All Things Digital

“What has become of the Sony known for its technology,” Japanese Economy, Trade and Industry Minister and former Sony employee Akira Amari asked in October of 2006. “I hope it will solve its problems soon to quickly recover its brand image reputed for technological prowess.”

If Amari can recall when that was Sony’s image, he has a good memory. Because Sony (SNE) lost its dominant position in consumer electronics to rivals in Japan, South Korea and the U.S. long ago and has yet to regain it.

But it will soon, according to company CEO Howard Stringer, who announced today a new growth strategy designed to re-establish its global supremacy. Stringer’s plan: to peddle software and video-downloading services, not just hardware. And to bind them together over the Internet. “Our mission is simply to be the leading global provider of networked consumer electronics and entertainment,” Stringer said at a news conference.

To that end, Sony will soon announce a movie download service for its PlayStation 3 game console. And this fall it will begin broadcasting films and television shows directly to its Bravia TVs via the Internet. And if all goes according to plan, 90% of Sony’s devices will wirelessly connect to the Net by March 2011. Perhaps even Rolly, Sony’s dancing iPod killer …

Said Stringer, “This is not your father’s Sony.”

Hope not. Because my father’s Sony is Apple (AAPL).

It’s likely a challenge to program and a bitch to debug, but IBM’s (IBM) new Roadrunner supercomputer is the most powerful in the world. With 12,240 cell processors typically found in Sony’s (SNE) PlayStation 3 console and another 6,562 dual-core AMD (AMD) Opteron chips, Roadrunner has been benchmarked at 1.026 petaflops (1.026 quadrillion calculations per second). And that places it atop the latest Top500 supercomputing ranking as the most powerful computer in the world.

The first computer ever to pass the petaflop milestone, Roadrunner is more than twice as fast as the top-ranked computer in the previous Top500 ranking. It’s also one of the most energy efficient systems on the Top500. But you wouldn’t know from looking at it. It’s housed in the Los Alamos National Laboratory and will be used principally for nuclear weapons simulations.

Grand Theft Auto IV, the latest installment of Rockstar Games’ (TTWO) controversial Grand Theft Auto series, arrived at market today amid a suppressive fire of Entertainment Software Rating Board warnings. “Blood,” “intense violence,” “partial nudity,” “strong language,” “strong sexual content, “use of drugs and alcohol”–it’s all there, along with simulated drunk driving and in-game prostitution, for which the ESRB apparently doesn’t yet have specific designations.

And while the anti-GTA zealots who blame the game for inspiring real-world violence are decrying it, the press is heaping it with praise (of 31 reviews listed on Metacritic.com, 24 are perfect scores). The New York Times calls it “a violent, intelligent, profane, endearing, obnoxious, sly, richly textured and thoroughly compelling work of cultural satire disguised as fun.” Noting that innocent bystanders in the game now groan in agony when murdered, Slate’s reviewer explains, “what makes Grand Theft Auto IV so compelling is that, unlike so many video games, it made me reflect on all of the disturbing things I had done.” MSNBC says simply: “Grand Theft Auto IV will blow you away.”

Which is likely what it’s going to do to sales estimates as well. GTA IV was inevitably going to be one of the biggest games, if not media events, of the year–one that Hollywood executives worry might depress movie ticket sales as GTA fans drop everything to play the game. And though that might sound like so much PlayStation 3 promoting exuberance, it may not be that far off. With $400 million expected in first-week sales, GTA IV’s debut could be the most lucrative launch in entertainment history.

Woolworths has declared a winner in the next generation DVD format war and it’s not HD DVD. Yesterday, the British chain said it will stock only Blu-ray discs, becoming the first major retailer to drop HD DVD.

