[credit provider=”Bloomberg West”]
Sony hired Tim Schaaff away from Apple more than five years ago to run its network entertainment business.Since then, the company has built out the PlayStation Network into a full-fledged gaming and entertainment service, competitive with Microsoft’s Xbox Live, which had a big head start.
More recently, Sony got into the subscription music business with Music Unlimited, which suddenly seems a lot more relevant given the recent wave of hype around Spotify and Apple’s iCloud.
But the network business suffered a huge black eye this spring when hackers stole personal information from millions of subscribers, and forced Sony to keep it offline for almost a month.
We caught up with Schaaff this week to talk about the aftermath hack attack and what’s next.
Here are some highlights:
- Sony has gotten 3 million new subscribers to the PSN and other services since coming back online.
- Spotify might be big enough to counteract years of Apple marketing that says consumers should download and own digital music files, rather than pay for unlimited access to it. That helps other subscription services — including Sony’s.
- Although Apple is probably Sony’s top competitor, Sony knows it has to bring Music Unlimited to iOS — the platform is too big to ignore.
- The fact that Apple was able to negotiate the rights for a legal locker service — something that’s never been done before — is a huge boon for the industry, as those rights will eventually flow to other services.
- Don’t look for Sony to make a bid on Hulu.
Here’s our full conversation (lightly edited):
Business Insider: You launched your subscription music service in February, and suddenly all the hype around Spotify and iTunes Match is making it look pretty interesting. How are your subscriber numbers looking?
Tim Schaaff: Sony is not going to give you detailed numbers today. We’ve been extremely pleased with our progress. We had a couple months of a service outage, that’s obviously not a good thing for a new service, but customers have been coming back strong. If you talk to the labels, you’ll get a pretty positive message from them as well. We have a good roadmap for enhancements, support for new devices, and so on.
BI: Let’s talk about that service outage. I saw your comments a few weeks ago when you said that the hacking of the PSN was a “great experience.” What did you mean?
TS: Of course the experience was unpleasant at the time. Sony was extremely disappointed that our customers were being prevented from being able to get on to network because of these hackers, and I wouldn’t want to diminish the pain associated with that.
What was interesting, and why I characterised it as a positive experience, is it was a very interesting learning experience about what’s changing in world of network services. It was a chance to reengage with all of our customer base in brand new way. It was as if we disappeared for a couple months, then came back with a whole bunch of new things, tons of new products in the market.
BI: New products?
We began the process of publishing more than 800 new products into the store in the days and weeks following the restoration of the service. New movies and TV shows, we add new music every week, game publishers added new titles, new game add-ons.
It was a very positive return, but I hope we don’t have to go through something like that again.
BI: Are you back to where you were before the outage?
We’ve seen more than 3 million new customers since we’ve come back. We’ve seen sales that exceeded what we saw in months prior, and a continued trajectory that’s stronger than ever. I don’t want to say there was no negative impact, but the customer base is very strong, and we’re seeing good growth. I’m expecting we’re going to have a great year this year despite the outage. We were not sure what would happen when we came back.
BI: Why do you think your customers have been so forgiving?
TS: We have a pretty passionate customer base, that’s something the PlayStation team has cultivated over many years. We had some launches of some big titles — some Call of Duty map packs, those are always really popular.
Also when we came back online, one of things we did to encourage and thank customers was this welcome back package, we offered some elements that related to identity theft protection and insurance, but also offered a bunch of free content so people were able to go online and get movies and games. We made it possible for everybody to try a PlayStation Plus subscription for a period of time, we gave people a chance to try the music subscription service.
But at the base of it, we have a pretty passionate customer segment. We did a lot of work to make sure they’d come back.
BI: So back to the music subscription service. Spotify just came to the US. How does all the hype around Spotify affect Music Unlimited?
TS: It will be a positive force. It will further put into minds of media and consumers that these kinds of services are totally credible.
Apple spent lot of energy over last 10 years marketing against these kinds of concepts, large campaigns that music is an ownership kind of thing. But a lot of leading thinkers in music industry these days believe that for the current generation, the younger generation, music is all about access.
We see in our daily life customers going for subscriptions in so many domains. Satellite radio service is a slightly different kind of offering, but they’re showing good numbers and we think the time is right for subscriptions.
It’s a long struggle. If you think back, even a year ago people were asking question “is there really anything left to be done in music market?” If you look at the situation now, it’s completely different. It’s a very vibrant space today.
BI: What about Apple’s iCloud and the iTunes “scan and match” service? Can you compete?
TS: By Apple doing this, they’re acknowledging they can’t ignore it [cloud-based music] any longer. It’s probably ultimately good for industry that they’ve been able to bring something like this to life in a legal context — the rights they’ve been able to negotiate are probably rights that will flow into other services.
I’m not sure consumers understand differences between these offerings. Apple traditionally builds products that are easy to use, but they haven’t really changed the model [from downloads].
BI: So you have an Android version of Music Unlimited. Are you going to try and get Apple to approve an iOS version, like they did with Spotify and other subscription services?
TS: When we started we were very focused on bringing service to life on home-oriented devices, that’s the sweet spot for Sony. We’ve done that, and we introduced the Android app.
iOS is a significant platform, we’ll have to support that over time. Android was a very good and natural first target. We don’t expect to stop there. I wouldn’t say iOS is the end of the line either. Our commitment is to make music available wherever customers want to be.
BI: If Music Unlimited doesn’t take off as expected, would Sony ever consider partnering with Spotify or another company?
TS: We do partnerships already. We offer network service capabilities through our products in dozens of countries, and have engagements with more than 200 third-party service providers. On the video side we have Netflix and Hulu partnerships, we’ve done third party agreements with Major League Baseball and other sports franchises.
On the music side, in various parts of the product line we’ve done partnerships with other music services at various points. The question is, is there a service with interesting differentiation or interesting traction in market that informs us that customers would really care about it? The first and foremost mission of my organisation is offering consumers right portfolio of services. Where we believe we have an opportunity to compete and bring unique value, that’s where we’ll make our own investments.
BI: What do you think of Microsoft’s announcement that it’s adding live TV to Xbox Live?
TS: We already do that — it’s not available in the U.S., but in Europe and Japan we already offer a product that basically functions like TiVo. it’s a DVR with a very sophisticated user interface, it uses an inexpensive piece of external hardware to do the digitizing, and software you run on your PS3 that does the program recording.
There are all kinds of interesting opportunities with cable providers, we talk to the same companies Microsoft talks to in these cases.
The issue from my standpoint ends up being the extent to which investment in this area is going to provide interesting value for consumers. We don’t want to spend time on things that might not in the end be all that attractive.
BI: Would Sony ever buy Hulu and build it into the network?
TS: I think Hulu has built up an interesting brand, it’s quite popular in the US. We certainly look at these kinds of things. I’m not sure — it’s a pretty expensive property, so it’s not clear to me that they’re the best area for us to go into.
BI: So who do you think will buy them?
TS: A lot of companies have already built the core infrastructure to deliver those kinds of video services, so that seems like a lot of money to pay for the brand.