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The big online gaming gamble

There's an online land grab brewing in the video game industry, and Sony exec Kaz Hirai is preparing PlayStation 2 for the cyberfray. But will gamers pay for Net play?

While the first wave of Internet hype is now but a distant memory, the video game industry is gearing up for its own mini-version of the great online land rush.

Makers of the three main game consoles are all planning to allow gamers to connect their devices to the Internet for online play. Microsoft has made the biggest promises for Xbox Live, but Sony will actually get to the Internet first. The giant consumer electronics conglomerate will release on Aug. 27 a network adapter that allows its PlayStation 2 game console to tap into a broadband or a dial-up Internet connection.

A handful of games that support PS2 online play will be ready at the same time as the adapter, with more to come. But Sony has been deliberately low-key in promoting the online future. Executives say it will take time before people grow comfortable with online gaming and for games makers to figure out how to make money from online play.

Kaz Hirai, president of Sony Computer Entertainment of America, also has an equally tough nut to crack: Internal company surveys show that 60 percent of PlayStation 2 owners have never played online games via a PC--which means consumers will need to be convinced of the benefits of the connected console. Hirai talked with CNET about how he thinks this might work out in practice and what he sees for the future of subscription-based online gaming.

Q: Will Sony do all the heavy lifting with online gaming via the PS2, as far as it concerns maintaining servers, doing player-matching--that kind of thing?
A: Some publishers have already invested a lot of money in building their own infrastructures, or they have deals with outsourcing companies--they've been in this business on the PC side for a while. They certainly want to leverage the infrastructure they've set up already.

Other publishers are new to this. Some may decide to outsource it; some may decide to invest in technology. We're not going to mandate how they should approach it.

Will there be subscription charges?
It's also open as far as whether they want to charge a subscription. For the 13 titles we're going to see by the end of the year, those are nonsubscription services. But if and when publishers come up with titles they think warrant a subscription fee, they're free to do that.

It's an open-ended proposition for the consumer, too. We're not mandating how they get online. If you already have an ISP (Internet service provider), you're pretty much good to go.

It's no secret that everybody thought broadband penetration was going to be a lot higher, a lot sooner, before the bubble burst.
For the consumer, online play initially is going to be gravy--something you get for free on top of the regular game. Is that going to change over time?
I think it will change. The most important thing for us is to have the consumers that already have a PlayStation 2 first experience and enjoy the online experience, which I think is quite different from playing with your friends in the living room. Online, you're matched up with people across the country, across town, and you can find someone to play with 24/7. We have a large constituency...and a lot of them have never experienced online gaming on the PC. They may not even have a PC. That's part of why we need to make sure it's ready to go, plug and play.

So are there only limited opportunities in the beginning with what would be a relatively inexperienced group of online gamers?
Once they experience online gaming and they understand the entertainment factor of going online, then--whether it's ourselves or a third-party publisher--we're going to be able to make some other offerings. For now, we're basically offering offline games that also have an online capability. But down the road, there are going to be games that are online-specific. Once we get the users used to it, and they understand what the value and excitement is all about...there's certainly room for having subscription-based services.

Is the assumption that the average console gamer has never played an online PC game?
We're launching with 250,000 units (that include) the network adapter. I think at the beginning, that obviously is going to be catering more to the enthusiast crowd. But since it's such a large constituency overall, it's not going to be a niche online capability relegated to only appeal to core users. At some point, it's going to start filtering down to light users as well. That's why we wanted to make sure from the beginning that the setup is very easy, so when we do start moving the numbers for the network adapter, they're able to take advantage of it as quickly and easily as possible.

How much or how little is online gaming on the console going to look like online gaming on the PC, where you mainly have shooters and role-playing games?
I think it's somewhat similar to playing offline games on the PC, where you're in the den or study leaning forward looking into a screen, vs. what we're doing, which is pretty much about entertainment for the living room. It's kick-back-and-relax kind of entertainment, as opposed to lean-forward. I think that's going to stay true as the PS2 goes online--it's an extension of the living-room experience.

