Nintendo lost to PlayStation for a combination of reasons. One major factor was Nintendo's decision to partner with Sony to enter the CD medium and the 32-bit era, but this partnership fell apart and Sony launched the PlayStation on their own . Sony had more financial and technological firepower, and they were able to offer better deals to third-party developers, leading many developers to switch to the PlayStation . Additionally, Nintendo made some strategic errors, such as sticking with cartridges for the N64 instead of CDs, which made it less appealing to third-party developers . Nintendo's focus on casual and handheld gaming also left them vulnerable to the rise of mobile gaming, which further impacted their market share . Overall, Sony's superior resources, partnerships, and strategic decisions contributed to their success over Nintendo in the console market.
David Rosenthal: Similarly, though, to the switch, I think there's some questions of like, what could Tears of the Kingdom do to top Breath of the Wild? But we'll see. The switch sells over 15 million units in the first year, so like more than the Wii U just in the first year goes on, as you say, to sell 123 million units so far. It's still on the market. We'll see. I think it's unlikely it will pass the DS and the PS2, but it depends how long Nintendo waits to launch the successor and what form the successor takes.
Ben Gilbert: My money's on Switch 2 in the next six months.
David Rosenthal: I think that is where the betting line is, but we will discuss. On the back of all this, Nintendo revenue just explodes from less than $5 billion at the end of the Wii U era, immediately in the next year to $10 billion after the Switch launches, then $12, up to $16 billion during 2021 and the pandemic. The stock goes up another 50%. As Switch sales now have started to slow that we're in the sixth year of the console lifecycle, the stock has fallen again a little bit, but they're still doing five to six billion dollars in annual operating income. It's still a 50 billion dollar market cap. Nintendo today is so far removed from Nintendo of the Wii U era. And then there's the IP. We are literally recording this the day before the Super Mario Brothers movie comes out, which is supposed to actually be pretty good. It's supposed to be pretty good. I want to go see it.
Ben Gilbert: If you actually look at Sony's predictions or projections for this year, for 2021, They think that they will do, let's see, 2.9 trillion yen in their gaming segment out of 9.9 total. So they think that close to 30% of their revenue for all of Sony is going to come from gaming.
David Rosenthal: I mean, it's, I think, unquestionably the most valuable part of Sony these days.
Ben Gilbert: And from a profit's perspective, I'm pretty sure it's close to 50%, at least last quarter.
David Rosenthal: Well, and this is the thing about the games business and the console business, as I was saying, you make all the money from selling games. And so the way the business works is you want to get the largest installed base possible on the consoles on the hardware so that you can sell as many games as possible. And this is where Nintendo and Sega to a lesser degree just made such a huge tactical error in letting Sony into the market. Sony had so much more financial resources than either of them, so they could afford to take much larger losses on console sales to play for the longer term game of getting as much software sales as possible.
Ben Gilbert: I mean, it's the ultimate venture capital bet, right? It's how much can we throw into a business that we think will have really high operating leverage where we can cover all the fixed costs and then sort of pull up the rope behind us and then have amazing low marginal cost, high gross margin futures ahead of us where we sort of elbowed out all the incumbents.
David Rosenthal: So the Super Nintendo, like I said, was this amazing success, hugely successful consoles, 50 million units in its life worldwide. The original PlayStation sells over 100 million units, and they win over all the major third-party developers to come over.
David Rosenthal: Grand Theft Auto does. Call of Duty does. Nintendo, ironically, gets kind of trapped in the toy aisle ghetto for the next 20 years.
Ben Gilbert: Alright, so we're through the Genesis era. We've unfortunately seen basically the end of Sega, but there's another sort of adult-oriented gaming firm that's gearing up in the shadows right now to come aggressively at Nintendo and expand the gaming market even further, and that is Sony. So take us to the PlayStation.