Woolworths’ decision came after it found Blu-ray movies outsold HD DVD by 10 to 1 in its 820 stores. “Sales figures clearly show that the market is moving toward one format of high-definition DVD,” said Woolworths’ DVD buyer Steven McGunigel. “The main reason is the success of Sony’s PlayStation 3 machine. Because it plays Blu-ray discs, there are over three-quarters of a million homes in the U.K. that can view the new high-definition format. There is no where near that number of HD DVD players around.”

Another nasty blow for the HD DVD, which appears to be fast losing the support of its initial backers. Last week, Warner Bros., New Line and HBO all abandoned HD DVD. And according to Variety, Universal’s exclusive commitment to HD DVD has expired. Toshiba, HD DVD’s, main backer, is soldiering on in spite of such setbacks. It’s even gone and purchased a 30-second TV spot during next week’s Super Bowl. But as Andy Parsons, senior vice president of the Blu-ray Disc Association points out, it’s no silver bullet. “I certainly admire [Toshiba’s] chutzpah,” Parsons told Home Media Magazine. “They can certainly choose to do as they please with their marketing. Running a Super Bowl ad is not likely to convince consumers that HD DVD will win the format war.”

And in the end, is this particular format war even worth worrying about? Isn’t physical media doomed? “People are saying Blu-ray won the war but who cares,” Seagate CEO Bill Watkins said earlier this year. “The war is over physical distribution versus electrical distribution, and Blu-ray and HD lost that. In this, flash memory and hard drives are on the same side. The war is over and the physical guys lost.”

Note: John Paczkowski is on vacation and won’t be writing or posting videos until he returns on Monday.

To keep you abreast of tech news while he’s away, we’re compiling a daily digest of 10 must-read tech stories. Our Tech 10 appears below.

1. Auction Action: Confirming the expected, Google announced today that it would indeed apply to bid for wireless spectrum in the Federal Communications Commission auction in January, writes Kevin J. Delaney in The Wall Street Journal, adding that if the search giant grabs a wireless license, it could become a provider of mobile phone and Internet services, among other things.
2. Facebook Gets a $60 Million Infusion… Hong Kong mogul Li Ka-shing has invested $60 million in Facebook, reports BoomTown’s Kara Swisher, who notes that the billionaire businessman has the right to invest another $60 million.
3. … And Pulls Back on Privacy: The social-networking site, under siege from Move.On and its own members, as well as from “Landmark Partner” Coca-Cola (which, says Louise Story of the New York Times, is holding off on participating in the social-advertising feature) has announced changes to its new Beacon ad system. Observes Om Malik: “Facebook finally backed down, more or less acquiescing to the demands of those concerned about its seemingly blatant abuse of privacy of its fast-growing user base.”
4. Rise and Fall of Motorola Magnate: Ed Zander, CEO of the electronics manufacturer whose mojo with the Razr cellphone brought the company big gains, is resigning in the face of equally disappointing declines to rival Nokia over the last year, The Wall Street Journal reports. Greg Brown, the company’s president and chief operating officer, will succeed Zander.
5. Sprint Rejects a Suitor: Sprint Nextel has turned down a $5 billion investment offer from Providence Equity Partners and SK Telecom of South Korea in exchange for sacking its management, according to the New York Times.
6. Big Brother Online: Government agencies worldwide are increasingly using the Internet to spy on and conduct cyber attacks on their enemies, according to an annual virtual criminology report by McAfee, writes Jon Brodkin of Network World, noting that the U.S. joins China as one of the biggest employers of Internet espionage.
7. Kiwi Teen in Botnet Probe: New Zealand police have held for questioning a teenager suspected of leading an international cyber-crime group, according to the BBC, which adds that the group allegedly hacked a million computers to steal millions from people’s bank accounts.
8. Publishers Want Web Respect: Launching an effort to bring them more power to say what content search companies may make available, publishers have developed a framework to inform online search engines that certain pages, directories or sites must not be indexed, reports eWeek, noting that supporters of the measure to respect copyright include the Associated Press, Reuters and the Association of American Publishers.
9. Sony Hears On-Demand Demands: Starting early next year, users of Sony’s PlayStation 3 will be able to download high-definition video to their devices, according to Variety, which adds that each download will cost about $1.85.
10. Exploding Cellphone Death Greatly Exaggerated:The Korean quarry worker whose death was blamed on an exploding cellphone was actually killed by a co-worker, who admitted he concocted the story after accidentally hitting his colleague with a drilling vehicle, the Associated Press reports.

