Sony earnings increase while games division incurs losses

by Blake Snow { Jul 27th 2006 at 1:30PM }

Sony posted better than expected results for the period ending June 30 citing success of a weaker yen, its movie division, increased sales of LCD tv's and digital cameras, and gains in its mobile phone joint venture with Ericsson. The company's life insurance and games division were blamed for the most significant company-wide losses. Gamasutra writes: "As a result of manufacturing and research and development costs prior to the launch of the PlayStation 3 [read: cell processor], the company's flagship games division saw a 29.1 percent drop in sales and operating revenue... Combined profits from the PlayStation 2 and PSP businesses, though, was described as 'relatively unchanged.'"

In addition, sales of the PSP and PS2 dropped with exception of an increase of the latter in Europe. While PS2 software saw a drop in sales, demand for PSP software increased. Maybe company-wide reliance on PS3 success isn't as bad as some have argued. If true, PlayStation execs can breathe a sigh of relief and get back to making racy ads.

Reader Comments (Page 1 of 1)

corwin @ Jul 27th 2006 1:38PM

wow... that sounds like Sony.

Insomnia Bob @ Jul 27th 2006 1:43PM

While this dip in profits for the gaming division might seem like a death knell, I wouldn't count Sony out just yet. I'm as baffled by some of their policies as anyone, but before we get ahead of ourselves, keep in mind, that it DOES cost a ton of money to develop a new system.

Now, if the PS3 doesn't sell as well as they think it will...that's when you can start looking around for whom the bell tolls.

Ubersnuber @ Jul 27th 2006 1:46PM

Have you in Joystiq been drinking? that's the second (if not third) good news-post i've seen here over a short time :P

KawF @ Jul 27th 2006 1:48PM

Operating at a slim $1.06bn (US?) profit margin (for just the games division), the ship is truly sinking.

Ethan @ Jul 27th 2006 1:51PM

Well, It obviously takes some money to create the most powerful next gen console, But fortunately the PS2 isnt as dead as the other two current gen consoles, or they would be in an even bigger hole.

JimmyHACK @ Jul 27th 2006 1:52PM

not too big a deal, since this first quarter they didn't release much at all for ps2, as to where last years Q1 had gran turismo 4 and god of war

cringer8 @ Jul 27th 2006 1:56PM

KawF, you are wrong.

SONY knew a loooooong time ago that putting out the PS3 was initially going to cost them billions in losses. As a matter of fact, they won't see gains until after March of 2007. The PS3 is going to be sold at a loss of approximately $200 per unit. But, once the software and online sales pick up next year, it will be clear sailing for SONY.

Anyone who thinks that the PS3 is going to sink SONY is retarded, plain and simple.

Clint @ Jul 27th 2006 1:58PM

More good news for Sony. Wow!

LunarDuality @ Jul 27th 2006 2:11PM

People, read the article before spouting incorrect stats.

The games division had $1.06bn (Yes, US dollars) in operating REVENUE, not profit (which is down 29.1% this year from 1.5bn last year, not a good thing). The operative LOSS for the division was $232.2m (up from a $51.1m loss last year).

The good news here has NOTHING to do with the games division. It's about how Howard Stringer has successfully consolidated their other businesses, cut costs successfully, and continued to drive and create brand power through things like the cellphone deal with Ericsson and their line of Bravia LCD TVs.

Scooby Doo @ Jul 27th 2006 2:11PM

Mmm...something's not right. How do you lose 29% in Sales and Operating revenue and still manage to keep profits 'relatively unchanged' for the PSP and PS2? Does this mean that the PSP is now making up the bulk of the profits for their gaming division?

Video game sales have been down since around the time the Xbox 360 came out, and that would make me suspect that their license revenues also took a hit. Unless they signficantly reduced the manufacturing cost of the PSP and PS2...hence reducing expenses...how do lower sales keep profits the same?

