Sony's Game Group Loses $2 Billion

[fitbabits]

Depressing financial news from Sony today as details of their game group's losses are now coming to light - the losses now total two billion dollars. GameSpot (http://www.gamespot.com/pages/news/story.php?sid=6170827&part=rss&tag=gs_news&subj=6170827) has more details.

Some customers might think the PlayStation 3's $599 retail price is high, but that's chump change compared to what the machine is costing Sony. The electronics giant today posted its financial results for the fiscal year and fourth quarter ended March 31, and as analysts predicted, the game division racked up significant losses.

For the fourth quarter alone, Sony reported an operating loss of $914 million from its game division, attributable primarily to the PS3. Sony's new machine was also responsible for a bump in gross revenue, as the company's gaming segment racked up sales of $2.4 billion and helped push company-wide sales to $17.7 billion, up 12.6 percent from the previous fourth quarter.

The full-year picture for Sony's gaming division was similarly grim, with the PS3 driving an increase in revenue, as well as operating losses. For its full fiscal year 2006, Sony's gaming group posted revenue up 6.1 percent to $8.6 billion, but suffered an operating loss of nearly $2 billion.
The last analyst report I looked at was forecasting a loss of about $1 billion - two is nuts!

[Johan]

two is nuts!

Nuts tend to travel in pairs, I believe!

What's happening with their stock price? (I'm not going to check. I get yelled at when I rely upon facts).

[bakes73]

cripes all mighty

[Draconis]

It'll be interesting to see if good ol Pachter will be recanting his words about PS3 dominance because of Blu-Ray Movies.

Clearly, Analysts are idiots.

Speaking of which...I should probably get some content up on the EA Analysts site soon under my name...~Sighs~ Damn job.

[bKangy]

And the difference between MS and Sony is they can't afford to swallow this kind of thing.

[fitbabits]

Nuts tend to travel in pairs, I believe!

What's happening with their stock price? (I'm not going to check. I get yelled at when I rely upon facts).
Sony shares are up $3.15, closed at $55.85.

[Mdot23]

shark bite.

[oldjadedgamer]

In before "this happens every time a company launches a new system" quotes.

[Johan]

Sony shares are up $3.15, closed at $55.85.

Well...they were $55 months ago, so that's merely regaining lost ground.

Surprising, all the same.

[Telefrog]

Of course, there are other ways to look at this report. For a not-so-gamer obsessed version, check out this: http://www.tgdaily.com/content/view/32064/118/

It doesn't look all doom & gloom, although 2 billion down isn't funny for shareholders.

[Babbster]

Of course, there are other ways to look at this report. For a not-so-gamer obsessed version, check out this: http://www.tgdaily.com/content/view/32064/118/

It doesn't look all doom & gloom, although 2 billion down isn't funny for shareholders.
It may not be all doom and gloom for Sony as a whole, but the fact that the gaming division could lose that much money while still having relatively significant sales of their 7-year-old console is still a very big deal (and, lest we forget, they've been sustaining losses on the PS3 since development of the Cell processor began).

I would note also that the article mentions increased sales for the Bravia line of TVs, and you know what spurred those sales? Significantly reduced prices - they're still higher than the competition, but they're low enough now that if you prefer the Sony brand (why??) you can actually justify the purchase. Of course, it's not comparable to the PS3 since they're still selling their TVs at a significant profit, but it shows how much pricing matters.

[BlackPete]

Lemme try to predict what any SDF member will say:

How dare you be so negative on Sony? After all, this is straight from your own link:


Sony's new machine was also responsible for a bump in gross revenue, as the company's gaming segment racked up sales of $2.4 billion and helped push company-wide sales to $17.7 billion, up 12.6 percent from the previous fourth quarter.

For its full fiscal year 2006, Sony's gaming group posted revenue up 6.1 percent to $8.6 billion... Sony's figures peg PS3 shipments at 5.5 million systems for the fiscal year, with 13.2 million games to go along with them.


See, nothing to worry about. Oh, and this happens every time Sony launches a new platform.

[Shodan2020]

Lemme try to predict what any SDF member will say:

How dare you be so negative on Sony? After all, this is straight from your own link:



See, nothing to worry about. Oh, and this happens every time Sony launches a new platform.

That or: Yet another anti-Sony newspost from Kama--... er Fitbabits.

[51|RandoM]

That is in Canadian dollars, though, right? :D

[Joestar]

Wow. PS3's must've sold more than expected.

(I aim to find the silver lining in every Sony newsthread! :))

[Vanthar]

The last analyst report I looked at was forecasting a loss of about $1 billion - two is nuts!

Didn't the analyst actually say about 1 billion for the fourth quarter (which it is)?