Posted by Associate Editor John Sullivan.

Note: John Paczkowski is on vacation and won’t be writing or posting videos until he returns Monday.

To keep you abreast of tech news while he’s away, we’re compiling a daily digest of 10 must-read tech stories. We’re calling it the Tech 10 and it appears below.

1. Getting to know you: Facebook is developing targeted ads based on the information that users of the social-networking site reveal about themselves. Quoting anonymous sources at the company, The Wall Street Journal says the advertising system is at an early, changeable stage, but Facebook hopes to launch a basic version late this fall.
2. It looks like Apple will turbocharge its iPods with the Mac OS. According to AppleInsider, the upgraded digital music players will debut at a media event next month and are part of the computer maker’s master plan to create devices around its legendary operating-system software.
3. Dude, where’s my YouTube? Initial response to ads overlaid on downloaded videos from the popular online site is overwhelmingly negative, Computerworld reports, noting that the comments on a YouTube feedback blog could be summarized by the one-word review of a user from Oro Valley, Ariz.: “Yuck.”
4. Hoping to shore up anemic sales of its PlayStation consoles in the face of competition from Microsoft and Nintendo, Sony said it will market a recording-transfer device (pictured here) in Europe enabling users to record TV programs on their PlayStation 3 video-game consoles for transfer to the PlayStation Portable. According to the Associated Press, the new gadget, dubbed PlayTV, will give game consumers an additional function for their PlayStations beyond playing video games.
5. Too hot to handle? Microsoft announced that it’s offering a free retrofit to the Xbox 360 Wireless Racing Wheel after reports from a number of users that smoke issued from the device when used on AC/DC power, according to PC World. The retrofit comes six weeks after it extended the Xbox warranty for “flashing lights of death” failures–and took an earnings hit of $1.15 billion for the anticipated repair bill.
6. Paper trail, indeed. Many iPhone customers are irked over the book-sized bills they are getting from wireless provider AT&T, reports the New York Times. The bills itemize all phone calls, as well as every text message and online data transfer. In response, AT&T announced that beginning Sept. 28, customers would get summarized bills removing the wireless detail.
7. Microsoft and Nokia won’t sit back and watch while the iPhone marches through Europe, apparently. The companies are joining forces to put Windows Live services on selected Nokia S60 handhelds, reports IDG News Service. Customers in 9 countries in Europe and two in the Middle East will be first to get the services, including Hotmail and Live Messenger. A Microsoft spokesman couldn’t say when the functions would be available for cellphones in the United States, however.
8. Speaking of teaming up, MTV and MySpace are collaborating on a series of one-on-one dialogues with the major Democratic and Republican presidential candidates. CNNMoney.com reports that the hourlong events will be streamed live on MTV.com and MySpaceTV throughout the fall on college campuses.
9. Palm’s Foleo computer, first exhibited at this year’s D Conference, is having trouble leaving the gate, writes Tech Trader Daily, quoting a Deutsche Bank analyst who disclosed that the debut in stores of the stripped-down laptop scheduled for this week “was delayed after software bugs were detected. … Palm now expects the device will ship in late September/early October.”
10. Playboy Enterprises is, uh, unveiling Playboy U, a social-networking site targeted exclusively at college students. The move online by the granddaddy of the skin rags, says the Associated Press, is an attempt to capitalize on the Playboy brand as the 54-year-old magazine continues to lose money and readers. The site is modeled after Facebook and MySpace, with users allowed to “friend” other college students. Although there will be no nudie shots, users will be able to discourse on such topics as how many sex partners they’ve had or what they think of penis enlargement.