And it makes me wonder, is Sony trying to finance R&D costs of the PS3 with the PSP? Either they're not passing saving on to their consumer, or their CFO has changed the laws of mathematics. I guess we'll see more when they do their Edgar filings. But this is just idle musings. I still support Sony and I expect I'll be one of those crazy people standing in line to buy a $700 PS3 at launch.

J B Cougar @ Jul 27th 2006 2:14PM

Guys, seriously, people are praising and punishing the messenger here every other week, and frankly the "Joystiq loves Wii360!" posts are all the same no matter how many times you post them or use variations on the theme.

The 12 of you who still bust a nut over the PS3 need to step back and accept the fact that it is SONY, not Joystiq, that is responsible for all the negative press. Just because it's all bad news, all the time, and Joystiq links to it with a snarky blogosphere-approved remark here and there does not mean that Joystiq is biased. It means they know how to hyperlink. link text Look, I can do it too.

So there was some good news today, and Joystiq linked to it. So what? They are no more FOR Sony today than they were AGAINST Sony a week ago when Sony execs and their stellar PR department were slapping gamers in the face with their arrogance.

As an end note, I fail to see how this post is anything to get excited about. We sound like politicians now, spinning losses as "good news" simply because it wasn't "as bad" as people expected it to be.

Fuzz @ Jul 27th 2006 2:14PM

Sony sells life insurance???

Uhmm. . .Do Not Want.

Scooby Doo @ Jul 27th 2006 2:18PM

Sony sells life insurance, it's just that if you have to file a claim, your deductible is your first-born child.

(Sorry, couldn't resist that one considering the PS3 price point.)

KawF @ Jul 27th 2006 2:20PM

Yes, it would appear that I was wrong about that profit margin. But then again, I'm not an accountant, I just play games where I pretend to be one. Well, something simillar, called Monopoly, you might've heard about it.

And yes, I would quite well bet on that Sony are financing the development of the PS3 by incuring some nice, lesser than a billion, but still profits on their operation. What else would they use to pay for it? Monopoly-money? Not many banks accept that currency.

@Scooby Doo
Where did you by the way find a $700 PS3? I'll assume you factored in VAT and such, because otherwise, you'll just have to tell your retail-location to sod off. Well, you could be specifying it in Canadian dollars, but then please state that you meant monopoly money. ;)

Thomas Crymes @ Jul 27th 2006 2:21PM

Took 12 posts to get to the interesting part of the story. The thought of buying life insurance from an electronics company is frightening. Although in Japan the same company that makes cars could also make condoms.

Scooby Doo @ Jul 27th 2006 2:31PM

KawF, that was just the first number I could think of off the top of my head. And at this point, who can keep up? $499 for a 'core', $599 for the 'premium', or whatever they're calling them and at whatever price. The point was that the system is Expensive with a 'E'.

I'm a niche gamer, who loves Japanese RPG's, so I know I'll be buying the unit at whatever its price point. I just wasn't too concerned about my accuracy since even the latest price scheme isn't necessarily final and I'd expect most of the people who read Joystiq are familiar with the ballpark number for the PS3: >=500 but

KawF @ Jul 27th 2006 2:32PM

The company that makes my fav. brand of toothpaste also makes candy and cookies. The world is a strange place of multinational conglomerates and suchwhat. The only difference with Sony is that they like to put the Sony brand on all companies under them. Which is quite unlike most other companies who if even at all, are just a footnote on the backside in fontsize 3pts of the candybar.

Crazy!

32_Footsteps @ Jul 27th 2006 2:33PM

"Mmm...something's not right. How do you lose 29% in Sales and Operating revenue and still manage to keep profits 'relatively unchanged' for the PSP and PS2? Does this mean that the PSP is now making up the bulk of the profits for their gaming division?"

Actually, I think licensing and production values make up the difference.

For the former, don't forget that Sony gets money whenever any PS2 or PSP game is sold, no matter who published it. If those profits went up for some reason, then it would offset sales drops.

