Video games and batteries drag Sony down
by Kevin Kelly 
{ Oct 27th 2006 at 9:05AM }
Variety reports that Sony's profits are down a whopping 94% due to their enormous battery recall, and a drain from their video game unit. it's no secret that Sony has been spending a lot of money on the PlayStation 3 while they ramp up for their launch next month, but it's impressive to see what those numbers are in black and white.Sales were slow for both the PlayStation Portable and the PlayStation 2 this year, and "As a result, vidgame revenue was down 21% at $1.4 billion. Operating income swung from a $70 million profit to a $369 million loss." That's a pretty sizable chunk of change.
While the PS3 research and development costs aren't unexpected, when you combine the enormous outlay with the battery recall Sony has had to deal with, there is a much higher expectation for the PS3 to pull in some mighty big bucks and soon.
Serves 'em right for messing with Lik-sang. Boo-yah!
Reader Comments (Page 1 of 1)
Dave @ Oct 27th 2006 9:13AM
Face it sony its time to give up. Wii360 all the way!!!
Gerwurztraminer @ Oct 27th 2006 9:14AM
What's that on the horizon? It's... It's a Sony Fanboy mob! RUN!!!!
Hey, I've had a great time with my PS2 (post price dropS) so I hope the Sony doesn't go the way of Sega and Atari, but man, I just don't get their marketing strategies.
Franky Digital @ Oct 27th 2006 9:22AM
Sony can't really go the way of Sega or Atari because they really don't have too many first-party games. Though I suppose Gran Turismo around the board would be nice... then again, with the new pricing structure, maybe not.
Jeff @ Oct 27th 2006 9:17AM
Third post on the same report the past three days - one per day. How much mileage do you guys think this report has?
Rask @ Oct 27th 2006 9:18AM
The massive battery recall is really the sore point in this whole Sony story.
Heavy PS3 upfront costs they were expecting. Blu-Ray manufacturing problems and low Cell yeilds, a bump in the road at best. Replacing a whole chunk of laptop batteries for most major laptop manufacturers in the world was definately something that they wern't expecting.
Look at it this way however. Sony didn't lose these battery customers. They make the most flexible Li-Ion batteries in the world, hence the big chunk of the parket they own.
The Dells and the Toshibas of the world won't change their battery supplier and Sony will still be pulling in money from that business next year when this whole battery mess is resolved, AND they'll finally be selling PS3 and making profits (hopefully) nickel and diming people on their Sony Marketplace.
If Sony needs cash, they can borrow. A lot of people believe in the PS3 and will pony up money to Sony to support em to see this thing through. If Blu-Ray or the PS3 turn out to be a failure though (highly unlikely), then Sony's future will be in real trouble.
clo1_2000 @ Oct 27th 2006 9:18AM
Sony Defense Force will engage in 5...4...3...2...1
Azerael @ Oct 27th 2006 9:21AM
Making shitty products was gonna catch up with them one day.
Russell @ Oct 27th 2006 9:24AM
I sure hope Sony doesn't have to file for bankrupcy any time soon. Sure, I'm not that big a fan of the PS3 but there are many, many other things that Sony does as well. To lose all of those other things would be a shame.
Foetoid @ Oct 27th 2006 9:32AM
Sony will pull out of the videogames hardware race only when they see it as not being profitable anymore. We all know Nintendo makes the most profit off thier gaming hardware/software, but the other companies struggle. If Blu-ray fails and the ps3 doesnt do well enough to give back at least half the money they invested in putting it together, i can't see a ps4 happening. Perhaps that is why Sony have said the Ps3 is to have a 8-10 yr shelf life, cause it'll take that long to turn a profit.
Biggus @ Oct 27th 2006 9:33AM
I'm weeping in my hanky.
They need a reality check, or sink with all their arrogance and proprietary media they shovel to the consumer.
TheOptimist @ Oct 27th 2006 9:38AM
First off, the last line was definitely uncalled for Kevin. Serves them right?. Is this how you are taught to report on something. Boo-yah on you.