–posted by Associate Editor John Sullivan

Though a public high school’s outdoor amphitheater might seem an unlikely location for Microsoft’s event at this year’s E3 Media Summit in Santa Monica, Calif., it was particularly apt given the schoolyard beating the company’s taken in the gaming market recently. Microsoft’s Xbox 360 strategy has been generally unimpressive and, in some cases, disastrous thus far.

It’s hard to believe that the handful of announcements made last night will gain it much truck in the next-generation console war, but you never know–especially the way things are going over at Sony.

So what were the announcements? A bunch of knock-’em-down, shoot-’em-up, carjack-’em-and-run-’em-down Xbox 360 games like Madden NFL 08, Halo 3 and Grand Theft Auto IV. And a new Fisher-Price-looking controller called “big-button pad” that’s meant to be less intimidating to new gamers. “For the Xbox 360 and the industry to grow, you’re going to need a lot more social experiences that are not intimidating and easy to jump into,” said Shane Kim, corporate vice president of Microsoft Game Studios. “That’s what we’re doing with the big-button pad. You realize it’s something that’s not intimidating.”

Nope. Definitely not that. Looks like a big baby rattle … or something you might find at Good Vibrations. Anyway, Microsoft is packaging big-button pad with Scene It?, a trivia game similar to You Don’t Know Jack, presumably in the hopes that it will loosen’s Wii’s stranglehold on the casual-gaming market a bit.

In the end, Microsoft’s E3 event was most notable for what didn’t occur. The company did not cut the price of the Xbox 360, as some had speculated it would after Sony slashed the price of the PlayStation 2. “We feel really good about where we’re at right now,” Kim told the Seattle Post Intelligencer. “Of course, we’re always going to be looking at those opportunities. But we’re certainly not feeling any pressure to react to anything that Sony has done.”

Turns out when Sony president Ryoji Chubachi said Friday that the electronics giant had “no immediate plans as of now” to cut the price of its PlayStation 3, he was speaking literally (as in “at this very second”). Because three days after denying rumors of an impending “refinement” of the PS3’s price, Sony announced one. Come Thursday, the price of the console will drop by $100, to $500.

The 17% cut comes just seven months after the PS3 arrived in the North American market and is essentially an acknowledgement that the device–as technologically advanced as it is–is just too damn expensive to woo gamers from Nintendo’s Wii. “From a pocketbook standpoint, we know we’ve presented a challenge for consumers,” said Jack Tretton, president of Sony Computer Entertainment of America. “Our initial expectation is that sales should double at a minimum. We’ve gotten our production issues behind us on the PlayStation 3, reaching a position to pass on the savings to consumers, and our attitude is the sooner the better.”

Of course, even after cutting the price, Sony will still have the most expensive game console on the market. Nintendo’s wildly popular Wii is just $250. Given that, it’s hard to see the massive spike in sales that Tretton predicts. “It’s still expensive,” said Michael Pachter, an analyst with Wedbush Morgan Securities. “With a 17% price cut, you may get a 50% increase in sales. It’s unrealistic to assume that demand will double.”

Q: Your returns as a category. Is there any No. 1 reason for a return?
A: There are no systematic issues. The vast majority of the people just love the product, have a great experience with it. When there is an issue, we get on it and address it as quickly as possible.

Q: What explains this anecdotal evidence that it’s out of whack, compared to the Wii or the PlayStation 3 or other consoles?
A: I would go back and say the vast majority of people love their experience. We continue to go back and address all of these issues on a case-by-case basis. There is a vocal minority out there. We go off and try to address their issues as quickly and as pain-free as possible.

–Excerpt from a San Jose Mercury News interview with Todd Holmdahl, Microsoft’s corporate vice president of Gaming and Xbox Products Group.

Microsoft choked down a big plate of crow this morning, acknowledging widespread reports of Xbox 360 failures and offering full repairs for the most widely reported console malfunction, the so-called red ring of death.

