Shawn Layden: Xbox Is at Its “Dreamcast Moment” | PlayStation, AI & AAA Costs

Hey, Luke, thanks for having me on.

Absolutely. But just give me a thumbnail about your fans. Who will be tuning into this, do you reckon?

Okay. Well, we'll be sure to keep it PG-13.

All right.

Sure. Sure. I mean, that's a target-rich environment as they say, Luke. So, let's see, what's the best way to approach that. I think, you know, if you want to talk about the PlayStation 4 generation and the Xbox model which came out at the same time, I think for the PlayStation folks it was kind of a we're trying to create a story of redemption after the hard years of PS3. Nothing like trying to sell a $600 game machine back in 2007. It was a tough time. And I think we learned a lot of things in the PlayStation 3 era. We learned that, you know, being a multimedia box was probably a mixed message or at least a confusing one. And I think we made a deliberate decision with the PlayStation 4 era just to be a game machine.

A game developer who will know exactly what we need to do to the technology to make it easier for developers to get on board, easier for them to bring their stories to life. And constructed into a box where we could sell for $399, which I think we managed to do when we launched PS4. It was a rock 'em sock 'em generation between Team Green and Team Blue. I think there was a lot of back and forth. Game Pass was one of the innovations that Microsoft came out with trying to find a way to bring... Oh, there were a whole bunch of different reasons why around Game Pass at one time. It was for people who can't afford the hardware, this is an easier way to get into the gaming experience. For people who aren't beholden to one game but want to try many different games, this is a good opportunity for you. Subscription services were lighting up all over the place, whether it was Spotify or Netflix, and it seemed a natural outgrowth for gaming. I think on the PlayStation side, we were a bit more skeptical about it. We did have PlayStation Plus, which in a lot of ways was a way to activate your PS3 memories or vaults, or one of the sad little truths about video gaming. And maybe we've conquered it in the last couple of generations, but for a period there, every time you had a new piece of hardware, it kind of consigned your library to the closet.

Right? You get the new box, you get the new games, the new box, and oh, my old games don't play in the new box, and so there it goes. But we realized there's a whole bunch of great PS3 game IP out there that, you know, if we could get people to stream those from a PlayStation 4 and have access to, you know, these older games, these classic games, was a benefit. It also gave us a chance on PS4 to help elevate some indie games. I think we had Rocket League on PlayStation Plus very early to get that some exposure, and it turned out to be, you know, the biggest game of its time in that category. For small developers, it was a good way to get yourself seen, but it was never going to be the place to put day-to-day release of a frontline AAA game.

Completely. And I think I said somewhere at the time that in order for Game Pass to become profitable, you have to have something like 500 million subscribers. It's a number chosen for hyperbole. But turns out, wasn't that wrong? And people would always say, well, Microsoft is profitable. But that's like saying the casino is profitable. The house always wins, right? So the platform itself can find a way to create a profitable experience out of that. Where it's not profitable is for developers. Developers who are building a game and your hope is always to get into overages, into profit sharing, to blow through your break-even point where you start turning a profit on your games in a subscription model. That's just impossible to do. Not to mention all the black-box accounting that goes around that, that you don't really know how many people watch my game or listen to my song or watch my movie or played my game. You're just told this is your number and, you know, please enjoy. I think we've seen the phenomenon play out in music over the years, whereas I don't think any musician is buying a Ferrari with their Spotify check. Let's be honest.

So in gaming too, we found that problem is that there is no alternative in gaming to, you know, people aren't going to pay money to go watch the Santa Monica team code God of War.

You can't have a live coding event and charge tickets for it. Gaming really only has release, only has launch. Free-to-play games have a different curve because we know how that dynamic works. But strictly speaking, your $69.99 game has one chance to bust out and break through. And that's where these subscription models, I think, came in conflict. PlayStation didn't go that route with day-and-date on AAA games. Microsoft did. You know, you can judge the outcome on your own.

We learned our lesson early.