Secondly, I hope Sony bounces back after the battery woes. They definitely serve as one of the viable competitors to the Microsoft juggernaut that threatens to overtake one more industry AND destroy innovation in the process.
Todd @ Oct 27th 2006 9:39AM
I feel bad for Sony. Seriously though, the company is being screwed over by poor video game sales, low expectations with the PS3, and faulty products on the market. There is no surprise why the company is being hurt. Even their electronics side is being smacked in the face with growing interest and better development by Japanese and Korean companies. I've seen some better looking Toshiba SD/HD televisions out there than the high priced crap Sony is shoveling.
I think the company needs a serious re-evaluation.
The Intangible Fact~Cardinals Will Win @ Oct 27th 2006 9:38AM
The PS3 has grown on me a little bit. I don't know for sure if I want one or not.
PS3: Prettiest graphics but lacks on partical effects and AI.
360: Good graphics but excells in AI and partical effects.
Winner 360 depending if it has the better games and from what I can tell it will.
But anyways, the PS3 better sale or its the end
sweethavok @ Oct 27th 2006 9:39AM
Yeah for Sony!
I'm sure glad MS has deep pockets.
ViEt pRiDe @ Oct 27th 2006 9:40AM
LOL @ joystiq cheerleading anytime they thing something is bad news for sony. The reality is we're on the cusp of another generation DOMINATED by Playstation, Ninty has stepped up with a novelty controller slapped onto the same console as last gen, and M$ has come with a console that is a halfway step to next gen. PS3 is the only console of the 3 with true staying power, 360 and wii will be maxxed out by the end of next year, apparently 360 is already maxxed out with GoW, while PS3 games will continue to get better and better as developers learn to cope with the Cell Broadband Engine's unprecedented power.
Laugh it up now while you can guys, this holiday season will be the last time things look positive for ninty or M$, as soon as the masses get a taste of TRUE next gen gaming from the PS3, its going to be a shutout for Sony.
gamerx @ Oct 27th 2006 9:42AM
"Serves 'em right for messing with Lik-sang. Boo-yah!"
Damn straight! Karma is inflicting massive damage on Sony's weak point(using real-time weapon change)!
Wii60 all the way baby!
kevan @ Oct 27th 2006 9:41AM
I hope Sony goes away...far...far away for good!
Good riddance in advance.
Psaakyrn @ Oct 27th 2006 9:44AM
Technically the Playstation marketting plan is not only to drive profits by itself. Don't forget that Sony is also one of those movie companies, so the more players there are, the more movies they can sell, and thus increasing profits in other departments. Might not be as large as one might hope, but anything to get them back to profits as a whole is important.
Gonzo @ Oct 27th 2006 9:47AM
They never should've went after liksang and if you agree, go here:
http://www.PetitionOnline.com/liksang8/petition.html
I'm glad ps2 sales are down because that probably means that the slim line models don't break as easily as the originals. The problem that the batteries will cause for the future is that it reminds everyone about how horrible sony computer hardware is. Which is why I don't understand why they wanted to market the ps3 as a computer (which sony can't do) and not a game machine (which is the only thing sony could be good at anymore).
HN @ Oct 27th 2006 9:54AM
Boo-yah, indeed.
Jake @ Oct 27th 2006 10:25AM
The industry needs Sony and the PS3. I own a 360, will not get a PS3, but am scared to death of what MS would do if they had zero direct competition. And no, the Wii and PC don't quite count because each is much different. The PS3 is very, very similar to the 360.
$70 games, $80/year Live, mandatory horse armor downloads. MS would make 100% more profit on everything they ship and we, the customer, would pay for it. Sony brings out the best in MS.
"Sony, I loved your PS2 but we had to part ways. But please do great so MS can't bend me over my own 360."