[LostToys]

I would note also that the article mentions increased sales for the Bravia line of TVs, and you know what spurred those sales? Significantly reduced prices - they're still higher than the competition, but they're low enough now that if you prefer the Sony brand (why??) you can actually justify the purchase.

What really helps is that Sony has created several tiers to the Bravia (KDL) LCD product line. Before, Bravia pretty much meant the XBR2/3 line of LCD displays. Now Sony has released a line of cheap 720p (S-Line) and 1080p (V-Line) Bravias, while still keeping the XBR2/3 as the performance king. Since the Bravia XBR2/3 series has received such great reviews, by extension, people are applying to the lower end models.

You also see the same thing on their SXRD (KDS) line. Before you had just the XBR1/2, now we A2000/2020 line which supplements the product product line at a competitive price.

The problem with the PS3, is that you can't do the same kind of product tiering. They tried it with the two SKUs (20GB and 60GB models) but that didn't work out the way Sony had hoped.

[LostToys]

Wow. PS3's must've sold more than expected.

(I aim to find the silver lining in every Sony newsthread! :))

The Silver Lining is that Sony is still profitable.

[gojira]

How much money did MS lose on the original XBox before it became profitable, anyone know?

[Loganrapp]

The Silver Lining is that Sony is still profitable.

Bingo. Despite having to spend a shit ton of money on the PS3, the company at large is still doing rather well.

Companies like Sony are very much the type to "stay the course." They're aged, they're based in Japan, and so they don't feel the pressure to change directions when things go bad in the short-term.

If they get to the PS4 and are still losing money, that may change. But for now, I really just plain don't see Sony doing anything different aside from making batteries that don't explode.

[DaXIthR]

I'm surprised the PS3 is selling as well as it is.

Seriously.

[kickmybum]

Wasn't this posted a couple of days ago?

[Flatpicker]

I'm just becoming more and more convinced that the razor/razor-blade model is not going to work long term.
We may see the PS4/Xbox3ish taking the Nintendo approach and reusing the existing platform with more memory or a faster cpu therefore reducing the costs and maybe even selling them for a profit.

[LostToys]

Wasn't this posted a couple of days ago?

A couple of days ago was the analyst expectations. Today is the official numbers from Sony.

[MacD]

Lemme try to predict what any SDF member will say:

How dare you be so negative on Sony? After all, this is straight from your own link:

Some customers might think the PlayStation 3's $599 retail price is high, but that's chump change compared to what the machine is costing Sony. The electronics giant today posted its financial results for the fiscal year and fourth quarter ended March 31, and as analysts predicted, the game division racked up significant losses.

For the fourth quarter alone, Sony reported an operating loss of $914 million from its game division, attributable primarily to the PS3. Sony's new machine was also responsible for a bump in gross revenue, as the company's gaming segment racked up sales of $2.4 billion and helped push company-wide sales to $17.7 billion, up 12.6 percent from the previous fourth quarter.

The full-year picture for Sony's gaming division was similarly grim, with the PS3 driving an increase in revenue, as well as operating losses. For its full fiscal year 2006, Sony's gaming group posted revenue up 6.1 percent to $8.6 billion, but suffered an operating loss of nearly $2 billion.

See, nothing to worry about. Oh, and this happens every time Sony launches a new platform.

So the gaming division made 8.6 billion (of which 2.4 in the last quarter), but ultimately lost 10.6 billion to result in a net loss of about 2 billion (of which a billion in the last quarter alone)?
Sony sales combined (tv's, etc) sold 17 billion worth in the last quarter, though (and who knows what that cost them? Check the Sony's report yourself).
The only thing these numbers seem to indicate is that in terms of sales, Sony gaming is a tenth of the Sony group, but that that tenth is losing a large chunck of change. Can the rest of Sony cover that loss per year, until the PS3 turns profitable and further, until those sales have covered the debt and the ps3 has broken even?
Maybe, but a business losing a quarter of it's income is in bad shape. We're talking cutting costs or/and up to 40% growth (both occurring in the time it takes to break even). That seems a tall order.

[Babbster]

Maybe, but a business losing a quarter of it's income is in bad shape. We're talking cutting costs or/and up to 40% growth (both occurring in the time it takes to break even). That seems a tall order.
Extremely tall. Especially since Sony has a large amount of external competition in every division from TVs to movies, so if they have failures elsewhere in addition to the videogame division things could get bad fast. Microsoft, on the other hand, "pwnz" the OS and office suite software areas which gives them a nice, predictable income with which they can bolster their gaming division until it [hopefully] reaches profitability.

[Boris]

Oh shit Phil Harrison, you might want to cancel that order on the lime green Lamborghini!