Some publishers are going to need to buy servers, set up login and authentication systems and do all kinds of expensive stuff to make online gaming work. Are there ways to reduce the investment it takes to get online?
Each publisher is going to have an approach that makes sense for them. Someone like Electronic Arts, where they already have a big online infrastructure, I don't know that they're going to need to invest much to get their PS2 games online. On the other hand, smaller Japanese publishers may need to make some adjustments.

And the online component?
I do think that as a feature, the online component is going to become more and more important. You look at football games, where the publishers are very competitive, and online play is a feature set you just can't do without anymore. That's going to be a trend going forward.

You can try to be the center of the home digital network, but if you don't have the installed base to create a large community, the experience just isn't that good.
As far as helping publishers go online, we've set up an evangelization fund to help their development. And if need be, we'll help them if they need to outsource stuff. We'll be there to support publishers, including the usual stuff we provide, like development tools and software to make it easy to set up for online.

You've talked before about the potential of using the PS2 as a conduit for downloading and playing back music, movies and other forms of entertainment. When will that materialize?
There are a couple of things at work. One is the adoption of the network adapter, and PlayStation 2 users getting comfortable with experiencing things in an online environment. For us to really start taking advantage of a lot of the compelling and rich entertainment content people would like to download or play, that's going to require more broadband penetration. It's no secret that everybody thought broadband penetration was going to be a lot higher a lot sooner, before the bubble burst. I live in Foster City (Calif.), pretty close to the heart of Silicon Valley, and in 70 percent of Foster City you can't get DSL. That's the state of it even in Northern California.

Sony is in a unique position as far as having major subsidiaries devoted to music and film content. Do copyright issues come into play as far as letting the PS2 handle non-gaming content?
Absolutely. Digital rights management is a very important issue for us. Right now, we're talking about playing online, with no storage device. But once the PS2 hard disk is launched--once you have a storage medium like that, you really need to be careful about digital rights management. We're very serious about protecting the rights of the content creators.

DNAS (Dynamic Network Authorization Server) is our proprietary copyright management system that we'll launch with the disk drive, to ensure there's no unauthorized duplication of software or content. We take that very seriously. We want to make sure the content creators feel comfortable in letting their data be transferred and stored on the hard drive.

Part of the reason PS2 has built such a huge lead over the competition is that you launched a year before the Xbox and GameCube. Do you think you'll keep that one-year lead with the next generation of hardware, or will Microsoft and Nintendo push up their development schedules?
I don't know what Microsoft's or Nintendo's strategy is--I only know what I read in the papers. But our position is that with the PS2, there's certainly a lot more power left in the box. It usually takes one or two cycles on the software side to really take advantage of what the box offers.

If and when we're looking to develop new platforms, that will be because we feel the time is right to introduce the consumer to a new technological leap, as opposed to saying we need to come up with a new platform because the one we have now ain't cutting it. The rumors I'm hearing about Xbox 2 and the other stuff is based on their not being happy with the installed base. It's different for us; we didn't come out with PS2 because PS One sales were slowing. We did it because we felt it was time to push the technology forward.

Are your plans based on it remaining a three-way race in game consoles?
I don't know if it is a three-way race at this point. It's a two-way race between Microsoft and Nintendo, I guess. It's kind of difficult when you can't see anybody in the rear-view think about when somebody might catch up with you.

Recent price cuts for game consoles seem to be attracting more mainstream consumers. How is that changing the business?
You're lowering the demographic, making it a more mass-market proposition, so I think one of the things that happens is you get a lot more kid-friendly titles. That's something of a cycle we went through with the original PlayStation.

You're going to have a lot of publishers that are going to try different kinds of games, because it's such a competitive environment. Something like football games, the consumer is really seeing a lot of innovation happening very fast. But the kid-friendly and family-oriented games are really what happens when you make gaming more of a mass-market thing.

There's been a lot of speculation about using game consoles for other tasks, from e-mail to music playback. What do you see as the function of the game console a couple of years out?
Given the functionality the PS2 has right out of the box--with the DVD capability, audio CDs, and now the network adapter bringing it online--I think it's one of the most versatile entertainment platforms you're going to have in the living room.

And it's very important, when you go online, to know you're part of a very large community of PS2 users you can interact with. You can try to be the center of the home digital network, but if you don't have the installed base to create a large community, the experience just isn't that good.