Oh, of course. You know, everything old is new again. I don't have any line of sight on what either of the platforms are doing for the next generation. So let me just be upfront about that. I haven't talked to any designers or engineers or I don't even know what the road maps are for these things. But I do think that we are at a point where if all we're going to do is, I don't know, increase ray tracing and jump the teraflops, I don't know if that message resonates to the consumer to reach into their pocket and pull out $1,000. I think, you know, have we reached, has technology reached some kind of plateau, let's say, where just more, faster, more colorful is itself not a goal any longer or not a differentiator. I mean, from PS1 to PS2, you know, that was like VHS to DVD, right? Once you saw a DVD, you could never watch a VHS tape again. It's like, oh my god, my eyes. And same with one to two and two to three. And then the plateau begins to hit and the curve isn't as great. And if people are being asked to even kick up more money for that improved experience, if the improvement is really esoteric or, as I've said before, the changes only dogs can hear, then, you know, you might want to rethink what we're talking about. I mean, just take the automobile for example. If the automobile always had to be faster than the one before it in order to have a new model come out, all of our cars would be 900 horsepower.

Right.

There was a point we said, no, yeah, you know, 350, 400, that's probably good. And, you know, we do advances in other areas and other attachments to it. So, yeah, what is that key innovation? That key innovation just can't be more compute because I'm not sure what that gets us. For the same reason I don't think I'm ever going to buy an 8K TV. I mean, 4K is all the case I can handle right now.

Again, people kept using that nomenclature. Netflix of gaming was kind of the shorthand people were using for some of these subscription services, whether it's GameFly or whether it's Game Pass or PlayStation Plus or what have you. You look at Spotify. So Spotify, music streaming, TV streaming, then games have to be streaming. There seemed to be some sort of empirical logic around that, that this is the way the thing had to go. But as we talked about earlier, gaming, music has different ways to get paid and movies have box office and TV have robust advertising platforms built around them. Gaming is just a different beast and I think it will not follow the same behaviors that, let's say, music and television and film have done in this area. So, I think what's happened in music is some people think music costs nothing. You know, I think the music industry through these all-you-can-eat streaming programs has kind of devalued, you know, the unit cost of a song. You know, what does that mean to you? I give them $1.99. I listen to all the songs in the world all I want. Which is a great consumer proposition, but it's not a great musician proposition, let's be honest. And I think we see that devaluation in television and in movies as well through some of these services and some of the stuff they're putting out is, I think the quality bar has fallen across most of the streaming platforms, to be honest.

Yes. Costs go up. And how many TV shows have you watched where season one was great and season two you knew they put the B team in the writer room? Oh wow, scripts just got really bad between season one and season two. And gaming threatens to have that problem too. Whether it's chasing games as a service, that's a whole different conversation we'll probably get to at some time in this interview. And then trying to build your content with just a target market, like doing all the number crunching, saying this demographic plays these kind of games, these many hours a day in these kind of circumstances. They tend to like these kind of characters, those sort of things. And taking all those data points, saying, can I build a game that ticks all these boxes? Unlike the olden days where you just said, I don't know, Kratos, he's a madman. He killed his family and now he's just gonna go on this God of War thing. It wasn't a lot of market research going into that. It was just the creatives saying, wouldn't this be a cool thing to build? So, I think the guys at Rockstar, GTA 6, that's going to be stalking. And that's the game that Sam and his team wanted to build and they built it. And I give Strauss props for all the patience he has in waiting a very long time for this to come out. But they know what they're doing. They're fine. But other places have, I think, pandered, maybe too harsh of a term. But I do think a lot of teams just, they're trying to build the thing that they think is just going to hit rather than build the game that someone in there just has bursting out of their brain that they just need to, I need to build this game or I can't sleep at night.

Yeah, I guess you could boil it down to that.