David Rosenthal: So the whole 16-bit generation story for Nintendo that we just told was really one of arrogance, bordering on stupidity, and self-inflicted wounds for Nintendo. But ultimately, they were competing against, at best, a roughly equal-footed competitor in Sega, and really an underdog. Sega did not have the financial firepower, the technological firepower that Nintendo did. It was, like, amazing that they came out of where they did and battled nintendo to a draw that's not going to happen in this generation because now the big boys are coming and we talk about these often unacquired of self-inflicted wounds this may be the worst self-inflicted wound of all time what nintendo does here because as we talked about on the sony episode The PlayStation was supposed to be the Nintendo PlayStation. Yes. And somehow this partnership that Nintendo had been working on with their fellow Japanese technology and consumer electronics giant Sony to enter the CD medium and the 32-bit era. Somehow that went from being a beautiful partnership to basically almost signing their own death warrant.
David Rosenthal: Mario Kart 8 Deluxe has certainly become that, especially with the new waves that they're building into, which is their version of seasons. Like a Mario Kart 8 wave is the same as a League of Legends season. Well, it's the same concept. Whether Nintendo is as good at seasons as Riot is, they're absolutely not. But they are building towards it, clearly.
Ben Gilbert: We don't even care if you play on Xboxes. We want this to be available anywhere, and you should use our app that you pay a subscription for to play games on all devices. That's a very different strategy than what Sony has done at least for the last five years. They might be changing right now, but we're sort of in the middle of a potential pivot for them. They're basically playing the same old console game, and they're playing it with the highest monetizing audience of people who want to pay a whole bunch of money for a game and get the unbelievable graphics experience out of it and play it on that device. It's interesting how all three of these companies, Nintendo, Sony, and Microsoft, after competing for a while, have now all chosen completely different lanes to occupy in terms of what they're marketing to consumers and what the business model around that is. And I think the big question for Nintendo is, do they care about the strategic position and picking a lane and deciding to be Microsoft-y in this way with the subscription? Or is it really just like, do they pay attention to their shareholders? I don't know. It is a legitimate question. We don't know.
David Rosenthal: Now, look, this partnership that they were working on with Sony, It's unlikely that it ever actually would have worked out because there's just like too much money at stake. The video game market is too attractive, despite the fact that Sony didn't enter the portable market with the Game Man and Nintendo stuck it to them with the Game Boy. Like the bad blood goes way back here. And the reason that Nintendo pulls out of the partnership is they couldn't come to terms on how they were going to split the royalties on software revenue. which as we talked about in part one, like that's where all the economics are in the business. It's a razor and blades, right?
Ben Gilbert: Which is actually quite rational.
David Rosenthal: There is not really a viable alternative history where the Nintendo PlayStation came out. There is a viable alternative history where like Sony waited a little longer to enter the market and they didn't have as much burning hatred for Nintendo as Nintendo generated here. So that happened at the 1991 CES. Ken Kutaragi goes off and within Sony Music builds the PlayStation franchise and Steve Race comes over from Sega and gets involved on the American side. The PlayStation finally comes to market at the end of 1994 in Japan and 1995 in America. And it's an amazing console. It's CD based. It's got incredible power. It's much easier to develop for. They've got all of Sony's both technological and financial firepower behind it.
Ben Gilbert: And it's a 32 bit system on par with the Sega Saturn.
Ben Gilbert: And you could see it in the stock price. It is nuts. When you look at when Iwata came in and took over in 2002, and we talked about the Wii was released in 2005. In the four years from October of 2003 to October of 2007, Nintendo's market cap nearly 8x'ed from $9 billion to $70 billion. They were a 70 billion market cap company, but very briefly, I think their market cap was even bigger than Sony's for that year. But by 2012, it was all the way back down below where it even started to $8 billion.
David Rosenthal: Yeah, the impact of mobile gets felt pretty much immediately. In 2009, which is just the third full year that the Wii is on the market, and when it should be hitting like the fat part of its life cycle at its prime, That's when the app stores really hit. And we sales declined 20% that year when they should be accelerating. And then they fall roughly another 30% each of the next two years. And software sales, which are more important, declined even more. That's on the home console side and the Wii, which is like maybe a little more insulated from mobile. Meanwhile, the DS, which was this juggernaut, is just getting rocked.
