In this exclusive, GameDaily BIZ chats with Peter Dille, Sony Computer Entertainment America's senior vice president, Marketing and PlayStation Network, about the challenge and opportunity for the entire business in the year ahead.

Dille seemed quite excited about the lineup and strategy SCEA has in place across all of its platforms. He talked about communicating the value of the PS3, shifting the PSP demographic downward, leveraging Home and PSN, and much more. Dig in!

GameDaily BIZ: Let's start with the PSP. SCEA recently announced that it's bringing more IP, like LittleBigPlanet and MotorStorm, to PSP. Was the marketing strategy for PSP flawed initially in that it emphasized multimedia but not enough about games?

Peter Dille: I don't think it's a reflection of the marketing strategy per se. I think the news that we unveiled for PSP at Destination PlayStation was a byproduct of conversations that go back 18 months because of the development cycle. Many of the conversations with third parties helped us understand that they were struggling with the platform and weren't quite sure what types of games to make, who we're targeting, what the market was, what types of games worked from our perspective – because we were having success on the platform, but not every third party was – and consequently, if you go back to late 2007, a lot of the third parties' PSP pipelines were frankly dry and in some cases nonexistent. And after talking with us, we invigorated a lot of support and excitement for the platform.

As you know, based on development cycles it takes a while for that stuff to show up... What we're seeing today is sort of the fruits of our labor – for both ourselves and the collective third-party community. So it had less to do with marketing and more to do with product development discussions. But I think our marketing team was very helpful with our third-party publishing group to articulate what makes sense, where we're going with the platform, etc. A very specific example would be something like the Hannah Montana PSP, where as a company and as a marketing team, we said "that's something we want to go after." But you can't just say that and put out a colored PSP – without content it's only half the battle. In fact, it's no battle at all; it's really the content that makes those types of initiatives work.

BIZ: Regarding Hannah Montana, is that a situation where Sony essentially said, "We need to grab more of that young demographic, the teen or tween market" ... because Nintendo has a firm grasp on the younger market?

PD: We look at it less from a lens of what our competition is doing and more from a lens of what makes sense for us. We launched the platform against an older, more tech savvy, urban, male consumer, and we've been very successful against that. We've got 15 million units in the U.S. Last year, we intended to push the demographic down, so we focused heavily on the teen market, not because other companies were doing that but because we thought that's a great way to grow the platform – once you have success against one [demographic] you need to build out. We also knew it's a lot harder to launch against a kids demographic and to then skew older. In fact, I think our competition is kind of relegated as a kids' device, albeit a very successful one, but that's their primary market.

We felt we could have our cake and eat it too by starting older and then pushing the market down from there. Last year we grew the teen market significantly. 41 percent are 12-18 and we have a big 6-8 year-old market as well, which is kind of a dirty little secret. What we haven't done is capture the girls market, so that's next on our radar... to expand to more girls and female gamers.

BIZ: Does Sony feel any pressure in the PSP business because of the iPhone and App Store?

PD: Well, I think it's a separate business. The iPhone is a phone and the PSP is a dedicated gaming device that does a lot more than play games. Consumers that want to carry a PSP are primarily gamers and I think there's a big difference in the types of games you can play on a PSP versus an iPhone. The iPhone games and apps are largely diversionary, whereas we're a gaming company and we make games for people who want to carry a gaming device and play a game that offers a satisfying 20+ hours of gameplay. So it's really coming at the market with different perspectives... a phone vs. a gaming machine.

BIZ: Where it's similar, though, is that Sony seems to be emphasizing more digital distribution through the PlayStation Network on PSP, so both iPhone and PSP have digital delivery methods. And everyone seems to be looking at Apple and the App Store as pioneers with that. So you don't view that as an influence on PSP or as competition?

PD: I think it's definitely a popular consumer trend and it's something that Apple consumers are enjoying. That could present itself as a growth opportunity to us in the future, but the fact is today, the PSP is a wi-fi device, not an always connected device. So there's going to be limitations based on the current technology in the PSP... but you never say never, and as we roll out new products in the future we'll keep an eye on consumer trends as we always do.

BIZ: With that in mind, there have been reports that AT&T is looking to subsidize video game portables, and with rumors of a new PSP2 coming, you could actually turn PSP into an always connected device and get AT&T in on it. Any thoughts on that?

PD: If we were to comment on every rumor that crossed our desk or every person who thought they knew what our next product was, we'd be spending too much time addressing rumor and speculation. What we're focusing on is a very exciting year for PSP. We've got a great lineup of software titles, we've got more than 15 million [hardware] units across the U.S. and Canada and we've got great plans to grow that further.

BIZ: Can you at least say if Sony would be interested in something like a subsidized PSP from AT&T or some other company?

PD: I don't really have any comment. We speak to companies all the time about potential market opportunities or business models. Today, we're very focused on the PSP business as it stands and as I said, we spend a lot of time working with the third party community, working with our sister companies across Sony, and UMD and digital distribution are both very important to us.

BIZ: Let's move on to PS3. Obviously the biggest sticking point has been the console's price, from the very beginning. And with today's economy, Sony has probably been hurt even more than they would have been by the higher price point on PS3. It's hard for many consumers to justify spending $399. It's a difficult balance between profitability for the division and consumer adoption. How much has Sony been wrangling with this internally?

PD: Yeah, it's a tough economy. I think it's already well publicized that we have a very clear objective from our parent, Sony Corp., that we're to focus on a profit objective, and with those marching orders it limits the playbook when it comes to pricing and promotion. Our competition had a very aggressive pricing strategy, but they also were packing 2,3,4 games in with the unit weekend to weekend with different retailers, and that cost a lot of money. So we had a profit goal and they had a market share goal. We've had a very successful year; we had record revenues across our three platforms last year, and our PS3 business was up 40 percent, notwithstanding the tough climate. So we've really focused on changing the conversation away from price and trying to communicate the value inherent in the PS3.

I think when people start doing the apples-to-apples comparison, and see what PS3 can do, and see the value of Blu-ray, and what free online and free wi-fi with a hard drive in every box really means, it resonates. I think people are gravitating to it and we've got a lot of momentum with the launch of Killzone 2 – we're seeing a nice upsurge in our business. What we set out to do at Destination PlayStation (DPS) was to articulate our plans and lay out the road map, communicating our great software lineup. Some people probably were coming into DPS skeptical about what our plans really were, and I would venture to say that certainly all the retail partners I met with and all the publishing partners were really fired up about the year ahead for PS3.