[BlackPete]

Let's balance that with some more positive news.

GI.biz is reporting (http://biz.gamedaily.com/industry/feature/?id=16171&ncid=AOLGAM000500000000016) that despite the losses, Sony is optimistic for the next fiscal year, and even predicting a record profit.


"An increase in sales is anticipated as a result of the full-scale expansion of the PS3 business in Japan, the United States and Europe. In addition, a significant reduction in operating loss is expected due to rapid reductions in hardware production costs and an enhanced line-up of software titles in the PS3 business," the company stated.

Sony Corp. as a whole is also very optimistic for the current fiscal year. The company expects profit will more than double to a record 320 billion yen ($2.7 billion). "Our results demonstrate a healthy recovery," said Corporate Executive Officer Nobuyuki Oneda, who added, "The PS3 business will really get off the ground this fiscal year."


There ya go, everything will turn out just fine! :D

[Trazzlo the Magnificant]

Let's balance that with some more positive news.

GI.biz is reporting (http://biz.gamedaily.com/industry/feature/?id=16171&ncid=AOLGAM000500000000016) that despite the losses, Sony is optimistic for the next fiscal year, and even predicting a record profit.



There ya go, everything will turn out just fine! :D
heh, they also predicted people would want the PS3, and Bluray would take over the market quickly. The problem is the longer the race continues, the more likely it becomes that both formats will have a long life.

That means that all studios who re-assess the situation might decide there are enough players of each format in the market to warrant supporting both. All except for Sony, which would look silly paying HD DVD royalties. So, Sony might end up hamstringing its own content sales.

I predict any corporate bigwigs will predict good news and record profits for coming quarters even if they are all running around screaming with their hair on fire and beating the hell out of each other for the opportunity to be first to jump from the 32nd floor. First guy to land on Ken wins.

ps. He was pushed.

[Skyelan]

even if they are all running around screaming with their hair on fire and beating the hell out of each other for the opportunity to be first to jump from the 32nd floor.

With the Benny Hill theme playing in the background, of course. :p

[ONI5]

All I can say is that Heavenly Sword better be the shit that sells the PS3 this holiday.

[Shodan2020]

All I can say is that Heavenly Sword better be the shit that sells the PS3 this holiday.

It's gonna take so much more than that to interest me in a PS3.

[Lunar Blue]

It's gonna take so much more than that to interest me in a PS3.

Word. They better have MGS4 ready and give me a blowjob to seal the deal.

[Wolvie]

Que an analyst with another "enough is enough" diatribe, and the internet e-stoning him for it. :D

[TheFlyingOrc]

So...isn't this, by itself, half of what Microsoft lost over the life of the original Xbox?

[Johan]

Money is overrated. After all, you can't take it with you when you croak.

[Roc Ingersol]

It's kinda funny to me. It used to be that the gaming division pulled in huge cash and buoyed up the other unprofitable segments. So the cell and blu-ray were merged into the PS3 to make a beast that would stuff the consumer electronics and media divisions full of spin-off profits from the sure-success.

And in reality, the media and consumer electronics divisions turned themselves around without much help from Cell or Blu-ray and are now buoying the suddenly huge-losing gaming division.

Also surprising that division can be losing 2 billion when the PS2 and PS2 software is still selling like mad.

[pawnblue]

How much money did MS lose on the original XBox before it became profitable, anyone know?

http://www.evilavataranalysts.com/2007/05/16/somewhere-theres-a-disconnect-part-2/
"To put this in perspective, Microsoft is estimated to have lost only $4 billion over the entire, 4.5 year, life of the original Xbox."

[Trazzlo the Magnificant]

The NDP results for April (http://www.gamesindustry.biz/content_page.php?aid=25104) show the PS3 in North America still having painful sales.

So, does that help Sony since they lose less per console? Or does it mean they have to move their 1.2 million unit stockpile by lowering prices?

[TheFlyingOrc]

The NDP results for April (http://www.gamesindustry.biz/content_page.php?aid=25104) show the PS3 in North America still having painful sales.

So, does that help Sony since they lose less per console? Or does it mean they have to move their 1.2 million unit stockpile by lowering prices?
Since they probably didn't PRODUCE less, it doesn't hurt them. Sales actually don't lose them money - building the machine does. What hurts them more are the consoles that are NOT selling.

[Trazzlo the Magnificant]

Since they probably didn't PRODUCE less, it doesn't hurt them. Sales actually don't lose them money - building the machine does. What hurts them more are the consoles that are NOT selling.
I just assumed that since they are only selling about 300k a month worldwide, they would soon stop producing them at 1 million a month :)