RAY MAGUIRE INTERVIEW

We were slightly taken aback by the general outcry on the web when the official announcement came through that the 60Gb PS3 would cost £425 in the UK – after all, Sony Computer Entertainment’s UK managing director Ray Maguire had said that he “expected” it to cost £425 as far back as last year’s E3 Show.

But we can see why the controversy arose – after all, the PS3 costs roughly £300 in the US and (an anomalously low) £250 in Japan. So there was only one thing for it: to seek out Mr Maguire himself and get him to explain. Oh, and while he was at it, he revealed that there will be 220,000 PS3s in the shops at launch – an awful lot more than people were expecting, and possibly the highest ever number of consoles available at launch. Anyway, this is what Ray said.

Q: Why is the PlayStation 3 £425 in the UK when it is the equivalent of £300 in the US and £250 in Japan?

RM: I guess you have to split this into two elements. One of them is what you’re getting and the other concerns the infrastructure of how the UK trades versus the rest of the world.

If you take the infrastructure point, there’s a compulsion within the media to look at everything as a snapshot, and do a calculation normally based against just the RRP in somewhere like the US, and just the RRP in the UK. The calculations are always derived from those two, whereas actually what you should do with the RRP from the US is put sales tax on, for instance – but that is never taken into account. When it goes into Euros, it changes to anything from the extortionate VAT rate you pay in Ireland into some of the lesser VAT rates you find around Europe.

But you’re looking at those issues in a snapshot: that’s not how things are traded. When businesses trade, they have to secure their money for a point in the future, so they hedge. They decide what they think [the exchange rate] is going to be and then trade with that and look at the fluctuations – sometimes there’s a gain, sometimes there’s a loss. It depends what currency you’re buying against. We don’t buy anything in dollars, so the dollar can go up and down. If it was $1.40 to the pound as it was a while ago, then the PS3 would be a bargain compared to the US; if it’s anything more than that, the UK price appears to be comparatively expensive. But the truth of the matter is that we’re dealing, really with Euros and Yen – it’s about the relationship between those currencies.

If you just take the pound against the Euro over the last few months, you’ll see that the swing between 0.68 and 0.66 would make a difference of £12 on a straight conversion. We don’t deal with consumers using a varying RRP – we don’t say to them: “Today, you’re RRP is £500, but tomorrow, by the way, you’ll have to redo all your POS because it’s £600.” We have to take a reasonable guess. When it comes to looking at the total infrastructure, we have to build it down from the RRP. The UK, in particular, is quite expensive to deal with. Transport costs a lot of money. There’s taxation which is obviously government-controlled, so is more onerous. The cost of living is high, therefore people need to be paid more money at retail and in our own operations than some of our European counterparts. So you start putting that all together and what it comes down is that when I sell to someone, I have to sell to that person at such an amount that I can pay those bills — pay for retail and pay for the expertise that goes into doing that. If I’m paying an extra pound or two at the base level – in other words at the price I sell to trade – by the time VAT is added on and the cost of sales is added on (what we call margin), the number at the top can vary quite a lot. But don’t forget the purchase price hasn’t, and we fix the RRP as well.

When we look at our overall situation at the end of the year, that’s when we’ll deem whether we have made a loss or not – and the skill is making sure that you’re neutral. My fundamental aim is to have the hardware out at the cheapest price, simply because I sell more if I do that. If I wanted to put the price up, clearly there’s nothing to stop me doing that and also, within the law, I set a price to the trade, which can put the price up as well. But in the nice, competitive environment that the UK enjoys, we try to get the price down as much as we can. But at the same time, you don’t want to be in a situation where you’re looking at a variable RRP – you have to have that fixed. So no matter what happened this year to the Euro – even if it started going the wrong way – we would not put the price up. If that trend carries on in the other direction, then guess what: we will put the price down. You just have to look at the relationships we look at, which are between the pound, the Euro and the Yen.

Even in Europe, there will not be one single price – Ireland, for instance, will be a bit more expensive because it has such a high VAT rate. And the transport is considerably higher. So there are some variances, but we try to get as close as we can to one RRP.

Q: I’ve seen reports of RRPS of E599 in mainland Europe and E629 in Ireland. Are those accurate?

RM: Those are accurate, yes. We’re still working out the implications in Scandinavia as well, where there are non-Euro accounts.

Q: Would you not have liked, for psychological reasons more than anything else, to have got the price below £400?

RM: I’d love to have done.

Q: Don’t you think £399 would have been good, because it will be around that price in Europe?