Ben Gilbert: Yeah, it's weird. In some ways, Nintendo called it because they realized that casual gaming was going to be a huge market and they realized that portable gaming was going to be a huge market. But they did not have any strategy around mobile. Yes.
Ben Gilbert: Which I think was partially an anti-piracy thing. They cared so much about stopping piracy that they were willing to hamstring developers into needing to use a much more constrained format in the cartridge than CDs because they thought, eh, well, CDs are just going to get pirated and we don't have as many mechanisms to prevent that.
David Rosenthal: yep and then the third part of this yes the n64 was a very powerful 64-bit system but it required very expensive silicon graphics hardware to develop for that the playstation did not so like really the whole thing is just a giant fu to third-party developers who already hate nintendo so at this point everybody pretty much abandons nintendo for the sony platform the n64 would sell 33 million units in its lifetime that's about half of what the nes sold versus the ps1's 102 million units so nintendo just gets the floor wiped with them by sony here which was obviously predictable
Ben Gilbert: And the N64 ended up being a fantastic console to play Nintendo first party games on. Yes. And they even more than ever before entrenched that that is what our company is all about. I mean, Super Mario 64, Mario Kart 64, Super Smash Brothers, Star Fox, Goldeneye. I mean, these are all first party titles. The only one that wasn't is Goldeneye, and that was Rare, which was a very close relationship with Nintendo.
David Rosenthal: That was a second-party title. Nintendo owned at that point in time something like 25-30% of Rare, and Rare developed exclusively for Nintendo platforms. So that's the N64, PlayStation, and then in the next generation, the wheels just totally come off the bus. Sony and the PlayStation 2 goes on to become the best-selling console of all time.
David Rosenthal: Somehow that went from being a beautiful partnership to basically almost signing their own death warrant. So at the June 1991 Consumer Electronics Show, there's big expectations. Nintendo and Sony are all set to announce the CD-ROM add-on for the Super Nintendo system to bring the CD format to Nintendo powered by Sony, the Sony and Nintendo PlayStation. They're all set to announce it. And in fact, Sony does announce it at their press conference. And then the very next day, Nintendo turns around, and in their press conference, doesn't mention it at all, and instead trumpets their major CD-ROM technology partnership with Sony's arch rival, Philips. They betray Sony, they stab them in the back. So much hubris. So much hubris. Like, dumb decision to do this, period. even dumber decision to do it this way. To let them whip in the wind publicly like that? And they just light a fire under exactly the company that you do not want to light a fire under at this point to come and destroy you.
Ben Gilbert: And to illustrate how much bigger Sony is, I mean, in 94 is when the Sony PlayStation would launch. They were doing $38 billion in revenue. And at that point in time, Nintendo was a $4 billion revenue company. So Sony is the much bigger beast here. Yeah.
David Rosenthal: Now, look, this partnership that they were working on with Sony, It's unlikely that it ever actually would have worked out because there's just like too much money at stake.
David Rosenthal: They've got all of Sony's both technological and financial firepower behind it.
Ben Gilbert: And it's a 32 bit system on par with the Sega Saturn.
David Rosenthal: Yes, it's a 32 bit system, so just blows away the Super Nintendo on every dimension here. Much more storage availability for games and game developers by using the CD format. Much more powerful processor. It's clear that this is going to be a big investment from Sony here, and they're going to be a big player in the industry. Nintendo, again, probably in hubris, tries to compete directly with Sony here in response. So they go off and they partner up with legendary Silicon Valley company, Silicon Graphics, SGI, as we talked about on the Andreessen series back in the acquired canon. to build the N64. They're going to leapfrog the 32-bit generation and go right to 64 bits with the N64. But one, it comes out too late. So the 64 doesn't come out until 1996 after the PlayStation has already had a year plus to be on the market and establish both the install base lead and the third party developer network to the N64 famously uses cartridges again instead of CDs.