I don't know if you're overreading, Luke. There's a lot to read there. But I do feel that artistic vision still requires guidance, right? Strictly artistic vision with no guardrails. You know, I won't name the games, but you know the ones I'm talking about, [laughter] which just kind of came out to the market and you go, what were they thinking when they built that thing? So those things still occur. So you have to have with that power to the creative, respect the artistic vision, you still need to have guardians in the room to kind of editors say, editors or I had a boss in Japan, one of my first development bosses, and, you know, we used to pitch games. He came from Sony Music, so he was kind of an A&R kind of guy, like listening to bands, trying to decide to sign bands. Now he's looking at games, trying to decide which games to greenlight. And one of his comments would be to a game that was otherwise, you know, unoffensive or nothing really wrong with it, but his comment would just be, which translates into English as doesn't smell like money. Ah, so it's things like that. It could be a great band. It could be a great game for a whole host of reasons, but it doesn't ladder up to something that a large enough market really cares about or wants to know about or can be persuaded to embrace. Now, this is the same team which back in the day we greenlit PaRappa the Rapper, 2D paper-mâché dog does kung fu in a dojo with an onion. Most people would say that doesn't smell like money either. But it was important for the platform to do games like PaRappa to do the innovation that created rhythm action gaming, you know. From the creation of that creates a genre where Ubisoft made some money in that area. And, you know, Rock Band can trace some of its DNA back to PaRappa the Rapper, is making music interactive, music a way of doing a game loop. So those kinds of investments are important. Now, you don't build a $300 million property PaRappa, right?

I think it's interesting recently on the internet, someone pulled up an old 2014 E3 clip from my stage thing there and I was talking about Vib-Ribbon. And Vib-Ribbon...

All right. It was made by the team that did PaRappa the Rapper. And it was a black and white raster spline, little rabbit walking up a white line. And if you hit the rhythm in time with the music, then he would transform into the prince rabbit. And if you messed up the music, he'd transform into the slug rabbit. And that was the gameplay. But the conceit of that was you could put your own music CD into the PS1 and it would generate that geometry on the fly. Every CD. Oh, yeah. Some people go around and say, do the Britney Spears one, it's really crazy. Do the Michael Jackson one, it's really crazy. And I sat on stage in 2014 that it wasn't a multi-million seller, but that wasn't the point. We didn't build Vib-Ribbon because we thought it was going to sell 5, 10 million units. We built it because it was different. It was important. It made people think differently about what a game could be, how that experience could be expressed, not just shooting and fighting and racing and such. So those are important games to do. So I do think artistic vision is important. Artistic vision with guidance is required and sometimes, yeah, you throw some money over there, do something really crazy and just see what happens. It's okay.

