Sony's Playing to Win

Sony ( SNE) has been king of the video-game hill for the past decade, but its position is beginning to look precarious.

Rivals Microsoft ( MSFT) and Nintendo are on the attack, and they seem to have a better footing than in the past to truly challenge Sony's dominance.

By the time Sony's PlayStation 3 console shows up on store shelves this November, Microsoft's own next-generation console, the Xbox 360, could have a lead of more than a year and 10 million units in the marketplace.

And recently, Microsoft took away a potential weapon in Sony's arsenal by getting Take-Two Interactive ( TTWO) to release the next version of its uberpopular Grand Theft Auto franchise simultaneously on both Microsoft's Xbox 360 and the PlayStation 3 -- rather than giving Sony an exclusive, as it had done in the past.

Meanwhile, Nintendo has drawn rave reviews for the emphasis it's placed on fun and innovative games for its upcoming Wii console. And with a price that will be hundreds of dollars less than the PlayStation 3, the Wii could attract gamers who are eager for a new console but not willing to pay a premium price.

Sony's shakiness compared with its rivals seemed especially evident at last month's video-game conference. While its rivals made big splashes with their announcements, Sony's presentation was generally considered to be a dud .

To Sony's Jack Tretton, though, the company is exactly where it needs to be. Sony has faced challenges in the video-game business before and has always ended up on top, says Tretton, who is co-chief operating officer of Sony Computer Entertainment America, which heads up the company's video-game efforts in the U.S.

I spoke with Tretton earlier this month about the challenges Sony faces as it prepares to launch the PlayStation 3, and how the company plans to meet them. The general reaction to Sony's presentation at E3 this year seemed to be disappointment. How did the company view it internally?

Jack Tretton: We were really pleased.

If we were trying to do a PR blitz on our announcements, we would have perceived it a little bit differently. But we really saw this as an opportunity to announce some very important details to the trade. And I think if you ask the trade, meaning the retail constituency and the third parties, they came away pretty pleased with how everything went.

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