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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You’re Not Smart As You Think You Are

the_thinker_pdd

As you go through life, you learn truths. Life is humbling, and one of the best truths I’ve learned is that if you think you’re smart, you’re really not.

So, I started my post high-school education at a local community college. It was cheaper and the classes were smaller. It was a better transition, but the classes weren’t that hard. I could put a little bit of work and get a B, maybe an A.

So after two years, I move on to the University of South Florida and apply for the School of Accountancy. Now, you had to pass the first class, Intermediate Financial Accounting 1, in order to take any of the other classes. They warned us this class was hard, but I didn’t pay much heed. I was smart. I was a genius. With a little bit of study, I’d get a B, maybe an A.

First test I get a C. Next test, I get a D. I was close to failing the class and having to take it over again.

What I learned was I was not as smart as I thought I was. Any time you think your a genius, as I thought, the world will find a way to bring you back into reality. I thought I was so smart because I could pass freshmen and sophomore level classes at a community college. But when I got to the big league, I thought I was smart enough that I didn’t have to study a lot. I did well in my other college classes. But accounting was different.

Socrates, the man the oracles called the smartest man in Greece, said “I know that I know nothing.” True genius comes from not knowing. It comes from knowing your limits. If you think you’re smart, you’ll never really be smart. I know a guy who always gloated about how smart he was and how much he knew. But in reality, he knew nothing. He could regurgitate facts, but you could tell he didn’t really know much. He wasn’t really smart because he thought he was smart.

To really get it, to really be smart, is learning your own limitations. I passed Intermediate Financial Accounting 1 because I knew I didn’t know accounting. I had to study hard. I got an 88 on the last test and passed with a C. That class forever shaped my understanding of intelligence. I only became smart because I learned that I knew nothing.

If you want to achieve true intelligence, you must realize that you aren’t as smart as you think you are.

 

Trump Disrupted The Election

trump_debate

Trump made a big play at the first presidential debates. I you were to judge the “debate,” then Hillary would have won and she would have gotten a nice little high school debate trophy. But look at the polls. Most of them have Trump winning the debate. By normal means, Trump lost the debate, but Trump is redefining the rules of the debate as well as the elections. He is a disruptive candidate.

Disruptive Innovation

What is disruptive innovation. Clayton Christensen, who came up with the concept, says “Disruptive innovation……..describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.” This describes Trump’s rise. He started out with the disenfranchised Republicans. He wasn’t another politician. He didn’t play nice. He branded his opponents. He spoke about issues that no one else was, such as immigration. Sean Malstrom, who was the expert on disruptive innovation in regards to videogames, said “Disruption is, as Christensen puts it, a ‘crappy product for crappy people’. Or to use another word that Clinton suggested, a deplorable product for deplorable people.”

 

The change in Trump’s attitude is now in independents and Bernie democrats. He hasn’t dropped any of his policies, but he’s changed the presentation. At the Republican debates, he was “strumping” the competition. Now, we’s more polish. More in control, as he attracts other voters. He’s moving up stream to these voters. This is also why he was (or has been) down in the polls. Usually companies that are being disrupted wont notice it until its too late.

Trump Is an Alpha

If you watch the debates, Hillary was calm, collective and quite. Trump was vocal. He would often interrupt Clinton and would say she was wrong. Hillary gave candid politician answers while Trump gave, well, Trump answers. While Hillary may seem more “composed,” Trump seems more genuine. He felt like a human being rather than a prerecorded android. The “debate format” is two boring people saying “I disagree”, and “I disagree” in a monotonous back and forth. Trump’s interrupting felt like an ACTUAL debate. He was controlling the conversation. Even when Hillary said something he didn’t like, he would say “You’re wrong.” He never took a comment lying down like most republican candidates do. I think this is a big reason people thought he won. Hillary probably had better answers, but no one thinks they’re genuine. They sounds fake and, in turn, they see her as fake.

You have to make this something people are going to want to watch. Trump brings a bit more fire and reality to a dull and dry debate. You want people to watch the debate because it brings more eyeballs to you. And if you can sell them on your ideas, then you get the votes. Hillary seems to think of it like a political campaign. She thinks if she has the best answers, seems calm, and has the best sound bites, she wins. She thinks getting the media brownie points is how she wins the election, but its not working out how she wants it. Perhaps this is why we have a video of her screeching “Why am I not 50 points ahead?”  Hillary doesn’t know how to draw people (voters), yet Trump has pulling people to his brand for years..

People say Trump is a “Loose cannon” but he’s turning that attitude into an asset during this debate. He seems strong. In control. He looks like an Alpha.  Not willing to back down. Hillary being collected is seem as a weakness. It makes everything she says feel fake. It makes her always defensive. It doesn’t make her feel like a human being. This attitude “technically” wins debates, but it doesn’t win elections. She looks like a goody two shoes, but not a president. Trump got people to watch, got people to hear his message, and got them interested in Trump.

Bad Experience

albatross

The real killing blow was he turned Hillary’s strength into her weakness, her experience.

I heard a lot of people on social media saying “Trump should say this,” or “Trump should have brought up this.” But I think they didn’t see what he was actually doing. Think about this: what were Trump’s big stumpings? They were all based on her experience.

  • Her husband approved NAFTA and she will approve the TPP
  • The Democrats have run the inner cities for 50 years
  • Hillary created ISIS
  • She has been a senator for years and hasn’t done what she says she will do.

Besides the e-mail thing (which Trump always brings up) every attack he made on Hillary was always about her experience. He often spoke about how long she has been a politician and used that as a criticism. He summed it up with this golden line “The world — let me tell you. Let me tell you. Hillary has experience, but it’s bad experience. We have made so many bad deals during the last — so she’s got experience, that I agree.”