Well, to be fair, you know, back in the PS1 days, you could spin up a lot of these games for just about a million dollars. Sometimes less, sometimes a bit more. And at that price point, why not try 10 Vib-Ribbons? You know, nowadays, you can't even get to proof of technology until you've burned through $25 million on building a AAA game. So the risks on the table are greater. And so I think there's been an overemphasis recently on being data-driven. Are you data-driven? Which I think is the wrong path. I use, of course, we all use data, but I use data almost in a dispositive way. Does the data show me how this will definitely not work? Interesting. Sometimes you can get those answers and those are pretty well. No, there's no way we can get 7,000 people in this one room one time. Okay, the data doesn't work. Or this functionality has never worked or this type of game has never been successful, etc., etc. You can look at data in that way. But having data points you to an opportunity is almost impossible. I had the privilege early in my career, you know, I joined Sony in 1987 in Tokyo. So I was working in Japan in the '80s and the '90s and I had a chance for about four and a half, five years to be the personal assistant to Akio Morita, the founder of Sony. Wow. And that was my MBA. You know, five years of Morita was better than going to school. And, you know, he was very adamant and this is why I think later on we would learn that Steve Jobs really held Morita in great esteem and, you know, wanted Apple to be like Sony, ironically. But he would say that no manner of market research or data in the world would have given you the Walkman. That's a good point. The idea of taking, we had cassette recorders because we were selling to journalists because they were using it at press conferences and we had headphones because we have audio systems. You sit at home with your headphones on and just to put those things together and to create personalized audio, which was like taking that transistor radio DNA that Sony had from the 1950s and bringing it up into cassette recorded music. He's right. No market research, because he and Steve Jobs said this as well, said you can't ask the consumer what they want because the consumer doesn't know what the technology can do. So they can't be expected to give you innovative ideas. So you have to have that leap of faith. You have to have designers or artists or creators that can come up and say, this is going to be super awesome. This is why, and let's go with that. So I think Sony has that DNA. I think that DNA carried through to their creation of Sony Computer Entertainment, which was the first holding company for PlayStation, now called Sony Interactive Entertainment. But that risk-taking that you got to try it before you know. Now, today when every spin of the wheel is going to cost you $100 million, sadly, risk tolerance goes to zero really fast. And people who greenlight things in the room. A lot of finance people now in these rooms where it used to be, you know, developers and marketers trying to decide what they're going to make. Now the finance guys have a full seat at the table and they go, look, show me the comps. If you build this game, what's it like? What can we match it against? That's why we like to do sequels because we know what the first one did. We can guess what the second one going to do. We like to do copycats, you know, let's do a Call of Duty kind of game or let's do an Apex Legends kind of game because we can plot what those sorts of games do in the marketplace and we feel more comfortable putting our dollars behind that. If I come up with unicorns in space playing cribbage, there's just no comp against that. [laughter] So you just can't get that thing greenlit at all. And it probably shouldn't be greenlit actually, but you know, just an idea that if you are going to have to track against past performance, you won't get many new games anymore.

You got to keep the faith. You just know the team knows the story. They know Kratos. They wanted to tell a different story about him years later. You know, up in Scandinavia, up in the Norse realms. They wanted to have a father-son expression in that story. And yeah, there were a lot of people who said, hey, wait a minute. Can we just go back to hack and slash? But you've got to in that moment when a creative team has made such an iconic character, has created such value, have been successful in the way they have been. Sometimes you just got to take it on trust. It's like we trust you guys. It was like when we did Horizon with Guerrilla after three or four Killzone games. They did a big leap. They did an in-house kind of game jam trying to find out what their next game should be and they pitched Horizon because I think Killzone they only used in their color palette green, brown, gray, and black. So Horizon allowed them to use the rest of their palette set which was nice. And a completely fresh story. And again, that was also about trust. Like these guys make good games. They're trying to make something new. They want to challenge that. They laid the plan out and yeah, you just have to have faith. Granted, faith at $75 million on a projected budget is different than faith on $300 million projected budget.

Yeah, that's crazy. That was after my time. So I don't have any insight on that either. But yeah, games are too expensive. We've been talking about that for five years, six years. I was talking about that when I was still at PlayStation and people say, well, Shawn, it's your fault. You greenlit these games. Yeah, I know. But being on the inside, I could tell this is going to be a problem. We cannot continue at this pace. You know, the old standard was every generation of hardware development goes up 2x. So a million dollars on PS1 is $2 million on PS2 and $2 million on PS2 is $4 million on PS3. Whatever. Actually, those, that acceleration was faster than that. Yeah, I said more extreme. Yeah, we blew right through $60 million really fast and got to $100 million really too quickly. I think, and so you have to look at it and ask yourself what is in the cost of a game honestly. It's just salary, right? It's not like we've had to build a factory or it's not like we turned, you know, sand into glass or oil into plastic and constructed this huge capex burden. No, it's just people coming together to build things. Now, of course, when you're building games for PS1 and all you had was 776 megabytes of compact disc storage, sure, that determined pretty much how big your game was going to be. And but now, if you're looking at double-sided Blu-ray, 80 gigs, you just have that much more to write to. When you're creating environments that barely run at 480i on an old cathode ray TV compared to building 4K geometry for these endless cityscapes that go on for miles. That's a lot of artists and that's a lot of artist time to build these things. So I think we kind of didn't watch that acceleration as closely as you probably should have as leadership to see how quickly that thing would blow up.

