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Why Ballmer and Hirai will control the next-gen war

Monday Muse: PS4 and Xbox strategies will closely reflect the commercial fitness of Sony and Microsoft, writes Rob Crossley

What can we learn from that remarkable day in March 2001, when Sega killed off the Dreamcast?

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Sony chief executive Kaz Hirai

In an interview with The Guardian (published in 2008 but still illuminating in 2013), the former Sega of America chief Peter Moore gives insight into, among many matters, the difficulties in being beholden to a parent company.

"We [Sega of America] knew we could win," he said.

"We had a tremendous 18 months. The Dreamcast was on fire [in the US]. We really thought that we could do it. But then we had a target from Japan that said - and I can't remember the exact figures - but we had to make N hundreds of millions of dollars by the holiday season and shift N millions of units of hardware, otherwise we just couldn't sustain the business."

Moore's appraisal is a common one: The competitive (even thriving) company is bound to the performance of its parent company. This is why the current financial position of both Microsoft and Sony is crucial in determining the approach for the Next Xbox and PlayStation 4.

Last month I met with a well respected and connected industry executive who believed Microsoft will continue to throw large wads of cash at the Xbox division until it wins the war. While that may seem a tad exaggerated (I'm sure it'll be a different story if sales nosedive), there is one thing we can take for certain: There will be further Xbox exclusives from third parties (timed or otherwise) during next gen, simply because Microsoft can afford such luxuries and is certain that Sony cannot.

There was a once famous (and unverified) rumour that Microsoft paid Take Two as much as $75 million to ensure GTA IV wasn't a PS3 exclusive, and to secure the game's DLC as a timed exclusive on 360.

However ludicrous its price tag, the deal was an unequivocal success for Microsoft. Look at it this way: When San Andreas was released for Xbox, in March 2005, Sony announced the game had already sold over 12 million units on PS2. In the first two months of sales in the US, the game sold less than 500,000 copies for Xbox (it didn't chart the next month).

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Microsoft chief Steve Ballmer [Image: Venturebeat (cc)]

Compare this to March 2009, when publisher Take-Two was asked how well GTA IV sold on the Xbox 360 compared to the PS3. Lainie Goldstein, the firm's chief financial officer, said the split was "about 50/50".

This is a remarkable shift in sales momentum, regardless of however much Microsoft lost upfront because of it, and encouraged a remorseless mandate to secure more exclusive terms on major third-party franchises, from Call of Duty to Skyrim.

Those who say you can't buy success clearly don't know much about the Xbox team in Redmond. Microsoft has a clear strategy to buy Sony's market as rapidly and brutally as possible. There will of course be accountability guidelines in place to ensure the Xbox team spend responsibly, but I'm sure the goal is to acquire PlayStation fans, however unprofitable that may be at first.

Sony's approach could hardly be any more polarised. While Microsoft made $6 billion profit in its latest quarter (on top of another $6.4 billion in the quarter prior), Sony's four-year string of historic net losses had terrified its investors.

In fact, the corporation's $6.4 billion loss for fiscal 2012 was marked down as the firm's worst ever year since it was founded in 1946. The tragic numbers were announced along with a plan to shed 10,000 jobs, axe entire divisions and appoint a new CEO (Kaz Hirai) to turn the oil tanker around.

Many have cited Hirai's position at the top as a good omen for PlayStation. After all, he is a games man. Yet Hirai knows that, with Sony having lost a staggering $9.4 billion in the past four years, the absolute priority is to turn a profit.

When Hirai outlined Sony's future in April 2012, he said the sprawling business will focus on three pillars going forwards: mobiles, digital imaging and games. Everything else - including the TV business - will be left behind.

Both Steve Ballmer and Kaz Hirai are battling for the same market from opposite ends of the spectrum. The Microsoft chief can afford to take expensive risks like its (unpopular) Surface tablet, while the Sony boss must reign in the spending and report a string of profits each year.

This is why indie devs are a key asset for Sony. The services of Jonathan Blow and Markus Persson aren't expensive in comparison to Rockstar, but they all have the potential to make millions for PlayStation.

The plan, though still fairly discreet and nuanced, is showing signs of success. It's why we heard those Sony-fuelled claims that indie developers were focusing on the PS4 during GDC, and that the console is better for the self-publishing dev than any other company out there.

Who will win next gen? Key to finding that out is asking yourself another question - what's more important these days; exclusive blockbusters or exclusive indies?

This week

There's lots of great content going up on CVG this week but easily the most anticipated is our eyes-on preview of Grand Theft Auto V. That's coming Thursday May 2 at 5pm UK time (set your diaries).

There's also the rumoured Call of Duty: Ghosts reveal this week, some time on Wednesday apparently. I've not heard a thing about it, at least not yet. There's also an interview with an industry legend that we're cooking up - that might go live tomorrow, God willing.

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