stories are. That's where the emotion is. And that's what gaming is doing now more than ever. It's really reaching people on a deeper emotional level. When we come back, why is Hollywood turning to games for inspiration?

13:39Is this a new trend or the new normal? I can't tell you the number of people that have come up to me and talked about it and family, friends, whoever. They didn't know that was a game. And then when I tell them it was a game, they say, well, how was that a game? That's next.

14:08so as gaming reaches us on a deeper emotional level as it becomes a better medium for storytelling we have seen a lot more crossover between games and hollywood than ever before i mean this is a thing that like you know it supposedly was gonna happen 20 years ago didn't really take but now you have the minecraft movie is a monster hit the last of us got any advice on the best way west yeah go east where do you think this is going are we just gonna see more and more crossover is it gonna be more bi-directional i i think it's uh i think it's it's quite possible I think what's happened over the past few years, as you really summed up well, is that people are taking the IP very seriously when they transition it from a game to another form of media.

15:00And that was very important to us. And, you know, you mentioned The Last of Us. So we take that for a moment. I've got to tell you, I can't tell you the number of people that have come up to me and have talked about it and family, friends or whoever, they didn't know that was a game. and and then when i tell them it was a game they say well well how was that a game and if you if you know the game and you if you play the game if you look at the first season the first season is the first game and they can't believe it and these are people who haven't really engaged with gaming in a while but they don't realize you know gaming has evolved and we're telling these deep stories and and i think that's what's great so what's important here is that you know it's been tried many times over the years, as you said.

15:41But for us, when we're going to take this IP and bring it outside of gaming to another place, we recognize that we need to work with teams and people who are talented in that medium. And so we want to make sure we're working with the best to transition from gaming to the other medium. So I think we'll see a lot more of this given the success as of late with us and a lot of the other IP holders. You know, we've been talking about expansion of your industry, how big it is. You know, but there's some consolidation and contraction, significant. Tim, I think you have the numbers on this. Yeah, I mean, look at Microsoft acquired Activision Blizzard for$75 billion a few years ago.

16:24And then this year, earlier this year, Electronics Arts near$50 billion to go private with some help. Saudi Arabia and Saudi Arabia's public investment fund, among others. What's going on there? what's driving this? I think there's more interest in the category than ever before. You know, when we talk about annual revenue of$200 billion, a lot of people are interested and there's a lot of great talent that many cases benefits from the backing of outside parties, you know, to continue to do what they do and deliver a bigger experience. So I think this is a trend that we've seen over the past few years.

16:59Um, it, it will probably continue. Um, You know, there actually aren't that many big publishers left to acquire when you look across the board, maybe a few at this point. But I think there's just more interest in the category than ever before. I got to say, though, there has been layoffs at major studios, storied studios. There have been big projects canceled. What is going on there? Is that because of this consolidation or are there too many games? Are they too hard to develop? I think it's similar to any other business. It depends on how businesses are run, and lots of people have different plans.

17:34There are plans to expand. Sometimes you might expand too quickly. But I don't think it's anything specific to our industry. I think it's just more noticeable just because there's so much interest in the category. I mean, the economics can be challenging at times as well, right? Those big blockbuster games can be very expensive to make, take a lot of people to do. as we think about what's next though I wonder about virtual reality augmented reality and where you see that I think if we were going to go back in time there was a lot of hope that VR was going to be the dominant thing like the the movie Lawnmower Man was supposed to be real by now we were all going to be in VR headsets didn't happen but something's coming what are you excited about well you know looking looking back we've had two VR products PlayStation VR and then PlayStation VR 2 that consumers loved.

18:29And, you know, they worked really, really well. They provided a different experience. But for us, we never thought that was the direction going forward. So, you know, going forward, I'm really excited about how technology is going to further creativity. I think we've seen over the past few years gaming getting more and more interesting and developers really leaning on the technology to tell the stories that in some cases they've always wanted to tell but didn't have the ability to tell due to technical limitations i i think that's all changed well can you be a little more specifically what new technologies are you excited about well we just announced a partnership with amd where we have our system architect mark he designed the the architecture for playstation 5 playstation 4 we're working with amd now and you know who also is very well versed in the space um to really see where we can push the industry going forward.

19:24And with Mark involved, this will most certainly be something that will power any type of PlayStation experience going forward, but it will also be open to other AMD customers. So we're really excited about what's going to come out of that. I couldn't say more at this time, but we've announced that recently and it's down a path. But it's a custom or customized chip. Yes. Right. Like Apple has done to great effect. Yes. Yes. I mean, it's interesting. We talked about AI. We talked a little bit about VR. There is a point of view or a thought among some in the industry and some in tech that we are coming towards this kind of convergence where AI-generated videos are going to be involved with the kind of 3D gaming.

20:09The gaming engines are going to kind of be involved in the AI. Extended reality is going to be there. I even think, you know, you look at Tim Sweeney, who we mentioned, the CEO of Epic Games. He was on X the other day engaging in this kind of conversation. And I'll quote from him, everyone overestimates what will happen in the next three months and wildly underestimates what will happen in the next three years. So you're a PlayStation guy. How do you navigate that? Yeah, I think that's a great quote. I hadn't heard that until now. And it makes a lot of sense. And, you know, we are, you know, absolutely focused on the business perspective for the next few months, but we as a company are absolutely looking out three years and it's very complicated.

20:47There's a lot that goes into developing the future and it takes a lot of time and it's not easy to pivot, but we are going to lean in on everything we've learned over the last 30 years, which has really served us well to sort of figure out where we think that future is going. And in many cases, define that future. We've talked about the immersiveness of games, but of course, what has brought so many people into gaming is as you described to us accessibility the fact that we have it on our phones and of course you know when i'm on the train i look at what people are playing it is it's like a match three game it's our ubiquitous it's tetris it's some variant it's easy on mobile we still like these games right they're they're kind of eternal they tap into something almost genetic about us.

21:37And, you know, I'm curious, you know, even as you make these games more sophisticated, more, you know, immersive, do you feel like that's changing the ingredients of what make a great game or are the fundamentals still the same? I think you hit on it. And, you know, we're rooted in play, people's desire to play because play brings us joy. It brings us closer to people. It's in our name. It's half of our name. So, So I think that's what we're always going to focus on. The technology will change. The way people interact with games will change. But we're always going to focus on play, the core need for people to play.

22:15And that's really what we're all about today and what we'll be about in 30 years from now. Eric, thank you very much for your time with us today. Thank you. No, it was great being here. Really enjoyed speaking with you both. And that's Bold Names for this week. Our producers are Alexis Green and Danny Lewis. Our video producer is Kasha Brusalian. And our fact checker is Aparna Nathan. Jessica Fenton is our technical manager. Jessica and Michael LaValle are our sound designers. Jessica also wrote our theme music. Our supervising producer is Katie Ferguson. Our development producer is Aisha Al-Muslim.

22:54Chris Sinsley is the deputy editor. And Falana Patterson is the Wall Street Journal's head of news audio. For even more, check out our columns on wsj.com. We've linked them in the show notes. I'm Tim Higgins. And I'm Christopher Mims. Thanks for listening.