PopcornTreeCt

http://news.yahoo.com/s/ap/20070517/..._ge/japan_sony

Sony expects vid game losses to continue

TOKYO - Sony will lose about 50 billion yen ($413 million) in its video games business this fiscal year, and recovery won't come until the arrival of more games to play on the PlayStation 3 machine, a company executive said Thursday.

"The main point is that the PS3 will still be producing operating losses," Senior Vice President Takao Yuhara told a small group of reporters at Sony Corp (NYSE:SNE - news).'s Tokyo headquarters.

On Wednesday, Sony reported that losses for the January-March quarter widened from the same period a year ago to 67.6 billion yen (563 million) in red ink, largely on launch costs for the PS3, or PlayStation 3, which went on sale in November in Japan and the U.S., and in March in Europe.

But Sony, which makes Vaio personal computers and Walkman portable music players, forecast a record profit for the fiscal year through March 2008 at 320 billion yen ($2.7 billion).

Booming sales of flat-panel TVs and digital cameras that have been lifting sales are expected to continue and boost Sony's earnings in coming months, Yuhara said.

Although PS3 losses are expected to shrink with cost cuts this fiscal year, the key lies in having Sony and outside game-makers produce attractive games to play, which fully exploit the machine's expensive technology, he said.

"What's most important is software," Yuhara said. "In every region, our software lineup will be strengthened."

Sony's revival efforts, led by Welsh-born American Howard Stringer, Sony's first foreign CEO, may finally be starting to pay off. After taking the helm in 2005, Stringer got Sony to drop unprofitable businesses, sell off assets, reduce jobs and shutter plants. But losses from PS3 remain Sony's biggest headache.

Intense competition with Nintendo Co.'s hit Wii, with its unique wand controller, also has hurt PS3.

Sony shipped 5.5 million PS3 machines in the fiscal year through March 31, fewer than the 6 million the company had targeted. Nintendo shipped 5.84 million Wii machines worldwide during the same period.

Earlier this year, Yuhara had said Sony plans to break even in fiscal 2007 in the gaming business. On Thursday, he said he hoped Sony's game operations will turn a profit by fiscal 2008.

Sony shares, which have gained about a third over the past year, rose 2.6 percent to 6,630 yen ($55).

darkside

82k was a pretty rough month. They really have to stop being outsold by the GBA. The sales are even worse in Japan and I think that is the real issue. They have games on the way so hopefully they can right the ship at some point.

I think Luke Smith nailed it when he said price is the biggest barrier to entry. No console is going to really thrive above the $200 price point. Wii is an exception right now, but comes with a game so you can almost make the argument that its is a $200 console.

PS2 is still pretty strong though, but I have to wonder if that is helping them or hurting them.

Michael Corvin

There are arguments for and against the PS2 hurting them. Some argue it just builds the user base even more for an eventual PS3 purchase, but on the flipside, can they wait that long to attract users?

Josh H

Not to mention anyone now buying a PS2 for the first time is clearly a very casual gamer. Given the huge library of awesome games on the PS2 that are available dirt cheap, they'll probably not get bored with the PS2 library and want a new console until the PS4 or 5 is out.

SmackDaddy

I agree, PS2 sales aren't a gateway to potential PS3 users. I would imagine those that are currently picking up a PS2 are doing so because it's cheap. Those people are unlikely to want to spend big $$ on upgrading to a PS3...especially if Sony continues to neuter backwards compatability (something the Wii cleans up with compared to both the PS3 and 360)

I have absolutely no interest in the PS3 but am seriously thinking about getting a PS2 as there are a ton of games I'd like to try.

mmconhea

I don't think losses for the first year of a new console are new. I think Nintendo is the only one who plans to avoid that by designing their hardware to fit within a no-loss model.

Groucho

I think the original Xbox was a money losing prospect for Microsoft from beginning to end. But it paid off because they established themselves in the market and are now #1 in the current generation.

Question: does Microsoft still lose money for every Xbox360 sold?

Michael Corvin

Last report was supposedly $75 earned per premium sold.

Draven

Yeah, I'd read they got the process down to actually make them some money.

I still say that regardless of how the numbers turn out, Nintendo is the clear winner here. They have made money on every Wii sold.

darkside

They are still in the red on the 360, but they are going in the right direction. I did read one report that said they are no longer losing on each one sold. I bet they make decent money on those Elites.

Gromit

In the past, didn't the PS2 help make up for lagging numbers in Sony's other divisions? Now flat panel displays and digital cameras are propping up the PS3.

The Bus

Looking at least over the past five years (and the last AR I glanced at), the games division was always either wildly profitable or running a substantial loss. What's funny is that what Sony is best known for (consumer hardware) they do the worst at. Lots of revenue, little to no profit.

Sony's most profitable division (as % of revenue) is actually their financial division (insurance, etc.).

Yes, Sony is losing a staggering amount of money, but they even said they would be losing a lot of money once Blu-Ray got ramped up. It may be bad for Sony, but it shouldn't be news to anyone, least of all investors.

orangecrush

Losing money on every unit sold means that the less they sell the smaller their losses will be. If the PS3 was selling better, then the losses would be greater.

Josh H

Short term, yes. But long term they need more units out there so they can make money on software and get Blu ray players in homes (which is clearly their main goal).

darkside

Right. Third parties are starting to either abandon them or make the 360 their lead sku and port to the PS3. All of this leads to long term disaster. You have less games and many games that are bad 360 ports. There is already a laundry list of PS3 games ported from 360 with framerate issues.

Not to mention they are trying to win an HD disc format war and they need PS3s selling to do it.

Josh H

Yep, FEAR seems to be one of the worst offenders, as it's such a great game but from reviews sucks on the PS3 because of slow down and other glitches.

Anubis2005X

I had no interest whatsoever in the PS3...until I got an HDTV. Now I love the thing, and got over the $600 price tag. But before I had an HD display, I figured what was the point? Might be the same way for a lot of other people who don't yet have the desire to get into HD gaming, Blu-ray, etc...

The Bus

You don't know that. If the reason each PS3 unit is unprofitable is fixed costs, then the less they sell, the less money they'll make, and the bigger their loss will be.

If the reason each PS3 unit is unprofitable is entirely variable costs, then the less they sell, the less money they'll make, and the smaller their loss will be.

Giving $600 to Sony to spite them doesn't work. They get $600.

The Bus

A good chicken-and-egg debate. I got an HDTV years before I got actual HD content. Now, slowly, it will get to the point where people have HD content already but can't take advantage of it until they get an HDTV.

Deftones

Not exactly. They had to spend billions on developing the system. The only way to recoup those costs is to sell more systems and games.

darkside

This was my situation. I had my HDTV probably a year before I actually used it for HD content. So I was very eager to get HD DVD and a PS3.

cultshock

I could have sworn I read recently that Sony was planning on selling off a couple of their divisions, including the one that deals with insurance (in Japan). Wow, that would be a dumb move if it's one of their profit centres right now.

orangecrush

They can also recoup those costs by selling a boat load of PS2s and PS2 games.