/v/ @ Oct 27th 2006 9:57AM
It's over. Sony is finished.
sweethavok @ Oct 27th 2006 9:54AM
Sony fanboys can you say denial............I knew you could.
Gonzo @ Oct 27th 2006 9:56AM
And for the Sony Fanboys out there who jump on these stories with what looks like a guilty conscience: People hate sony for the same reason they hate the Yankees. Sure there ONE OF the best, but they're always so damn obnoxious about it. Especially the execs like Phil Harrison and Ken Kuteragi. And they act like their $hi+ don't stink; when it does...very badly.
Psaakyrn @ Oct 27th 2006 9:58AM
to #12 The Intangible Fact~Cardinals
About AI, I disagree. The PS3 has the highest potential for AI of the three consoles, even if it's harder to program said AI. In fact, I would say that AI and game engines will be the largest advantage the PS3 would have over Wii and 360, not graphics.
In my opinion, after two years, the core advantages of each console would be:
PS3: AI, Game Engine
360: Game Dev Community (XBLA), Online (yes, all would have online, but Live is the most developed, AND has the advantage of PC connections)
Wii: Multiplayer/Online Community, Cost, Different Genres served.
My basis for multiplayer/online community is based on WiiConnect24. I may be wrong about this, but it's highly likely that there will be an MMO which will take advantage of this function (other than Animal Crossing, which people have talked about). Because of the code system, many of the problems which plagues Live (like vulgarity) can be reasonably dealt with, even if they have to use a structure similar to toontown (which also uses codes, so is an apt comparison). The constant online would likely be used to create better methods of community (there are several ways, some more obvious than others).
crono141 @ Oct 27th 2006 9:59AM
"It's over. Sony is finished."
If only...
Sosuke @ Oct 27th 2006 10:10AM
94% profit loss, and yet you don't see them firing massive amounts of people. I'm starting to like Sony, even in the face of losing they aren't jumping ship like several other rats would. The closer PS3 has come to launch the more appealing it has become, it has cast doubt into Christmas lists of children. I hope they come in a respectable 2nd or 3rd place at the least.
crono141 @ Oct 27th 2006 10:17AM
With the hardware and manufacturing costs, sony cannot afford to be anything but a commanding lead in game marketshare.
I believe that the whole blu-ray/hd-dvd war is going to be a moot point. The average consumer either doesn't own an hdtv, or has built an impressive library of regular DVD and isn't willing to buy all their movies again just to see the blackheads on The Phantom of the Opera's nose.
The plurality of Sony hardware is either average or below average in quality, but cost a premium for the consumer to buy.
Make no mistake, Sony MUST win the console war, or fade into oblivion.
Copperhead @ Oct 27th 2006 10:19AM
My voodoo magic, she is working!
.
Mwa ha ha ha ha!
Gerwurztraminer @ Oct 27th 2006 10:20AM
"2nd or 3rd place at least"? What else is there? Am I missing a fourth contender here?
Gamer G @ Oct 27th 2006 10:23AM
I'm afraid those figures do not include PS3 development or manufacturing costs!! Those costs will only be shown once they start selling the PS3!
For instance Sony have made announced the PS3 will last a decade (get yer heads out of the sand Sony!) this is in order that they can right off the costs of the R&D over 10 years but as any accountant will tell you you only start writing off R&D when you actuall start selling the thing so the current Profit and loss account will not include anything to do with the PS3.
In addition all manufacturing costs will be included in as a stock asset and therefore will not effect the company's P&L untill they start selling it (basic rule of accounting is Matching - Matching Revenue to costs).
Therefore expect Sony's financial statements to be pretty dismal for the forseeable future as they incur significant costs making the PS3 but will not get the necessary income from software sales for some time as there will not be many PS3's out there.
My verdict? Sony are up shit creek without a paddle.
Sosuke @ Oct 27th 2006 10:25AM
Gerwurztraminer: a respectable 3rd place is a spot that someone can return from, dead 3rd is the last console a person would make ... Gamecube was a respectable 3rd place
glitched @ Oct 27th 2006 10:29AM
If the PS2 sales were "slow" for this year like you say above, what does that make 360 sales? "slower"?