Ben Gilbert: They have a very particular way they love doing things. They do.
David Rosenthal: They do.
Ben Gilbert: Which I think was partially an anti-piracy thing. They cared so much about stopping piracy that they were willing to hamstring developers into needing to use a much more constrained format in the cartridge than CDs because they thought, eh, well, CDs are just going to get pirated and we don't have as many mechanisms to prevent that.
David Rosenthal: And it completely revitalizes the company. So with the Wii and its success, Nintendo's revenue almost quadruples from the $5 billion range to just under $20 billion in 2009.
Ben Gilbert: All time high, even to date, even including all the Switch success, that was still the all time high.
David Rosenthal: And operating income goes through the roof to over $5 billion. They're killing it. This is like an unbelievable revolution, as they would have said. Unfortunately, though, you know, and this is where you can debate whether it was possible to see this coming or not, right after the Wii launches and brings this revolution. So that's 2006 2007 timeframe. the app stores launch on mobile late 2008 into 2009 and that just sucks all of this away and this is the problem about shooting themselves in the foot they were so vulnerable to this in a way that microsoft and sony weren't because the core gaming market And the hardware and the platforms that Microsoft and Sony were putting out, they weren't threatened by mobile. Mobile didn't take share from them, but it took like all of Nintendo's share, right?
Ben Gilbert: Because the Wii was not the Mario console. The Wii was the casual gaming console. The greatest casual gaming experience in the world launched and fell right into everybody's pocket a few years later That swept out their entire current market away from them and then it took them a decade to basically go back to their roots with the switch and figure out how to like revitalize all the Mid-core Nintendo IP on to a platform that was dedicated and best in class for that use
David Rosenthal: This is like the really sad part of the story. They just get rugged here.
Ben Gilbert: And you could see it in the stock price.
David Rosenthal: And I'm sure it was some split between Sony and Nintendo, but Sony was getting enough of that economics that Nintendo was unhappy.
Ben Gilbert: So maybe Nintendo looked at this and said, this is going to be bad. But if we actually proceed with this plan, it's such a bad deal for us anyway, that there's really no reason to continue it.
David Rosenthal: But the way they did it, oh my gosh. And so Nintendo, I think, thought that like, all right, well, so, you know, Sony's not going to get into the games industry themselves. They can't do that. Like they have no first party studios. Nintendo can go make a new console. We'll put Mario brothers on it in Zelda. And like, we make that stuff ourselves. Like Sony doesn't have any of that. they don't have any relationships with developers, etc. So Sony has three options at this point, as Nintendo expects, they can completely give up to they could go to Sega, and try and partner with Sega, the Nintendo competitor at the time, they actually try to do that. Sega in another boneheaded move is like, yeah, no, we're not that interested. They were just like a much smaller company at that point. And then the third option is to try, you know, they've done all this engineering work on making a console. I was like, well, we could just try and do this ourselves. So the Sony board and the management team, you can tell them just like loving this.
David Rosenthal: Grand Theft Auto does. Call of Duty does. Nintendo, ironically, gets kind of trapped in the toy aisle ghetto for the next 20 years.
Ben Gilbert: Alright, so we're through the Genesis era. We've unfortunately seen basically the end of Sega, but there's another sort of adult-oriented gaming firm that's gearing up in the shadows right now to come aggressively at Nintendo and expand the gaming market even further, and that is Sony. So take us to the PlayStation.
David Rosenthal: So the whole 16-bit generation story for Nintendo that we just told was really one of arrogance, bordering on stupidity, and self-inflicted wounds for Nintendo. But ultimately, they were competing against, at best, a roughly equal-footed competitor in Sega, and really an underdog. Sega did not have the financial firepower, the technological firepower that Nintendo did. It was, like, amazing that they came out of where they did and battled nintendo to a draw that's not going to happen in this generation because now the big boys are coming and we talk about these often unacquired of self-inflicted wounds this may be the worst self-inflicted wound of all time what nintendo does here because as we talked about on the sony episode The PlayStation was supposed to be the Nintendo PlayStation. Yes. And somehow this partnership that Nintendo had been working on with their fellow Japanese technology and consumer electronics giant Sony to enter the CD medium and the 32-bit era. Somehow that went from being a beautiful partnership to basically almost signing their own death warrant.
