Losses in Sony's games division double
by Justin McElroy 
{ Oct 25th 2007 at 11:30AM }
Sony said losses came from selling PS3s lower than production costs and "the increase in PS3-related inventory write-downs," which means that the value of the PS3 has dropped, perhaps due to recent price cuts. On the upside, the company as a whole pulled in $787 million, compared to a $182 million loss last year, so it doesn't seem that Maw and Paw Sony will have to dip into their coffee can full of nickels just yet.
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Reader Comments (Page 1 of 4)
FoolOnTheHill @ Oct 25th 2007 11:34AM
Amazing picture!
I see what you did there...
J.Goodwin @ Oct 25th 2007 11:33AM
Wow.
copa @ Oct 25th 2007 11:44AM
Relax, dude. It's all part of Sony's 10-year plan. Everything is falling into place.
Brucie B @ Oct 25th 2007 11:49AM
LOL
Great 10 Year Plan!
mfed3 @ Oct 25th 2007 12:12PM
lol copa. to sony: yesssss pwnt. nintendo & microsoft shit on you
KarlW @ Oct 25th 2007 1:04PM
well, except that Nintendo is the only one making any money on the console. Microsoft is still at a loss (and I think it's even bigger than Sony's).
The PS3 has a great year ahead - and it's going to be packed with big-selling titles like GT5, FFVIII, MGS4 and Haze. I know it sounds like Sony's marketing-speak, but it is true - the PS3 looks to have a much better year next year. And as we all know, the consoles don't generate profit: people buying games for it do. And with more, better games, that looks set to make Sony profit a lot more.
KarlW @ Oct 25th 2007 1:04PM
well, except that Nintendo is the only one making any money on the console. Microsoft is still at a loss (and I think it's even bigger than Sony's).
The PS3 has a great year ahead - and it's going to be packed with big-selling titles like GT5, FFVIII, MGS4 and Haze. I know it sounds like Sony's marketing-speak, but it is true - the PS3 looks to have a much better year next year. And as we all know, the consoles don't generate profit: people buying games for it do. And with more, better games, that looks set to make Sony profit a lot more.
Evan @ Oct 25th 2007 1:15PM
KarlW, every console has a few big games promised in the year ahead. I hate these threads were people post "but my console has xxxx game" lists, so I'll just say that Sony's list isn't necessarily any better or worst than Nintendo's or Microsoft's.
micheal82 (mcdf- Halo Ring) @ Oct 25th 2007 4:06PM
Being from Chicago that wait till next mentaility sounds very familiar. It sounds like a certain loser baseball team and their loser fans. It sounds like the Cubs. Just like the Cubs, Sony will be waiting for next year and next year never shows. lol
ukickmydog (NDF - Earth) @ Oct 25th 2007 7:00PM
who is sony to start the next console cycle?
what if MS or nintendo decides to announce a console in 4 years, will sony decide to ditch it and make it the 7 year plan? taking their losses and going on with ps4?
i dunno, but they took too much for granted, and sunk almost $1 billion already, not including anything else. This console cycle really ate into their bottom line, who knows how long they can bleed this money out
SneezyPorcupine @ Oct 26th 2007 12:45PM
LoL. If their plan was to lose money for the first 9 years then thats a hell of a scheme!
Ten Dolla Bill @ Oct 25th 2007 11:33AM
How much longer are they going to continue losing money on this doorstop?
Zsavior @ Oct 25th 2007 11:39AM
For the same amount of time MS is willing to lose money on the xbox360. Make no doubt about it that is their main competition. Xbox and PS are vying for the high end market and right now if xbox is willing to lose a billion Sony will try and whether the storm the same way. This is about who is going to get that high end dollar just left open by nintendo.
Rususeruru @ Oct 25th 2007 11:47AM
@Zsavior: I think the main difference between the 360 and PS3 was the rate at which Microsoft could reduce production costs. Sony threw in a lot of technology that was early in it's cycle to really go down in production price whereas the 360's architecture seems to be more matured and easier to reduce production price. The biggest bill MS had to swallow were the RRoD repairs but even then with their share of the PC market MS can take bigger hits.
Zsavior @ Oct 25th 2007 11:55AM
I don't doubt you Rusueruru, but I don't think Sony is going to give up that easy at all. I don't believe they even figure that into their equation. The PS line from being 100million consoles world wide to barely hanging on there is no way if you are Sony you just give up right now. But I do see your point I have to admit that.
