Ricky Di and Chris Sapp
Published: October 11, 2006
All good things must come to an end, but that doesn’t exclude the mediocre.
Sony has been a big name in the gaming industry for over a decade now, but that may not be so for very much longer. Recent “screw-ups” have pretty much sealed the once gaming giant’s fate.
Sony is looking at a potential for demise it has never faced before. With its failing TV and music electronics businesses, and its up-and-down movie business, it has relied more and more on the video game business to keep profits up.
But now even its video game business can not save the company. In fact, it is the video game business that could put the whole company right down the toilet.
Sony’s troubles did not start this year, but many gamers began to realize that the rats were fleeing the ship when Sony started delaying the release of the PS3.
At the Electronics Entertainment Expo 2006, when Sony announced that the PS3 would cost up to $600, Sony executives were met with grim silence.
Analysts had predicted that the PS3 would be in line with Microsoft’s XBox 360, which costs about $400.
What followed the announcement could be described as a tidal wave of backlash. News agencies and gaming websites denounced the PS3 pricing and promoted what soon came to be known as “Wii60”: the choice to purchase the Nintendo Wii and Microsoft XBox 360 while shunning the PS3.
One of Sony’s main selling points with their new PS3 is the inclusion of a new visual technology called the Blu-Ray. You probably have heard it before – “Blu-Ray is the future” – but what “future” is that, exactly?
Blu-Ray technology may be pretty, but it is not cheap. With the already high price of games, ranging from $60 to $70 for decent next-gen titles, plus the horribly expensive Blu-Ray component (another $20), players will spend at least $90 bucks a game.
Is the investment worth it? Well, let’s look at what it is Blu-Ray “does.”
According to a Sony press release last spring, “Blu-Ray disks have a coating that’s one-sixth the thickness of the outside layer of a DVD or an HD-DVD.”
Basically, that means that each disk will be able to hold more data, simple as that. And for this, you pay 35 percent more for a game that could just as easily fit on a standard DVD.
As if paying for the games wasn’t hassle enough, just finding a system may prove to be a feat in of itself.
Due to a lack of key components needed for building the systems, only 500,000 PS3s will be available worldwide on the (date) launch. Take into consideration that Sony’s “worldwide” launch means the U.S. and Great Britain, and that makes the “wild turkey hunt” not very well worth it.
It is estimated that the price of components for the PS3 is between $750 and $900. Sony is operating under the business model of selling hardware to the consumer at a massive loss with hopes that they can make up for it in software sales.
These costs don’t even include marketing, software development, advertising or other costs, hence the $600 price tag.
Sony is also facing fire on all sides from other companies for their shady practices.
Immersion, a third party peripheral manufacturer, currently has a $94.5 million dollar lawsuit against Sony for their unlawful use of Immersion’s rumble technology in the PS2’s DualShock controllers.
Seven million Sony laptop batteries have also been recalled, resulting in another $500 million loss for the company.
Sony is bleeding money. Its Walkman music players have fallen to the iPod. Its movie franchises are failing (with the exception of a few hits such as Spider-Man).
Most major Hollywood production houses have stopped releasing movies in the UMD format. Its TVs have fallen out of favor in the hi-tech crowd. Even the PSP, Sony’s self-proclaimed “Game Boy killer” has failed to gain much world-wide support, trailing behind the Nintendo DS by nearly 12 million units sold.
With analysts forecasting a loss of nearly $3 billion over the next fiscal year, how is Sony, a company with only $9 billion in emergency reserves, supposed to survive?
Now, we don’t want to jump the gun and declare a “Phillips CD-I part deux,” but we’ve seen big-shots like this fall on their faces before (Enron, Sega.Rome).
We don’t typically give stock advice, but now may be a good time to pull your Sony stock and reinvest it in either Microsoft or Nintendo – you know, a good company.