In the end, Ken Kutaragi’s effective retirement at, or if you like by, Sony was a paradox. On the one hand, it was unequivocal, a summary, ignominious kick upstairs, out of harm’s way. On the other, it came as Sony is celebrating the final efforts of the brilliant “Father of the PlayStation”.

For Sir Howard Stringer, the Japanese group’s embattled chief executive, Mr Kutaragi’s launch of the PlayStation 3 proved too much: PS3 delays and cost overruns pushed Sony’s game division, previously its most profitable, to a likely loss of more than 200 billion yen (£840 million) over the past year.

Yet the achievements of Mr Kutaragi, a maverick who began working on the original PlayStation in secret, to the fury of the Sony board, should not be belittled. For long periods since the 1994 launch of the machine, Sony seemed liked a games company that happened to make films and electronic goods. The PS2, a formidable moneyspinner in its day, remains the most successful console ever. More than 115 million have been sold.

The paradox behind the ousting of Mr Kutaragi is that Sony has a show-stealing machine in the market. UK sales of the PS3 hit more than £100 million in its first week. Sony’s public relations squad billed it as the most successful consumer electronics launch ever.

The PS3’s Blu-ray DVD technology and powerful cell processor mean that the machine is as “future-proofed” as any gadget can be – a result of Mr Kutaragi’s costly stubbornness. Negative comparisons with Nintendo’s rival Wii system (which has sold about 1.5 million units in Europe, compared with 920,000 PS3s) could be unfounded. While the Wii (£180) is aimed at casual, weekend players, Sony’s pumped-up PS3 (at £425) is chasing hard-core gamers. Mr Kutaragi was forced to fall on his sword, but could have left Sony well-armed for the future.

Stripped of the day-to-day running of Sony’s games division last year, he will become honorary chairman of the unit. However, his move signals a deep-rooted tension inside the parent company.

Sony’s star began to fall when it suddenly became an analogue player in a digital world. The 61-year-old conglomerate, which pioneered the portable music player, the Walkman, in 1979, floundered in the age of the iPod.

In April 2003 came the infamous “Sony Shock”, an unforeseen $1 billion quarterly loss. Asian competitors were undercutting Sony in low margins electronics. Apple was taking the top end of the market. Radical action came in 2005 with the appointment of Sir Howard.

The Cardiff-born American was the first foreigner to lead Sony, a Japanese corporate icon. A former journalist, he famously brought David Letterman to CBS. He was completely different from his electronic-engineering forebears, who had built Sony into one of the world’s biggest brands.

After his impressive seven-year stint leading Sony’s American division, Sir Howard set about making changes in the top job. Costs were targeted: 10,000 staff were laid off in his first year; 11 factories were closed. It is clear how Mr Kutaragi’s profligacy would have irked him. Sir Howard began to reinvent Sony’s corporate culture, arguably by making it more American. He unveiled “Sony United”, a plan to link up the group’s five divisions, after identifying their autonomy as a key factor that contributed to the Sony Shock. This would have annoyed Mr Kutaragi, a man averse to reporting to his seniors, let alone peers in other units.

Resisting his renegade lieutenant’s misgivings, Sir Howard pushed on. However, a series of blunders since have made Sony look accident-prone. In the worst, the group supplied about nine million faulty laptop batteries to clients including Apple and Dell. A picture of one of the batteries exploding was winged around the web. Despite the $450 million in compensation that Sony agreed to pay, the incident chipped its brand.

Sir Howard’s low profile during the battery debacle may have stemmed from his focus on the American side of the business, Sony’s Hollywood lots. In the past week, Sony has been out to prove that it is as much about blockbuster content – the $3.5 billion Spider-Man 3 franchise, for example – as electronic gadgets.

Yet even on Sir Howard’s home turf, things could be better. In 2004 Sony bought MGM, Hollywood’s final large independent studio, for $5 billion. The deal, with private equity partners, bagged Sony two Bond films, starting with last year’s successful Casino Royale. But there are suggestions that Sony’s private equity partners are stripping it of control, turning a strategic move into a mere financial investment.

Music sales have held up, but the Sony-BMG merger, a 50-50 joint venture that Sir Howard brokered in his previous post in 2004, could be unravelled by European regulators.

Fundamentally, Sony has struggled to tie its content and gadgets together. Sony Connect, a riposte to Apple’s iTunes online music store, failed. The latest offering is “eyeVio”, a video-sharing site launched in Japan yesterday. It was another sign that Sony knows that it cannot afford to be outshone by Google and Apple, the stars of digital distribution.

Sony also bought Grouper, a film download service, last year for $65 million. Its lacklustre showing is discouraging. Sony needs to get this right, analysts say: it cannot afford another Betamax, its tape system that challenged VHS in the 1970s and lost – yet that format war is happening again. Sony is backing Blu-ray, a next-generation DVD format that is taking on HD DVD, a rival system championed by Toshiba.

The VHS-Betamax comparison should worry Sir Howard. Betamax was a superior performer, but dearer than VHS. Consumers voted with their wallets and VHS won. Similarly, Blu-ray beats HD DVD in picture and sound quality, but is more expensive. It is a huge wager that Mr Kutaragi could win. Glitches in the blue diode lasers that power Blu-ray contributed to PS3’s delay and Mr Kutaragi’s departure. The Blu-ray camp, meanwhile, is trumpeting the six million PS3s shipped so far as their biggest weapon. With the fortunes of Blu-ray resting on the PS3’s success, Sir Howard is going to have to hope that Mr Kutaragi’s legacy proves a fruitful one.

Play time

1946

Sony’s first product: a rice cooker that doesn’t work. “The result depended heavily on the kind of rice used and the weight of the water,” according to Sony’s website. “Tasty rice was a rarity.” The decision to go into the manufacture of electronic goods was prompted by the availability in Tokyo of cheap electricity after Japan’s war factories were mothballed

1979

Creation of the Walkman by Nobutoshi Kihara, a Sony engineer, at the behest of Akio Morita. The Sony co-founder wanted to listen to operas while jetting across the Pacific. Morita hated the name, but a sales campaign was already under way. Sony went on to sell about 350 million of the cassette-players

1994

Launch of the original PlayStation, which goes on to be produced for the next 11 years – more than 100 million sold. Three progeny followed: the PS2, PS3 and the handheld PSP

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