The gaming industry. Yeah.

Yeah. And part of it, you know, I've always said that back in the early days of PS1 or PS2, a gamer was like 18 to 23. And when you're in that 18 to 23 mode, you are largely money poor and time rich. So, way to put it, you know, Zelda 100 hours. Sure, I can't afford to buy another game. [laughter] I'll just play the hell out of that. And then journalists started using playtime as kind of a metric. It's like, well, it's a great game, but you know, it's only 30 hours. As if that was like unworthy, right? Yeah. Now, in my 40s, I'm like, I would love a game to be 15 hours only, please. And here you go with the average age of gamers in their 30s now, if they're not money rich, they're definitely time poor. And so we look at, we should take a look at that and say, you know, I will also go back to the PS1, PS2 era. I think some of it is on us in development because there was a time when you could rent games at Blockbuster. Go on a Friday, you could rent a game and we just wanted to make sure that you couldn't finish it by Sunday. Yep. Those were good weekends. Those were good weekends. I remember. So I think some of the games started to kind of pad themselves out. So you couldn't complete them in a weekend to fight against this rental business. So we kind of made that rod for our own back as the Brits would say. But that's just it. And you know, I've been involved with plenty of games that are 80, 90, 100 hours of gameplay. And I'll be the first one to say they're not all quality hours. You know, some of that is running across the desert to get the red key to open the red door when you come back, right? So I would rather see a world where we have good 20 to 25 hour games that are just action-packed like a John Woo film that you just, you can't put down the controller. There's no running across the desert. There's people chasing you across the city and all these different kind of action pieces. And keep it tight and keep it banging. And that's where I like to see it go. If we can make those smaller scale games and have an idea that what we're building to is that kind of a template, I think a lot of the costs associated with game development will start to, if not decrease, at least stop increasing. Offshoring is done everywhere. A lot of the cost impact sadly is due to cost of living here in the West Coast of California, the West Coast of America. A lot of studios here, a lot of talent here. This is the center of the gaming universe, but it's the most expensive place to make a game. And there's some pressures against that. You see more studios coming up in Eastern Europe and South Asia and South America. And that's good. You know, we should have a world of games built by people who don't live in Silicon Valley. Yeah. Right. Have different experiences, tell us different stories. I think you can manage a lot of the costs down in game development. It's harsh, but it can be done. And I think we're probably at that existential point right now where these things are going to have to happen. And don't think it's going to be AI, people. Don't just think, oh, AI is going to solve all this. It's not.

I think this is true for industry across the board, whether it's gaming, whether it's accounting, whether it's, you know, biotech or whatever. AI is a tool. It's not a solution. AI is an assistant. It's not a leader. You know, for that matter, in gaming, we've been using artificial intelligence for 60 years, right? Yeah. I mean, when you first played Pong, do you think there's a little guy inside the machine running the other paddle? Nope. That was a computer. And that's just another version of artificial intelligence. You know, playing against the CPU. That's artificial intelligence. When you're playing Madden, the other 10 players that you aren't controlling are being controlled by something, something called artificial intelligence. And so this was something we've been using in gaming since forever. And only the last four or five years with the advent of being able to use natural language prompts to make the AI do a thing has it become like broken out of containment and now everyone's talking about it and everyone thinks they understand it. It's something we've used in gaming. You can call it machine learning, you call it procedural generation, you call it all these different things. But we've been doing it forever. And I think with the advent of some of these generative AI tools, there may be parts of the process which can be accelerated. There'll be parts of the process which instead of getting 500 people to log in to load tests, you know, we can get five people and we can multiply it against a number of bots. We do that already with bots anyway. We never have 10,000 people load testing a game. We just get a bunch of bots to do it. So I think that continues apace inside gaming. People talk about different things. People talk about, well, AI is going to let you have a conversation with the NPC in your role-playing game. And I'm just speaking as one user. I don't really want to have a conversation with the NPC in my role-playing game. I want to go to the blacksmith and he's going to say, looks like you need a new sword, my son. And then give me a new sword and that's it. I'm done. I don't need to know that his daughter went off with the milk boy yesterday and hasn't seen him for three weeks. No, no. Just give me my sword. Thank you very much.