David Rosenthal: all the way back to the beginning of this episode. They had one very small, but very big thing that kept them alive through all of this.
Ben Gilbert: The gift that kept on giving. The Game Boy. Yep.
David Rosenthal: Before doing the research for this part too, like I didn't realize the Game Boy and its successors saved Nintendo's skin for like 20 years.
Ben Gilbert: So that's Game Boy, which includes the Game Boy Pocket. It's Game Boy Color. It's Game Boy Advance. And then, of course, they would launch the DS, which we'll chat about in a minute here. But it is amazing that Nintendo basically had a monopoly on portable gaming this entire time. There's the home console wars they're playing out. And there's this whole side thing that's happening where Nintendo is selling millions of units as the only credible player in handheld.
David Rosenthal: Literally, everybody's wringing all their hands about the home console business. And that's all that anybody who's serious pays attention to. But over in the handheld market, Nintendo is just continuing to crush it like it's like 1989 here. So remember how we said all the way back in the beginning of the episode that the Game Boy is the fourth best selling console of all time. And then we just said that PlayStation 2 is the first best selling console of all time. Numbers two and three are the DS and the Switch, and then the Game Boy Advance isn't far behind.
David Rosenthal: It was the perfect marriage. So Nintendo launches the 3DS to try and differentiate and versus smartphones and having the 3D screen. They launched that in 2011, but sales stall out pretty much immediately. I'd forgotten this about the 3DS and they have to do a major price cut on it within six months of launch. So they dropped the price 30% less than six months after the console launches like that is bad so that does stem the tide for a bit and 3ds sales do grow for the next couple years but then the smartphone juggernaut is just too big 2013 14 15 3ds sales just fall off a cliff
Ben Gilbert: this saving grace that they had their entire life, or from 1990 onward, of no matter how much we screw up, our handheld gaming system will sort of protect us. Shields are gone.
David Rosenthal: Totally. And so now, Nintendo is in a Sega post-Saturn and Dreamcast type situation. There is an existential crisis happening So in Nintendo's fiscal year 2012, they report their first ever annual loss. So this was a company that even during the crappy years was making half a billion to a billion dollars in operating income is just coming off the wee year bonanzas where they're making five billion dollars in operating income. all of a sudden they're bleeding cash and it gets doubly bad because the only way out of this for them if they're going to keep their hardware strategy is to rush out a new console which means they have to invest capital in R&D and in marketing for launching a new console to try and stem the losses both on handheld and mobile It's rough.
David Rosenthal: Let's go through each of these points. Point one, the preemptive price war. Oh boy, was this important. So Nintendo was, as everybody knew, working on the Super Famicom slash Super NES. It would come out in Japan in late 1990 and in the U.S. in late 1991, two years after the Genesis. When they launch it, they launch at ¥25,000 in Japan and ¥199 in the US, which even that was $50 more than Sega had cut the price of the Genesis to. More importantly, though, than Sega being cheaper than Nintendo from day one, is that Nintendo was planning originally to include backward compatibility in the Super Nintendo. so that it could also play NES games. So when I read about this in the research, I was just like, Oh my God, they blew it.
Ben Gilbert: Which that is of course the right strategic move to leverage the fact that you already have tens of millions of people that are Nintendo customers. You want to come out with something that makes sure they remain Nintendo customers. But your competitor dropped the price. So you decided to cut something. And the thing you cut is the thing that makes it so you no longer take advantage of the fact that you have this huge install base that would have given you a stair step into the new generation.