RM: Again, if the Euro goes down to 0.66 or 0.65 – I remember the Euro at 0.64 – that certainly won’t be the case, because we’ll be around where we are now. What you’re doing is what a lot of people do, because we’re freezing a trade price, but you’re making something else variable, which is not relevant to how we live in the UK. Otherwise we would have varying price for McDonalds or Starbucks, where all those things are doing is reflecting the cost of living in the UK versus the cost of living somewhere else. Of course, I would dearly love to have the PlayStation 3 RRP under £400, and at such time as we can afford to do so, we will.

Q: One way of getting around the price controversy would be to bring the 20Gb PS3 over. Why won’t there be any 20Gb PS3s at launch?

RM: The response that we’re getting back from the marketplace – not only from retail, but also from consumers – is that what they really want is the best. They want to go for the wireless model; they do understand that the PlayStation 3 is a machine which has a lot of downloads available right from day one, and that they want to put their own media on it from day one. So a big preference has been shown towards the 60GB model. And when we look at the sales figures from both Japan and the US, that’s reflected at retail as well. You can either have not enough of both in the marketplace for day one, or you can have round about the right amount of one. It makes distribution much more efficient and allows us to get more product out to consumers.

Q: Reports are coming from the US about readily available 60Gb PS3s, whereas the 20Gb models are like gold-dust. That must be worrying Sony?

RM: That’s not my territory, so you need to ask someone in the US. That’s not necessarily what we’re hearing – we’re hearing there are pockets of stock where distribution was not quite as smooth as it could have been, because everything was hand-to-mouth and they were just getting stock out as fast as they could for Christmas. There will be some distribution ups and downs. Hopefully, we won’t have so much of that, but you can never guarantee that when you have limited stock, you’ll have that stock in absolutely the right place. I know that the US is still screaming for stock, which it’s not getting, because they’re supplying us.

The other thing you’ve got to remember is that the UK machine is a dedicated SKU, so we have to have manufacture which is separate from the rest of the PAL territories.

Q: Sony has been very hard on grey-market imports in the past. But you wouldn’t be able to keep a lid on, say, European websites undercutting UK retail. Will Sony try to put a lid on that sort of action?

RM: No, there’s free trade throughout Europe – it’s when products come in from outside Europe that we’re concerned. The thing that really concerns me is regional coding. Whereas games are not a problem, many people will be buying PlayStation 3 because, not only is it the world’s most powerful console, but it’s also a great Blu-ray movie playback device. And you wont be able to browse in HMV or Virgin and pick up your Blu-ray disks because our region isn’t supported. Some people will always go to the ends of the earth to get things a couple of quid cheaper, but if you want decent service, consistency and you want things to be focused and a structure to be there, you need to support the territory that has to look after those customer issues. If a product is brought in from abroad, I don’t make anything, so there is no money going into support from us.

Q: I’ve heard there will be a million units throughout Europe for March 23. Is that accurate? And how many will come to the UK, given that we’re the biggest market in Europe?

RM: We are the biggest market in Europe. It depends on which number you read, but we roughly constitute just over 22 per cent of the market in PAL – I say PAL rather than Europe, because PAL now extends out to over 100 territories, and some of those territories are quite strong. For instance, we have some of the strongest Middle Eastern and Russian sales forces compared to competing products. That means my overall number is a bit lower than it would be if I had a less well-established product. So we’re round about the 22 per cent mark which, if you divided that into the million would give you 220,000 units. I think if I go down on bended knee, I might get a little bit more. So, I will try to get as many units as I possibly can. But it will certainly be the biggest launch that the games industry has ever seen, in terms of day one numbers into the marketplace. Probably over four times PlayStation One, and close to double the amount of PS2s. So, it’s going to be a logistical nightmare – that’s a lot of trucks to get around. Product is already on its way, on ships, at the moment, and there is more being generated every single day.

Q: Is production up to full capacity? How many are you churning out each month?

RM: It still varies – fundamentally, yeah, things are looking good. The chip yield has never been an issue – that’s really exciting, because it was a huge gamble to get the Cell chip produced in mass numbers. And the issues surrounding the Blu-ray diode have got better and better as production goes on, which is exactly what happens in mass-manufacturing.

Q: There must also be a sense of relief, after the delay?

RM: Absolutely. It’ll be great to finally unleash it upon the world in every area, and give people a chance to see exactly what the machine can do first-hand. Because I think PlayStation 3 is such an all-encompassing product that it’s hard to grasp all its elements until you see it and touch it.

Once it’s out with general consumers and they’re seeing it for the first time in many cases, then I think our job really begins. As people get an idea of what they want – more games, better games, wider genres – and we start making sure the games really start doing justice to the 1080 panels they’ve bought, then that’s the start of things.

By Steve Boxer