For production values, I imagine that Sony is able to produce the PSP and the PS2 at lower prices than before. Thus, even if they sell less hardware (and thus have less revenue coming in from that), the lower cost of production ultimately means profits can remain static even as incoming revenue drops.

JRM @ Jul 27th 2006 2:37PM

@12 Insurance isn't frightening.

what's more frightening is that the same entity that gives you your GAP account card also produces weapons of mass destruction.

Bloo @ Jul 27th 2006 2:54PM

"Anyone who thinks that the PS3 is going to sink SONY is retarded, plain and simple."

Especially considering how well the 5200 and 7800 did for Atari.

Scooby Doo @ Jul 27th 2006 3:00PM

I'll bite that Sony might be making more money on each PS2 and PSP sold, hence a drop in sales can be offset, but I don't know if I can agree with the license revenues aspect.

Video game software sales are really down. In fact, I think you'll find most video game companies posted a net loss for the 1st Quarter this year. (Unless we're talking the DS which seems to be breaking all the rules lately.) For Sony to maintain that profit margin, they'd have to be getting a bigger cut in licensing in a market that's currently pretty stale as consumers are awaiting Sony's and Nintendo's offerings before making any firm buying decisions.

We know that the PS2 titles have not been dominating the top sales charts like they used to and the PSP library has just finally kicked in enough to make a dent. This just reeks of smoke and mirrors. It feels like they're hiding something. And it's funny, I'm definitely a Sony supporter, but I like to hear the truth of a situation and this just doesn't add up to me.

BMWM3P @ Jul 27th 2006 3:01PM

I know something about sony gaming division, is sure as hell more profitable than ms xbox division. But wait, anything that makes profit is more profitable than the xbox division.

Jeff @ Jul 27th 2006 3:28PM

"Maybe company-wide reliance on PS3 success isn't as bad as some have argued."

Well, duh.

Company financials for publicly traded corporations are not secret. You can go to any financial site and read Sony's quarterly reports. I haven't seen this one yet but in the previous quarter, their game division was responsible for something like 3% of their total profits - most of their profit comes from *financial services*, with movies in second place and "all other" (which includes music) in third.

I've seen a lot of people talk about how the game division has been "subsidizing" the rest of Sony, and that it's the only profitable division, and if the PS3 fails, Sony goes out of business. All of that - 100% of it - is complete and total BS. The truth is Sony's more profitable divisions have actually been subsidizing PS3 R&D, if anything. They make most of their money behind the scenes, with services that the public doesn't even see. But they expect all of their major divisions to be self-sufficient, and at least last quarter, 4 of the 5 were (the one that wasn't was the electronics division; sounds like they may have turned that around, but now it's the game division that's the odd man out).

Sony's also significantly increased their net worth and profit margins over the past three years, so all this gloom and doom talk has been pretty ridiculous to watch.

Note that I don't even own a PSP and I prefer the DS to it (I do own a DS). But I do plan to buy a PS3 and I think we'd all be better off if people quit arguing from positions of ignorance. Sony's real financial details are easy enough to look up if you want a real basis for debate.

Lee @ Jul 27th 2006 3:53PM

Jeff, preferring the DS and not owning a PSP doesn't prove non-allegiance to Sony, as much as I love mine I don't blame people for ragging on it, it's got its fair share of problems. =P

Good to see some level-headed thoughts on the company though, good that the company shouldn't suffer too much if PS3 fails (though would there be repercussions in their movie division if blu-ray goes down?), as despite criticisms they have some decent products. Recently their camcorders have really pulled ahead, and their phones with Ericsson really deserve their success.

But I hope for the market that the PS3 does succeed, a two man race might be fine if the companies are more in direct competition, but if the next playstation simply bombs and there's just a Wii and 360 in peoples homes, offering us different experiences, it'd be not too different from a monopoly, with all of the problems that could arise from that.

I suppose if that did happen maybe Nintendo might step up (meaning compete more with 360 on a hardware level), because I see it doing very well in a two man race... again.