David Rosenthal: Totally. So Nintendo estimated that including backwards compatibility in the Super NES would add about seventy five dollars to the bill of materials. Whoa, and that's huge.
David Rosenthal: So we talked about the numbers, how in a single generation they go from 90% global market share to basically 50. But more importantly, strategically, like the net result of this is that a lot of the things that made the NES so powerful in the market are completely negated by the end of this. So first and most importantly, the whole years ahead of the competition hardware advantage, that's gone. They're now behind the competition. Two, they lost control of the third party developers. They had this incredible lock on the third party ecosystem with the NES. Now developers like Electronic Arts and others are saying, well, look at Sega and look at these other new folks like Sony who are going to enter the ecosystem. I can make more money with less drama on their platforms. Screw you, Nintendo.
Ben Gilbert: And less drama and often better economics. They're willing to cut special deals with me that you're not. Exactly. And in many cases, they have more advanced capability. So it's an easier platform to program for.
David Rosenthal: And then maybe worst of all, Nintendo's brand value just takes a huge hit in this generation. And we've talked about this, you know, as we've gone along here, but to put a fine point on it. Older kids and teenagers no longer play Mario, or at least they don't want to admit that they do. Sonic doesn't become the long term replacement, but Tomb Raider does. Halo does. Grand Theft Auto does. Call of Duty does.
David Rosenthal: Because what if adversarial nations to the U.S. get ahold of these and use them to build missile guidance systems? I mean, the PS2 was a literal supercomputer at the time. and this is the other huge advantage that sony had over nintendo and anybody else except microsoft that we'll talk about in a second which was they could afford to subsidize the crap out of this thing so the playstation 2 launched for $2.99 in the us I don't actually know what the bill of materials was, but it cost way more than $2.99 for Sony to make every one of those. But they had so much capital that they could take that loss and then make it up on the software library over time. For the high end consoles, this is how the business works to this day between Sony and Microsoft. Yep. For Nintendo. Oh God, it's such a sad story.
Ben Gilbert: Their answer is the freaking GameCube.
David Rosenthal: GameCube, the poor GameCube. I actually have like a really fond memories of the GameCube, but this was just the epitome of Nintendo was like a kid that was really cool in middle school and then got awkward in puberty and in high school gets stuffed in a locker.
Ben Gilbert: They had no idea who it was for. They made it and it was more competitive on a specs perspective than the PS1. And they did try to market it like it was for everyone, like it was a game system for kids, for adults. Yeah, except it looked like a lunchbox. Totally. And it also was competing against the supercomputer PS2.
David Rosenthal: Nintendogs sells almost 25 million copies. Tetris all the way back on the Game Boy sold 35 million copies. Now, most of those are bundled in the US. These are billion dollar franchises within Nintendo that nobody thought about for decades. It's kind of crazy.
(someone): Yeah.
David Rosenthal: So we asked the question, how is Nintendo screwing up so royally on the home console side while they're succeeding so spectacularly on the handheld side? I think it's one that the kids and the casual segments were viewed as these kind of ghettos for a long time that no serious company and certainly nobody like Sony or Microsoft would go after and go compete with. Wrongly so, by the way.
Ben Gilbert: The people who would have competed with them were Atari and Sega and both were basically defunct by this point So Nintendo had this lane wide open because everyone else who's trying to come into the industry is coming after the core Gaming segment or the serious gaming segment or the high ARPU the high average revenue per user people that are buying $60 DVD discs to play
David Rosenthal: And so, you know, then to the other side of how are they allowed to screw up so badly in the home side? I don't want to say it doesn't matter, but it kind of doesn't matter. So Nintendo's revenue and operating profits more or less stay flat from the NES era all the way through to the mid 2000s, even though the home console business basically just gets like doused in gasoline and lit on fire. But the handheld side completely replaces it. Nintendo's kind of always doing a solid four to five billion in revenue a year, call it, and maybe half a billion to a billion dollars in operating income.