“The majority of Xbox 360 owners are having a great experience with their console and have from day one,” Robbie Bach, Microsoft’s president of Entertainment and Devices, said in a statement. “But, this problem has caused frustration for some of our customers and for that, we sincerely apologize.”

“Some” of your customers? Try a third to as many as half. Because that’s what the size of the $1.15 billion anticipated repair bill Microsoft put forth today would seem to imply and anecdotal reports have already suggested that “some” may be a number as large as 33%.

And frankly, that’s not hard to believe given tales of Xbox 360 woe such as this one from gamer Rob Cassingham, who had six consoles fail on him. “The first machine I had was the Magnavox Odyssey in 1972,” he told the San Jose Mercury News. “I have never had to send any of them back. The gaming experience has been wonderful. And Xbox Live is great. But the reliability of this thing. … I had six machines, and seven (counting one replacement) crapped out. That’s not OK. If I had 100 machines and seven crapped out, that’s OK.”

Nintendo surpassed consumer electronics behemoth Sony in market capitalization for the first time ever last month, underscoring the phenomenal success its Wii gaming console has enjoyed at the expense of Sony’s PlayStation 3. Little wonder then, that in the run-up to the E3 video-gaming conference next week, we’re hearing talk of a PS3 price cut.

Word around the campfire is that Sony, which has been discussing “refinements” to the PS3’s price, will drop it to $499.99 from $599.99 on July 12.

Sony, of course, denies this. “We have no immediate plans as of now” for price cuts, President Ryoji Chubachi said today, noting that previous iterations of the console also had inauspicious beginnings at market. “If you take a look at how PlayStation and PlayStation 2 have taken off, this is not such an unusual start.” True. When its PlayStation 2 gaming console debuted in 2000, Sony posted an ugly loss. But by 2003, when component costs had dropped and game sales increased, the company’s PlayStation business accounted for about 10% of Sony’s revenue and 68% of its profit.

Locked in a pitched battle with HD DVD supporters for next-generation DVD supremacy, Sony is doing all that it can to ensure that its Blu-ray format isn’t Betamaxed by the competition. And so today, the company cut the price of its newest Blu-ray player from $599 to $499. Considering that Sony’s first Blu-ray player was released just six months ago for $1,000, that’s a pretty dramatic price drop. Sony says it’s the result of lower-than-expected manufacturing costs. That’s certainly plausible. Still, you can’t help but wonder if the company’s finally realized the PlayStation 3 isn’t the Blu-ray Trojan horse it had hoped and is desperately trying to level the playing field in which HD DVD players have been selling for less than $300 for some time now.

What gets me out of bed and into the office every day is the thought of Ken Kutaragi’s resignation letter, framed, hanging next to my desk.”

–Xbox chief J Allard

Looks like Allard will never get that resignation letter, but perhaps he can make do with a retirement announcement. Thursday afternoon, Sony said that Ken Kutaragi, the mercurial executive behind all four iterations of the Sony PlayStation, will retire in June, his departure presumably hastened by lackluster sales of the PlayStation 3. The PS3 “has been a huge disappointment, No. 3 out of three in terms of console sales,” analyst Rob Enderle, founder of Enderle Group, told News.com. “It’s been a huge embarrassment for the firm, and a huge hole that money has been pouring into. When you go from superstar to walking disaster, there are few executives that can survive that. You’re only as good as your last financial report, and while he was given some leeway (with the PS3) there were obviously some huge mistakes.”

Obviously. Botched launches, embarrassing production shortages and a $600 price point made no easier on the wallet by Kutaragi’s suggestion that we should all want to work a little bit harder to buy one. But let’s not forget that were it not for Kutaragi, there wouldn’t be a PlayStation. As Time Magazine noted back in 2004, “If video games are the storytelling medium of the coming century, Kutaragi is their Gutenberg.“