Sony is a Video Game Company Now

PS4.jpgWhen I was a kid, Sony was a electronics powerhouse. There was a time when Walkmen were all the rage. Where Sony made the best stereos and TVs. Sony dominated consumer electronics. That image of Sony has faded. No longer are considered the electronics jugernauts they were when the Playstation hit the market. Now, after numerous years of struggles and financial losses, they are a shadow of their former selves. They are no longer a consumer electronics company, but a simple video game company.

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Just a few months ago, we were looking at Sony’s end-of-fiscal-year financial reports and worrying about the consumer electronics giant’s $10+ billion in losses over the past eight years. Today, things are looking a bit rosier, as Sony is riding strong sales of the PlayStation 4 and its associated games and services to an increase in profitability for the quarter ending in June.

Sony declined eight years ago at the beginning of the 7th Generation. This was also around when Sony launched the PS3, a 600 dollar system which became a money pit. Sony sold the system at a loss and, due to weak sales, had to cut the price of the system. This was also a time when Sony’s other divisions were struggling. The company has been in the red for years until only recently.

As time went on, the company survived by downsizing and closing down facilities. Over the eyars, numerous companies have swooped in and co-opted their once powerful brand. Nintendo squashed their handheld endeavors. Samsung beat them with TVs. The rise of iPods, and eventually the iPhone, killed their music business which was the heart and soul of Sony. Sony is a zombie of a company.

The reason Sony is a game company is because their earnings are now tied to video games. Sony struggled when the PS3 was losing them money hand over fist. According to PC world, producing the PS3 cost over 800 dollars. They are doing better now because the PS4 has dominated the market and the PS3 continues to sell into Gen 8 (with a better profit margin than in Gen 8 as well). Here is the company’s Net Income (attributed to Sony shareholders) over the last 10 years.

Sony_Net_Income.png

The decline in 2008 is mostly due to Great Recession, but Sony has been trying to stay above for a while. This may be a direct result of the PS3 as noted above.  Sony didn’t return to profitability until after the launch of the PS4 (although it lagged about a year). If VR or the PS4 Neo do poorly, the company could drop into the red again.

Of course, I’m not the only one seeing Sony’s shift. Verge did an article on just this topic:

But the long-term reality is far more stark: after years of promising “One Sony,” CEO Kaz Hirai appears to be systematically breaking the company up for sale. The VAIO PC division was sold last year and just announced its first hybrid laptops as an independent company, and Hirai told investors that he has to consider spinning off the smartphone business and possibly selling the TV business outright.

According to Hirai, that leaves Sony with three main businesses at its core :

 

  • Sony Pictures Entertainment, the hit-or-miss Hollywood studio that just fired Amy Pascal after being hacked to bits at the end of last year.
  • The PlayStation division, which has so far won the next-gen console race with the PS4 but yet to define a clear mobile strategy; PlayStation Mobile is all but ignored, and the Vita is a beautifully noble failure.
  • Selling image sensors to Apple for the iPhone.

You read that last one correctly: Sony’s last closely held core electronics business is image sensors, and it’s mostly because Apple uses them in the iPhone. (Sony also supplies sensors for various other high-end phones, but Samsung uses its own chips in the Galaxy S5, and no other company comes close to selling as many phones as Apple and Samsung.) If Apple decides to switch sensor suppliers — or, perhaps more likely, build its own — the third leg of that stool gets kicked right out.

To add on the last part, it’s generally a bad idea to have a line be sold to one company. In lending, its a huge risk if you borrower is reliant on one company, say a Walmart or Target, because if they drop you, you are out of business. Sony is in the same boat. It seems like the only stable business Sony has left is their Playstation line.

The change has to be somewhat demoralizing to investors. When you invested in Sony, you expected to be buying into an electronics conglomerate, but now they are a videogame company. It would be Target turning into a grocery store. Investors are watching the company on the decline.

If you want to know the future of Sony, look at the Playstation brand. The success of Playstation is the success of Sony. Of course, if the Playstation brand ever dies, so does Sony.
Follow me on Twitter at @Spoogymonkey or email be at Smashmonkey88@gmail.com.  You can find more of my stuff on Sourcegaming.info

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