David Rosenthal: did this to sony the day after their announcement only to not actually ship the thing with phillips they don't actually ship the thing nintendo does make some games for the cdi so they have like this partnership but it never goes anywhere and nintendo as great as they are notoriously make questionable business decisions like sticking with cartridge for the n64 and all sorts of stuff Now, in Nintendo's defense, the reason that they do this is that Sony was going to retain licensing rights to the Super Nintendo disc based games. And that's where all the money is in the console games industry. So like notoriously and as we'll get into console manufacturers almost always sell the hardware at a loss and then they make all the money from the games licenses to the games. and you can make money from games either, like for Nintendo, when they sell Mario and Legend of Zelda and like games that they own and develop. They keep 100% of the money. They get 100% of the money. But then if you're the system owner and the format owner, you get money as a license when third parties like EA or Activision or, you know, Bungie or whomever sell games on your system. Sony was gonna get that money or most of that money for the Nintendo disc stuff. So that's why Nintendo
Ben Gilbert: did this. I see. So they were the license holder or the person who could issue licenses and make money on people using the game dev kit.
David Rosenthal: And I'm sure it was some split between Sony and Nintendo, but Sony was getting enough of that economics that Nintendo was unhappy.
Ben Gilbert: So maybe Nintendo looked at this and said, this is going to be bad.
David Rosenthal: Now, look, this partnership that they were working on with Sony, It's unlikely that it ever actually would have worked out because there's just like too much money at stake. The video game market is too attractive, despite the fact that Sony didn't enter the portable market with the Game Man and Nintendo stuck it to them with the Game Boy. Like the bad blood goes way back here. And the reason that Nintendo pulls out of the partnership is they couldn't come to terms on how they were going to split the royalties on software revenue. which as we talked about in part one, like that's where all the economics are in the business. It's a razor and blades, right?
Ben Gilbert: Which is actually quite rational.
David Rosenthal: There is not really a viable alternative history where the Nintendo PlayStation came out. There is a viable alternative history where like Sony waited a little longer to enter the market and they didn't have as much burning hatred for Nintendo as Nintendo generated here. So that happened at the 1991 CES. Ken Kutaragi goes off and within Sony Music builds the PlayStation franchise and Steve Race comes over from Sega and gets involved on the American side. The PlayStation finally comes to market at the end of 1994 in Japan and 1995 in America. And it's an amazing console. It's CD based. It's got incredible power. It's much easier to develop for. They've got all of Sony's both technological and financial firepower behind it.
Ben Gilbert: And it's a 32 bit system on par with the Sega Saturn.
Ben Gilbert: Which I think was partially an anti-piracy thing. They cared so much about stopping piracy that they were willing to hamstring developers into needing to use a much more constrained format in the cartridge than CDs because they thought, eh, well, CDs are just going to get pirated and we don't have as many mechanisms to prevent that.
David Rosenthal: yep and then the third part of this yes the n64 was a very powerful 64-bit system but it required very expensive silicon graphics hardware to develop for that the playstation did not so like really the whole thing is just a giant fu to third-party developers who already hate nintendo so at this point everybody pretty much abandons nintendo for the sony platform the n64 would sell 33 million units in its lifetime that's about half of what the nes sold versus the ps1's 102 million units so nintendo just gets the floor wiped with them by sony here which was obviously predictable
Ben Gilbert: And the N64 ended up being a fantastic console to play Nintendo first party games on. Yes. And they even more than ever before entrenched that that is what our company is all about. I mean, Super Mario 64, Mario Kart 64, Super Smash Brothers, Star Fox, Goldeneye. I mean, these are all first party titles. The only one that wasn't is Goldeneye, and that was Rare, which was a very close relationship with Nintendo.
David Rosenthal: That was a second-party title. Nintendo owned at that point in time something like 25-30% of Rare, and Rare developed exclusively for Nintendo platforms. So that's the N64, PlayStation, and then in the next generation, the wheels just totally come off the bus. Sony and the PlayStation 2 goes on to become the best-selling console of all time.