This is too good. Hillary’s advantage was her political experience and that is Trump’s weakness. Trump has turned it on her. Her experience is no longer a strength but an albatross around her neck. Disruption is business judo. You use your opponent’s strengths against them. Hillary’s experience, onces a strength, is now her greatest weakness. Trump’s inexperience, once a weakness, is now his greatest asset. You can’t blame him for the follies of the government. While the media pundits try to pin Trump supporting the Iraq war, Hillary Clinton actually voted for it.

A lot of people said “Oh, he should have talked about immigration,” but that wasn’t part of his plan. He was bringing up every failure she’s ever had. He was highlighting every time she messed up, and he slammed Hillary with his damning thesis “Hillary has bad experience.” This is a major blow to her campaign. She has touted it as her right to the presidential seat, but now it will only come off as a negative. Beyond this, she doesn’t have much else. She’s spent so much time on that and “Trump is a big fat orange meanie” that she doesn’t have an identity. Trump is “the wall”. He’s “jobs.” He’s “Fixing trade” and “X is ripping us off.” You know what Trump wants. But what does Hillary want? Probably just to be president because its “Her Turn.” She has nothing.

The election is already over. Unless something major happens or the elite just steal the election, its Trump’s. What is more interesting is what will happen next election. I expect the Democrats (if the party survives the scandals) will try and co-opt Trump. They will bring in someone who is “From the outside” and “Is firery.” Unfortunately, Democrats are very bad about getting people who aren’t senators (the only non-political people this race were all on the Republican side: Trump, Carson and Florina). This guy will instead seem psycho and incompetent. He’ll be the actual clown that the Democrats think Trump is.

The Democrats have been disrupted. They won’t be able to win like they have in the past. If there is one thing true in this world, its that you “Can’t Stump the Trump.”

 

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Market Is Not Big Enough For 3 Consoles

standoff

The analyst have done a relatively poor job trying of trying to understand the Great Recession and its impact on video games. In fact, a lot of people in the game industry thought that games were recession proof, mainly based on short term data. However, the recession has had a significant impact on games, which was most notable in generation 8.

Here are the sales for Gen 7 (2009).

gen7_sales

Here is Gen 8 (2015)

gen8

And yes, I know this is VGChartz, but it’s good enough for this discussion. As you can see, there has been a significant decline in both hardware and software sales. Hardware sales are down about 40 million (49 percent) and software sales down another 113 million (20 percent). However, this amount also includes another 2.2 million in hardware sales from the PS3 and XBox 360 and another 161.8 million from other Gen 7 hardware.

The point is that the market of Generation 8 is not healthy. The new machines are not selling as well and are not selling as many games. Games journalist and analyst are praising the PS4, but they don’t see that the growth in sales is due to cannibalization, not due to new growth. They see a lot of trees, but no forest. Nintendo and Microsoft lose has been Sony’s gain as both the Wii U and XBox One have had issue. For Sony, Gen 8 is amazing, but the other consoles struggle significant. Contrast this to Generation 7. Even the poor selling consoles (like a certain Sony machine) did well in terms of total units sold (profitability is another story). But now, the poor selling consoles are in dire straights. They can’t compete. Sony’s growth has been from Microsoft and Nintendo’s customers. Although I don’t have any data, I’m sure that this generation, consumers are not buying more than one console. Most of my friends who have gaming consoles have one, and it’s usually the PS4.

So here is the problem no one is looking at. If hardware and software sales are so poor, how is the market going to support 3 major consoles, let alone 5. In the handheld space, this has already happened. The PSP did alright in Generation 7, but its sunk in Generation 8. While numerous critics and pundits ridicule Nintendo with the Wii U, the PSP Vita hasn’t done much better. Now, Nintendo has a monopoly on handheld systems. The XBox One and the Wii U are not doing so hot. The only system doing well is the console space is the PS4. Already, the market is contracting.

The problem is the economy of the world is stagnating. Japan has been stagnant for years, but the US, the largest market for videogames, has entered stagnation. The US only increased 1.2 percent the last quarter. From the Wall Street Journal:

Economic growth is now tracking at a 1% rate in 2016—the weakest start to a year since 2011—when combined with a downwardly revised reading for the first quarter. That makes for an annual average rate of 2.1% growth since the end of the recession, the weakest pace of any expansion since at least 1949.

Here is the world economy. Note the dip in 2009 and the flat line after 2010.

world_gpa

It’s clear the economy isn’t doing well. The global economy is stagnant, and it likely won’t get better anytime soon. The games industry has never experienced a downturn this bad for this long. In many ways, the companies have gotten comfortable with the good times, yet now the tables have turned. Being in the console market will become more risky as it becomes harder and harder to sell a $400 system. Microsoft is already showing that they are ready to get out. Will they be the only one. I’ll just say that we’ll see the market players switch dramatically over the next few years.

What is Antithesis Analysis

There is one thing I’ve learned about myself since I started writing on video games over a year ago: I’m a natural contrarian.

For whatever reason, I don’t fall into the conventional wisdom that most do. There are too many talking heads in the gaming industry and elsewhere that say the same tired line. This blog isn’t that; its about looking at the industry in a different way.

What you’ll find here is a different perspective. You wont find the same tired talking point, The conventional wisdom. Here, you’ll get something a bit different. Will it be a bit out there? Perhaps, but what is life if everyone parrots the same views. The same opinion.

This blog is dedicated to looking at things through a different lens. Because sometimes asking different questions leads us to the answer. I hope you all enjoy this. I’ll try and keep this updated regularly.

If you want to contact me you can e-mail me at Smashmonkey88@gmail.com or follow me on Twitter at @Spoogymonkey