Ryan @ Oct 27th 2006 10:34AM
Well, it's going to take Sony a long while to regain what they lost. I personally think the PS3 is going to drag Sony down even further financially, and the Wii is going to help add massive damage.
Quite frankly, I don't feel bad for Sony. For a company that boasts about how awesome their new system is, about how blu-ray will become the standard, how the competition is pretty much "meaningless," and yet only supplying consumers with half a million units on launch day, they pretty much bite off more than they can chew.
Arrogance and overconfidence is what brought Nintendo down from its thrown. I guess its time for the same to happen to Sony, and put the rightful king back where he belongs.
gamerx @ Oct 27th 2006 10:48AM
Think about this. Nintendo was the industry darling way up till the mid 90s. When PSX became the market leader with its mature games, Nintendo's image as a kiddie company started to form. Though at the same time, most gamers didnt HATE Nintendo. They only wanted Nintendo to produce more mature oriented games and felt hurt Nintendo didnt adopt the cd-rom format. PSX library was full of mature games with video cutscenes and cd quality music. Gamers wanted all that from Nintendo. But again, nobody HATED Nintendo.
Now look at most hardcore gamers' perception of Sony today. People want to boycott Sony, see Sony burn, see Sony go bankrupt and exit the video game industry!
Do you see where I'm getting at? If Nintendo lost its leadership position with the N64, considering people didnt hate Nintendo to the degree that they now hate Sony, imagine how badly PS3 will do.
Cuz of the internet in this day and age, a company's reputation can go down in an instant. It only took a couple of months for most tech/video game websites to start bashing Sony at every opportunity. Look at Joystiq and Kotaku and Engadget, even the politically correct IGN and Gamespot taking jabs at Sony. Look at that Molly bitch on CNET making fun of Sony in every new video of hers. Millions of people visit these sites and their perception of Sony has changed drastically. Its going to take a miracle for Sony to regain market leadership a third time in a row.
At this point, even Solid Snake and Kratos cant save Sony from its inevitable doom.
Hank @ Oct 27th 2006 11:07AM
Let's face it, Sony is in a uphill battle this time around, I mean with them coming out with the do everything system that they have and considering the price of a stand alone Blu-Ray player the PS3 comes in at a deal.
But will it be enough this time? With the introduction of the DVD player on PS2, I was completely sold, with the cost of PS3, I wonder.
With the pricing of these systems (PS3 & 360), there will be a need for layway programs or something, lol.
With the next generation systems coming out in the next 4-5 yrs. I'd guess that I would need to start saving now.
Gerwurztraminer @ Oct 27th 2006 11:21AM
Sosuke: Yeah, I skipped over the word "respectable" and lost the context, my mistake.
With the 360's head start and Nintendo's appeal to kids, I think Sony is in for a very troubled start. I'm not worried about them lagging far behind though.
josh @ Oct 27th 2006 11:29AM
"94% profit loss, and yet you don't see them firing massive amounts of people. I'm starting to like Sony, even in the face of losing they aren't jumping ship like several other rats would."
Sosuke, what are you talking about? Howard Stringer, CEO of Sony announced Sony would be firing 10,000 people in the next year. This is 7% of their workforce. They are closing 11 factories as well. Do a google news search for "howard stringer + workforce" and you will see various articles about this.
"First off, the last line was definitely uncalled for Kevin. Serves them right?. Is this how you are taught to report on something."
I don't if it matters how a blogger was taught to report on something, because they aren't reporters, they are BLOGGERS. Blogs are not the same thing as the newspaper, guys.
Gamer G @ Oct 27th 2006 11:39AM
I think the PS3 will do ok in terms of sales but that Sony wont make money/profits from it because the competition is far more stiffer this time round. They have the 360 in the west and the Wii in Japan which looks to me as though its going to kick arse there (based on the succes of the DS).
