The SNES CD-ROM Fallout
Sony and Nintendo announced a partnership in 1988 to develop a CD-ROM add-on for the Super Famicom. Ken Kutaragi, a Sony engineer who had worked on the SNES's SPC700 sound chip, drove the project internally. The partnership collapsed in 1991: Sony announced a standalone CD-ROM console at CES in June 1991; Nintendo announced the following day that it had signed with Philips instead. Sony was left with a near-complete game console technology and no commercial use for it.
Kutaragi persuaded Sony's executive board to develop the console as a product rather than abandon the investment. The Sony Computer Entertainment division was formed, and the PlayStation was designed around the polygon-processing capability that the fifth generation would demand — a custom 32-bit RISC processor paired with a GPU capable of processing 360,000 polygons per second.
The Third-Party Strategy
PlayStation's commercial success was built on third-party software relationships that Sony cultivated with specific awareness of Nintendo's vulnerabilities. Nintendo's licensing terms required developers to purchase cartridges from Nintendo at fixed prices and accept quality review processes that delayed releases; Sony's CD-ROM manufacturing was cheaper, and Sony's licensing terms were more developer-friendly. Square, Enix, Capcom, Konami, and Namco moved their primary development to PlayStation during the 1995–1997 period, often exclusively.
The most significant defection was Square's. Final Fantasy VII (1997), announced for PlayStation after a period of N64 development, was the most anticipated Japanese RPG of the decade. Squaresoft and Nintendo had a relationship stretching from Final Fantasy (1987) through Final Fantasy VI (1994) — six major releases over seven years. Final Fantasy VII's PlayStation release confirmed PlayStation's position as the platform of record for Japanese RPG development. The third-party strategy had achieved its intended result: the software relationships that had sustained Nintendo's dominance had shifted to Sony's platform.