I also hope it succeeds because I plan on buying one for MGS4, and I hope that it gets more good games than just that. =P

Bloo @ Jul 27th 2006 3:57PM

"I know something about sony gaming division, is sure as hell more profitable than ms xbox division. But wait, anything that makes profit is more profitable than the xbox division."

They're both losing money. Reading comprehension is your friend. Personally, which company loses more doesn't affect the fact that I own all the consoles and worry more about what games are good instead of who is losing or making more money.

BMWM3P @ Jul 27th 2006 4:18PM

Bloo

I'm talking about as a whole, not just this quarter. And why would you get upset is you own all consoles. You're probably a 360 bitch who's ashamed of it, I don't blame you.

striderhayasa @ Jul 27th 2006 4:18PM

http://www.gamepro.com/news.cfm?article_id=68528

578 million dollar loss? no big deal
90 million dollar Immersion lawsuit? not a problem
100 million for Immersion liscensing fees once appeals are exhausted
243 million to the Japanese governement in back taxes? hmmmm
200 hundred dollar loss for every PS3 sold. ouch
Agere Sues Sony for Patent Infringment. DOH!

yeah it's all gravy.

dolemite @ Jul 27th 2006 5:00PM

Stiderhayasa you cannot let Sony have one good piece of news can you? They company made money which is a good thing. Sales of PS2 hardware and software are down, but Sony still makes profit off it. PS3 costs are what is dragging down the division, but that is to be expected with a new console launch. Nintendo is the only company that does not lose much if any money on hardware.As a Sony and Microsoft shareholder I like news like this. I invest in the fileds that I spend my money on, as we all should. Yes they have lawsuits, but that is business. Let's name some companies with recent lawsuits still in business: Apple, EA, Coke Directv, HP, etc. And don't forget Micro$oft either. I am a gaming fanboy, and I respect my fellow gamers, but let's be level headed about this. Do you really hate Sony that bad? Do yuo only want 2 companies in the gaming biz? I hated to see Sega go even though I had a PS2. I no longer am into the Mario and Donkey Kong and Kirby stuff but I appreciate Nintendo as another force in gaming. Damn, just enjoy the games and stop the hatin! You have a right to your opinion, and I will defend your right to speak your mind, but what did Sony do to you?

Heinrich @ Jul 27th 2006 5:30PM

xbots laughing about sony's earnings is laughable by itself, as:
--------------
Next-Gen went to Wedbush Morgan Securites’ analyst Michael Pachter, and Lazard Capital Markets’ Colin Sebastian to get more background on why a price drop simply wouldn’t make sense for Microsoft at this point.

Pachter noted that Microsoft brass has informed the Xbox division that it must turn a profit or at least break even in fiscal 2007, which ends June 30 next year.
--------------
http://www.next-gen.biz/index.php?option=com_content&task=view&id=3515&Itemid=2

...the thing is the xbox division lost more than __5 billion__ to date. so if 360 doesn't turn into a golden goose expect microsofts management to pull the plug quick and painless.

hey alex @ Jul 27th 2006 7:52PM

It's been speculated that development and marketing costs of the PS3 are somewhere near 2 billion. I would have thought they spread out the costs over time, but who knows how they handle their accounting. I do know Sony recently borrowed 700 million earlier this month, which I'd expect if they were planning a new product, but they're on the verge of releasing new products. Either they're developing something new and they need the additional funds, or things aren't as rosey at they seem, and they need additional operating funds until the PS3 and/or Blu-Ray can generate revenue.

I still say if the PS3 does not sell well, Sony is vulnerable.

We're already beginning to see that Blu-Ray is vulnerable on it's own, but it's still early yet.

Sony needs to be smarter. They certainly have the ability to dominate. But I think they're taking on a lot of risk, when they don't necessarily need to do so.

Hopefully my concerns will go away once the PS3 is release and we see some amazing software. But as for now, I still have some doubts.