"Mr. President, pricing strategy is one thing, but getting it approved by the board is another," Nobuyuki Idei said, his voice carrying a cold, ruthless logic. "For instance, how will we explain this to Director Iwata? The folks in charge of the home appliance division have always been wary of the Electronic Entertainment Division. With Columbia Pictures bleeding money so badly, there's a strong push within the group to cut our losses. If we propose a plan that's guaranteed to incur significant losses for years to come, they'll likely shoot it down before it even reaches your desk."
Ken Kutaragi was about to retort, but Ryoji Nakabachi raised his hand to stop him.
"Now is not the time for sentiment or future projections. We need to talk about 'sunk costs.'"
Nakabachi adjusted his glasses, the lenses reflecting a cold glint. "The PlayStation project has come this far, with tens of billions of yen already invested in R&D. If we falter now out of fear of losses, leading to the project's failure, all those previous investments will have been for nothing. Tell Iwata and the others: the arrow has already been shot. If we pull back now, we'll end up with nothing but empty hands."
"Words alone won't suffice," Nobuyuki Idei said, shaking his head. "The finance department needs to prepare a detailed actuarial report, making the R&D allocation and projected profits look as impressive as possible. We need to convince those appliance guys that the current losses are an investment to prevent future losses that would leave us with nothing."
Oga Norio nodded slightly, acknowledging the plan.
But he knew that even the most convincing financial statements wouldn't silence the critics.
When the PlayStation project was first proposed, it was pushed through by leveraging the prestige of Akio Morita.
Now that Morita was gravely ill and had long since withdrawn from public life, his greatest protection had vanished.
To silence the conservatives, they would have to make sacrifices—or, in other words, paint an even grander picture of the future.
"We can compromise," Ken Kutaragi said suddenly, his voice hoarse.
He was a tech fanatic, and political compromise was more agonizing for him than death. But the current situation left him no choice. "Isn't the Central Research Institute working on high-density CD technology? The MMCD project."
"Are you saying—" Nobuyuki Idei's eyes lit up.
"We'll pledge our full support for the MMCD format, being jointly promoted by Sony and Philips, which will become the future standard for DVDs," Ken Kutaragi said through gritted teeth. "We can even announce that Sony's next-generation console will use DVD-ROM as its core storage medium. This would be a massive boon for our home appliance and audio-visual divisions."
This move was a clever combination of defense and offense.
The home appliance division valued nothing more than setting the standard. If DVDs became mainstream, they would make a fortune selling TVs and players.
"Moreover, we should thank Takuya Nakayama," Ryoji Nakabachi interjected with a heavily sarcastic tone. "Sega's aggressive promotion of CD-ROM has actually helped us cultivate the market. Since they're using our technology, we can argue in the board meeting that the Electronic Entertainment Division is contributing to the group's optical storage strategy. Even Director Iwata will have to give us that much face."
With the main strategy set, the remaining challenge was how to mitigate the staggering deficit through financial maneuvering.
Ken Kutaragi pulled a list from his briefcase, its pages densely packed with the names of third-party game manufacturers.
He circled the names of Namco and Konami, then drew a thick line through the rest.
"The royalty discounts we promised all third-party manufacturers are canceled."
The conference room fell silent for a moment.
"Except for the first batch of leading third-party developers who have already signed the 'blood oath' contract," Kutaragi said coldly, "the rest will be subject to the same royalty rates as Sega. Want to get on board? Fine. But you'll pay full price."
"Won't this push the smaller manufacturers toward Sega?" Nobuyuki Idei asked, his brow furrowed with concern.
"We'll dangle a carrot in front of them," Kutaragi said, a calculating smile playing at the corners of his lips. "We'll introduce tiered rebates based on sales volume—X amount for every 100,000 copies sold, Y amount for every 500,000. By extending the payment cycles, we can keep that money in our accounts for months longer. For the group's financial statements, that's cash flow."
The move was quite clever. It avoided alienating the manufacturers completely while still saving the company a substantial amount of money.
As for the small manufacturers who worked desperately to help Sony sell games in exchange for rebates, they had already reached the base sales volume required for tiered rebates, so they wouldn't go under. Whether they received their money sooner or later would depend on PlayStation's sales performance.
"Also, let's put a temporary halt to internal staff expansion," Ken Kutaragi said, glancing at Oga Norio as if steeling himself. "Until PlayStation's installed base crosses the survival line, we'll freeze hiring in all departments except core development. Cutting this budget will give the entire group a proper explanation. In fact, using this as a reference, we should consider temporarily suspending all expenditures by Sony Computer Entertainment that don't directly contribute to crossing the survival line. After that, we'll operate on a pay-as-you-earn basis as much as possible. This should secure the approval of most of the group's executives."
Oga Norio looked at his loyal subordinate, who was willing to cripple himself for the sake of the project, and sighed inwardly.
"This is our last resort," Oga Norio said, standing up and straightening his collar. "We should avoid cutting the budget if at all possible. Once we make this cut, it will be impossible to get the funds back later. Kutaragi, remember this: saving money won't save Sony. Only making money will."
"I understand," Ken Kutaragi replied, clenching his fists so tightly that his knuckles turned white. "As long as I can pull PlayStation back from the brink, I'll pay any price."
"Then it's settled," Oga Norio said, tossing his long-extinguished cigar into the ashtray with a decisive flick of his wrist.
He looked at Kutaragi, his gaze utterly serious. "At next Tuesday's executive meeting, you'll present the situation regarding Sega Jupiter."
Kutaragi, who was about to take a sip of his now-cold coffee, nearly choked.
Me?
This was Sony's highest-level "tribunal," where all the division heads sat.
Especially the appliance division people, who had long resented the Electronic Entertainment Division and would have loved to dismantle PlayStation and sell it for scrap just to plug the holes in Columbia Pictures' finances.
"President, wouldn't Idei be the better choice for this kind of diplomatic speech?" Ken Kutaragi asked, his face contorted in a grimace as he gestured to Nobuyuki Idei, who stood beside him in a sharp suit. "I'm afraid if I get worked up, I'll end up slamming my fist on the table in front of Director Iwata."
He was a technologist. He could wrestle with code all day long, but arguing with those old-timers who only cared about balance sheets and financial reports?
It would be worse than death.
"You'll slam the table anyway," Oga Norio said, leaning back in his chair. "That's exactly what I want you to do. Idei is too rational. At times like this, we need a bit of madness. You need to make the board understand that this isn't just business—it's war. If we lose this battle, Sony won't even have a standing room left in the living room entertainment market."
Nobuyuki Idei, who was organizing documents nearby, adjusted his glasses and added, "I'll have the Sega press conference video ready for you."
"Fine, I'll go," Kutaragi said. He loosened his tie, a fierce glint in his eyes. "I'll go with the 39,800 yen price point. I'll tell them: either match it, or disband the PlayStation project team right now and I'll resign in disgrace."
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