The Play Station Nintendo Tried to Kill

On May 31, 1991, Sony announced a console it had built with Nintendo.

The machine was called the Play Station, two words back then. It had a slot for Super Nintendo cartridges and a second slot for Sony's new CD format, and Sony pitched it as a hybrid: Nintendo's games, Sony's disc drive, a single box under the TV.

Sony's people had shown it off to the same packed hall in Chicago the night before. The public announcement landed on the Friday, on the eve of the Summer Consumer Electronics Show.

Then Nintendo took the stage. Howard Lincoln, chairman of Nintendo of America, told the room Nintendo would build its CD-ROM add-on with Philips instead. A Sony executive at the show said management were "apparently outraged," and added that if Nintendo were looking for a fight, they were going to get one.

The agreement being torn up had been signed in 1988. Sony brought the disc technology, Nintendo brought the games.

The fight underneath was about who collected the money. Sony proposed that it take the revenue from CD games while Nintendo kept the cartridge revenue, with royalties settled later. Chris Deering, then at Sony-owned Columbia Pictures, described the reaction: "Nintendo went bananas, frankly, and said that we were stepping on its toll booth, and that it was totally unacceptable."

Nintendo's fix was to remove the toll booth. It swapped partners in the middle of a trade show, in public, with Sony's demo still warm.

Norio Ohga, Sony's president, was enraged. The engineer behind the project, Ken Kutaragi, had already nearly lost his job over Nintendo once. In 1983 he watched his 2-year-old daughter play a Famicom and decided Sony belonged in games, and when Nintendo needed a sound chip for its 16-bit console he designed it in secret. Sony's executives were furious when they found out, and only Ohga's approval let him finish the chip and keep his job.

Kutaragi went back to Ohga and argued that Sony should build the console on its own. Ohga's answer was "Just do it!"

By then roughly 200 prototypes had been built. Nintendo's lawyers went to court to stop the machine from shipping. They lost. It ended up not mattering much: the PlayStation shipped in Japan in December 1994 and sold well over 100 million units.

Look at the structure of the snub, though, and Nintendo's move reads as a rational response to a deal that had turned against it. Sony's proposal made Sony the gatekeeper on every CD game sold for a Nintendo console. Nintendo's console business had been built on controlling exactly that gate for cartridges.

By 1991 that gate was worth more than the deal was. Sony had a grip on Nintendo's next machine, and Nintendo had no way to price it out except walking away. So it walked. That walkout handed Sony the one thing it could never have taken while the partnership lived: the right to sell a console with no Nintendo in it.

Sony had been a supplier. The walkout made it a platform owner, and Sony Computer Entertainment became the most profitable division inside Sony, a company that had spent a decade treating video games as a fad.

Kutaragi survived inside Sony for the same reason he was dangerous there. He had a senior sponsor who valued the engineer who argues.

He needed Ohga twice, once to keep his job over the sound chip and once to keep the console alive after the snub. A side project with executive air cover is how a big company buys options it never planned for.

The founder version of this is a due diligence question. Before you sign, work out what the deal hands your partner over you, and what your partner can do with that power if your share of the value grows. The answer usually looks fine at signature. It looks expensive 3 years later, once the incentives have moved and nobody has renegotiated.

Sony built 200 of the machines Nintendo never got to cancel. One of them survived in a box and sold for $360,000 in March 2020. The deal was the cheap part.

Sources

• Sony, Nintendo Plan Video Game System, Los Angeles Times, June 1 1991
• Nintendo Made Big Error in Negotiating Game, Los Angeles Times, June 4 1991
• Nintendo and Philips vs. Sony in new video game war, UPI, June 3 1991
• The Making Of: PlayStation, Edge
• Fabled CD-playing, SNES-compatible "Play Station" prototype found in a box, Ars Technica
• How the Unreleased Nintendo PlayStation Became the Most Valuable Game Console Ever, IGN
• Ken Kutaragi, Wikipedia

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