NATO_Duke @ Oct 25th 2007 12:00PM
MS can also afford the losses on consoles because of the hihg attachment rates for it. Lots of games and accessories will make up that gap.
arrrgh @ Oct 25th 2007 12:02PM
of course theyre not going to give up that easily. That would be like a death blow to the company. they will ride it out, and they will turn a profit. It's just a REEHEEAALLY stupid business venture. But they made their bed, and they're definitely going to lay in it.
capt_carl @ Oct 25th 2007 12:15PM
Another thing to keep in mind is that Sony is basically the Japanese Microsoft. They both can afford to throw billions of dollars into R&D to make a product that's years ahead of itself. Both can also afford to take a substantial loss on said product. Right now it's a war of attrition: Who can hold out the longest before they loose so much money they go bankrupt or worse. I honestly think Sony will lose this war simply because the rest of their product lines are doing poorly. Microsoft makes trillions on sales of the Windows operating system alone, and let's not even get into their other IPs...
VampireHunter Z @ Oct 25th 2007 12:21PM
@Rususeruru
Good points. The PS3 is getting more gimped while the 360 tech seems to be getting better. Sony had a great vision with the 60GB but our wallets were not ready for it.
Dale @ Oct 25th 2007 12:35PM
@Zsavior: Wrong, wrong, wrong... Nintendo are Sony's competition. Regardless of technical capabilities, money spent on the Wii and its software is money not spent on the PlayStation brand. All this talk of next generation versus new generation is silly - they are all new systems, and they are all competing for gamers' dollars.
As we keep seeing in other industries, at some point swallowing these losses is not going to be acceptable to Sony's shareholders and they will liquidate as much of the division as they can to protect their investment. Sony seriously need to turn the unit around before that happens.
Matt B @ Oct 25th 2007 1:24PM
MS's financial statement comes out today. It will be interesting to see if they lost more than the $1B already plunked down on the warranty.
Mr Khan @ Oct 25th 2007 5:00PM
Except for one thing; being that their games division has previously been a big breadwinner for Sony overall, as opposed to the Xbox division, which has always simply been a side-note for them
Sony's other divisions are on the rebound a bit (specifically their TVs) but the PS division hitting hard times is worse for Sony than X division bleeding red for MS
WebPimp @ Oct 25th 2007 11:35AM
Love the picture!
F. Rocker or Fernando R.? @ Oct 25th 2007 11:45AM
Funniest pic ever. =)
mr nimblewick (SegaDF - Jogurt Ring) @ Oct 25th 2007 12:09PM
I vote for F. Rocker.
cc123 @ Oct 25th 2007 12:11PM
How about just Frocker?
When I see you post I think of something that sounds similar anyway.
Phranctoast @ Oct 25th 2007 11:37AM
the whole maw and paw thing is true. Theres no reason why another division can't help out considering what the ps3 is doing for bluray.
VampireHunter Z @ Oct 25th 2007 11:38AM
Not even with PS2 selling strong they were able to profit in the games division? So now they are dipping in the piggy bank of their TVs and other electronics.
copa @ Oct 25th 2007 11:48AM
Yeah, that's the thing. The PS2 is enormously profitable, and the PSP moderately so.
If you break out the PS3 by itself, it likely lost over one billion dollars in a single quarter.
why not the LS2/LS7? @ Oct 25th 2007 12:01PM
copa:
Unlikely. The game division (outside PS3) running an almost $1B profit in a quarter is exceedingly unlikely. That'd be PROFITING about $10 per PS2+PSP customer in the quarter. That'd be equivalent to selling them between 2 and 4 games (depending on which device it is for and whether it is a classic hit or not) and with zero operating expenses.
I dunno about you, but I think we would have noticed in the NPDs if PS2/PSP games were running at a combined rate of 200M plus per quarter. Halo 3 at 3.3M in a month would have been only in the middle of the pack.
Oh, and if that rate continued for a year, the attach rate on PS2+PSP would be 10 or so, which would be incredible, since it's really 4 or 5 and the 360 is the leader at something like 6.6.
copa @ Oct 25th 2007 12:36PM
I don't think your math's right. The games division as a whole lost $850 million.
So if the non-PS3 pieces (PS2, PSP) earned $150M in the quarter, then that means the PS3 piece lost $1 Billion.
why not the LS2/LS7? @ Oct 25th 2007 12:55PM
copa:
You are correct. I read it as $84.1 million. Big difference, obviously. Sorry for the error.
JL @ Oct 25th 2007 11:38AM
We all knew that they were going to be losing a lot of money because they are selling each console at a huge loss.
They really need to try and create hype for the system. I think their biggest downfall has been their advertisement.
J.Goodwin @ Oct 25th 2007 11:40AM
Color me naive, but I actually thought that with all the "price cuts", maybe they had gotten their production costs under control.