In sony's business plan they probably expected the same dominance with the PS2 so probably budgeted their R&D and business model in line with that expectation.
Firegirl @ Oct 27th 2006 11:45AM
What I think Sony is doing reminds me of a saying: Don't put all your eggs in one basket. If the PS3 doesn't take off, I think Sony will be screwed. What they are doing with the PS3, and the battery woes on top of that, is just not good business. They want to take 10 years to make up the losses for the PS3? Gamers will have moved on to a new console by then...
Wulkar @ Oct 27th 2006 3:24PM
@#1
i totally agree with you there man.
down with sony. up wit 360 and wii
Bill @ Oct 28th 2006 4:11AM
>>38. "94% profit loss, and yet you don't see them firing massive amounts of people. I'm starting to like Sony, even in the face of losing they aren't jumping ship like several other rats would."
Sosuke, what are you talking about? Howard Stringer, CEO of Sony announced Sony would be firing 10,000 people in the next year. This is 7% of their workforce. They are closing 11 factories as well. Do a google news search for "howard stringer + workforce" and you will see various articles about this.>>
That's what they hired Stringer to do. I read this fascinating thing, in Japan it's all this honor stuff, and employees are not supposed to be fired, etc. Well, what Japanese companies do to get around this is hire a foreign CEO. He's not expected to behave to the same honor standards, and therefore it's acceptable for him to fire a bunch of people and nobody loses face. That's why Sony hired Stringer, they badly needed painful layoffs, and that way they do it without losing face.
Heh, stupid fucking Japanese.
I find it most interesting though that Sony's game division is churning out losses that would make Microsoft blush. $369 million loss in one quarter, and they haven't even started producing PS3's yet! There are four quarters in a year so Sony is on pace to lose close to two billion dollars in gaming in a single year. Microsoft is constantly ridiculed for having lost around 5 billion in 5-6 years in the industry. Interesting how the media and forum posters ignore this though.
It highlights just how stupid Sony was to waste billions on custom designing the flop of Cell. That R&D is just hitting them for hundreds of millions of dollars, all for a useless junk chip called Cell that developers hate, and has shown no added power in games to date over the CPU in Xbox360.
MS's Xbox division only lost 96 million btw, (compared again to Sony's 369 million) this past quarter. That's what lots of people ignore when they talk about the billions ms lost. That was only because the Xbox was built on a terrible business model. That model was totally changed with 360 and it appears to already be paying off. The xbox 360 business should be profitable as soon as next year. Whether or not it gains market share, the argument that it's a failure because it loses billions is unlikely to be viable.
FuzzyPickles @ Oct 28th 2006 5:37AM
"They definitely serve as one of the viable competitors to the Microsoft juggernaut that threatens to overtake one more industry AND destroy innovation in the process."
Don't worry... in the worst case scenario (Sony dropping out of the console race), by the next generation Nintendo will probably catch up with Microsoft in the graphics department anyway, or at least have an efficient alternative with a much smaller gap between the capabilities. I think Nintendo's strategy with the Wii is to regain whatever ground they lost in the sixth generation, and then go on from there. Perhaps claiming that MS and Sony are getting ahead of themselves this generation and that all the focus on HD is premature is face-saving--but honestly, to some extent I have to agree with them. After all, the Cube performed a hell of a lot better than the PS2, so just because the big N is taking the standard-res road for the Wii doesn't mean they will forever. Also, for every person that will be playing PS3 in their living room with HD capabilities and surround sound, there will be at least two or three schmucks playing it in their bedrooms or basements on 17" screens with the TV's built-in audio output. Meanwhile, most of their 599 US dollars went into technology they can't exploit anyway.
Say what you want about TEH KIDDIE GRAFX, Ninty's got a point. And also.. would games like Katamari be such a success if graphics were the be-all end-all of what "the next generation" stands for? That game looked like something on the Jaguar, for Christ's sakes.