It’s funny how the tables turn. During much of the past decade, Sony’s Play Station 2 business carried the parent company, making as much as 40 percent of its operating profits during good years. Now the games division, Sony Computer Entertainment, is deep in red ink. In the fiscal year that ended March 31, Sony’s game business lost $2 billion as it invested in the startup costs for the PlayStation 3 video game console.
In the next several years, analysts aren’t counting on a profit from the game division. Now it’s up to the rest of Sony – its electronics, movies, music and insurance divisions – to carry the burden.
Jack Tretton, president of Sony Computer Entertainment America in Foster City, said recently that he hopes the other divisions remember that the game group delivered the profits in the past while they were investing. Now his division is in the midst of a major investment to make the PlayStation 3 pay dividends in growth for the next decade.
“I’d like to think we paid the bill to get Sony Pictures and Sony Electronics to where they need to be,” Tretton said. “You have to tattoo that perspective across my forehead. Give us a little more time and I’m sure we can be substantial contributors to the bottom line.”
When a company says it’s investing, that means it’s losing money. While Sony’s games division is scaling back, the electronics division is growing again.
“We plan on really growing the company now,” said Stan Glasgow, head of the U.S. Sony Electronics division, at a recent lunch with reporters in San Francisco. “We’ve done a lot of restructuring.”
He said cooperation between the game division and the rest of the company has never been closer, now that Kaz Hirai, former chief of the U.S. game division, is running the worldwide game operation and Howard Stringer, the new CEO of Sony, is sending out the cooperation commandment. Former game head Ken Kutaragi often criticized other Sony folks publicly.
The problem is still that there are enemies in every direction. The Nintendo Wii at the low end of the game market is proving far more popular than the PS3, particularly on Sony’s home turf in Japan. In the high end of games, Microsoft has enough cash to bleed Sony white in a modern-day Battle of Verdun. Sony recently revised the PlayStation Portable to make it more competitive against the Nintendo DS, which is outselling it 2 to 1. But it isn’t nearly as attractive as the Apple iPod music player for downloading videos or music.
The good thing is, the Sony brand still has a solid reputation. Sony is ranked No. 1 in 19 categories of consumer electronics in the U.S., and it has an 18 percent share of the country’s consumer electronics market.
But Sony’s game division doesn’t have all the time in the world to get healthy and back in the black. This is a critical time that will make or break this giant Japanese electronics company.