Instead of that, it kind of looks like they're just swallowing more losses with every new model. That's a big bowl of fail that they keep eating from there.
gonk @ Oct 25th 2007 11:44AM
well their new 40gb model did knock out some components, including the $20 ps2 chip, but they did that so people that buy it have to buy ps3 games, not necessarily just to produce it cheaper
jsn @ Oct 25th 2007 11:52AM
IMO they've had a multitude of failures. Marketing is a big one, but when you have ano A-list titles to prop up your hardware, marketing is hard. They didn't make it easier by pumping out those weird ass commercials though, but that's just a small part of the overall problem.
They simply didn't look at the market before building a console. They looked internally and said "what do we want in this console" rather than looking at their customers or their developers and saying "what do they want in this console". They thought they were in a position to dictate the market and they're paying for that arrogance now.
why not the LS2/LS7? @ Oct 25th 2007 12:06PM
J. Goodwin:
They have gotten costs under control. But the problem is they still had 60GB units from the earliest production on hand that by all accounts were being sold at a loss at $600, and they were now selling at $500, increasing the losses further. And this is before you count warehousing these units for months, etc.
Once you make a unit at a very high cost, you're stuck, accounting-wise. You either sell it at a loss now, sell it at a huge loss later, or write it down as a loss and keep it on hand. Either way, you're taking a loss.
The price of blue laser diodes is MUCH lower now and the units have been reduced in cost too in other ways (removing BC chips, etc), so consoles being produced now shouldn't incur such losses. Well, unless they drop the price further...
gonk @ Oct 25th 2007 11:40AM
so they lost 56 million? not too bad, actually
Zootittles @ Oct 25th 2007 11:44AM
Yeah, not bad. The only problem is the profit of the entire company is needed to absorb the costs of the gaming division. No different than Microsoft's situation, I would guess.
J.Goodwin @ Oct 25th 2007 11:45AM
You see that Microsoft just spent 15 BILLION on Facebook [ http://technology.timesonline.co.uk/tol/news/tech_and_web/article2738681.ece ] ?
Yeah, kind of makes that billion dollar Xbox write off over three years seem like a drop in the bucket, doesn't it?
J.Goodwin @ Oct 25th 2007 11:52AM
Sorry, 240 million on 1.6% of Facebook.
Misleading editor titles FTW!
Shagittarius @ Oct 25th 2007 11:52AM
They didn't spend 15 billion they spent 250 million. 15 billion is the total estimated value of the company based on the fact that microsoft paid about 250 million for about 2 percent of the company.
SoulBlade @ Oct 25th 2007 11:44AM
I think they'll start to see the curve's direction change somewhat soon. And hopefully they're learning, though I'll probably remain skeptical until I hear something about their next offering or they make a crazy announcement that isn't stupid.
Dadidito @ Oct 25th 2007 11:45AM
The problem with trying to have a war with Microsoft that involves attrition like this is that they will lose. Microsoft can pretty much outlose anyone with the money they have and keep on rolling. Sony does not have that luxury.
samfish (MSDF- Nurse Outfit!) @ Oct 25th 2007 11:47AM
You need to animate that picture!
Justin McElroy @ Oct 25th 2007 11:53AM
Someone totally should
Psaakyrn @ Oct 25th 2007 12:49PM
Ok, it's animated now... but you animated the @#$% wrong part. Animate the money!
Shagittarius @ Oct 25th 2007 11:50AM
Japanese companies have always been known for their long term market strategies, where American companies would look several years down the road the Japanese companies looked 20 years down the road.
Smart american companies learned from this such as Microsoft and are now giving some of them a run for their money. This battle won't be decided in 2 generations, but it will probably take a heavy toll on both companies.
copa @ Oct 25th 2007 11:57AM
20 years? Two generations? Are you out of your mind? Do you have any idea how to run a business?
You do realize that Jack Tretton doesn't actually believe that crap about 10-year plans that he starts spouting off every time the press backs him in a corner, right?
You do realize that every morning when he walks into Sony headquarters, Howard Stringer kicks him in the face and screams, "How did you lose a billion fucking dollars in three months, asshole?!?"
jsn @ Oct 25th 2007 12:03PM
in this case, I disagree completely. Sony's only plan with the PS3 was to use it as a trojan horse for their other departments technologies. Their arrogance allowed them to think that they could dictate what they market wanted. they didn't look at where the market was at the time or what developers and customers wanted. They built the PS3 for Sony.
Microsoft learned decades ago how to wage a battle against an entrenched competitor. Sony has never had to fight this kind of battle. In fact they've shown a history of losing these kinds of battles (mp3 players).