Look, Square tried that with all their Final Fantasy games and we all press X just to go through all the little dialogue bubbles that come up to get to the decision.

So I think in those ways it helps around the edges. It maybe makes some things simpler. Maybe in a network world there are other aspects of using AI which I don't understand that may be helpful, but I don't think it's anywhere near a panacea. And I don't think it alone will not save gaming. I think gaming has to save itself.

It's a lot of setup. I'm sorry. I'm not sure what the question is in there, Luke.

Well, I certainly think that what's the phrase, the timing was suboptimal. It is fair enough to say just from an outsider's perspective. And again, I've got no line of sight on any of this either. I'm just you, me, and the other guys sitting outside the barn looking in. Kojima-san is a singular talent. He's a force of nature. And I think, you know, speaking from having worked with him before in the past, I think it's important for other publishers to have the unique opportunity of working directly with Kojima.

I mean, I think when we had our E3 press conference in 2016 where we had at the Shrine Auditorium, which was a crazy place to do it, but the sports arena had been closed and we opened up with having the 80-piece orchestra in the pit and we had the God of War theme and we had Cory playing live code right there in the room when Kratos comes out and says, boy, I'm hungry. And he steps through the door and the crowd goes wild.

Oh yeah. Yeah. Whenever I'm having a bad day, I watch that again and my day gets better. We also had Crash Bandicoot. We brought it back in that press conference. I think we even teased Spider-Man in that press conference. And of course, we had Kojima walk down the Michael Jackson staircase with the lights on it to say he's back. And I think in 2016 that was a super important announcement for PlayStation, for gaming really. I think in 2016 the company, the platform really showed that it was the entire package. It was all there. And now Hideo Kojima was sort of the icing on the cake with maybe the cherry on the cake, cherry on the sundae of having just split from Konami and whatever kind of drama was around that. And, you know, Andy did that great YouTube video with him in Japanese because, you know, Andy spent most of his career there and we brought him on board and we started working on Death Stranding together. It was an important moment in gaming and to get him back and get him independent. But, you know, people have their idiosyncrasies.

Sure. Sure. But I think those idiosyncrasies from the consumer side, strictly my experience versus which is likely very different than yours, they can bring about some wonderful art. You know what I mean? Some wonderful experiences, you know.

Yeah, you're not kidding. You are not kidding. I uniquely remember...

Yeah, it could do that. Yeah. Yep. Yep.

I think in the establishment of a platform in the video game business back in the day, it was Atari, then it became Sega and Nintendo, and then PlayStation busted into the room back in 1994. To be quite honest, a lot of the top executives at Sony Corp were against the PlayStation idea. They thought it was beneath Sony's high-end consumer electronics brand to be making a toy.

But Kutaragi-san, he was dogged. He was not going to be denied. And so we went into the business up against Nintendo and Sega. We didn't have a lot of content of our own because we'd never made games before. So we were trying to put that together at the same time. You know, the old joke was you can't launch a PlayStation without Tekken and Ridge Racer. And our friends at Namco came through for us — PS1, PS2, PS3, PSP.

Always had our Tekken, always had our Ridge Racer. So that was kind of a third-party exclusive relationship we had with Namco. And they got to get in the engineering room before you even — you know, they were NDA'd six ways from Sunday because they had early vantage on all the technology, which is important for them to make it in time to launch the hardware. But probably the big third-party exclusive that really shook the gaming world was when Sony convinced Squaresoft to bring FF7 off of Nintendo and onto PlayStation.