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Sony: PlayStation business needs to be profitable this year

Sony: PlayStation business needs to be profitable this year

Wed 12 Jun 2013 10:49pm GMT / 6:49pm EDT / 3:49pm PDT
BusinessPublishing

Will PS4 hardware be profitable on day one? It's a bigger issue than that, says Sony's UK MD Fergal Gara

Sony Computer Entertainment

Sony Computer Entertainment is a Japanese videogame company specialising in a variety of areas in the...

playstation.com

Sony has emphasised that the PlayStation division has to be profitable this financial year, as it prepares to launch a major new console before the end of December.

This week it unveiled the retail price for the PlayStation 4, and confirmed that the home console will definitely be released in the US and Europe for Christmas holidays - although the company can't commit to month or date.

"It's been a considered effort for seven years, not a knee jerk decision in the last days and weeks"

Fergal Gara on the PS4 price

"Quite simply we don't want to over promise and under deliver," Gara told GamesIndustry International. "We're not in mass manufacture right now so it's impossible to be absolutely precise. I'm confident we'll have very significant stocks for the UK and absolutely delighted we're going to launch before Christmas. "

Consumers and press have reacted favourably to the price of the system, which will retail for $399 in the US and £349 in the UK. But some are questioning those figures and whether the company will take a loss on sales of the hardware at launch.

"There's no point in looking at the console in isolation," Gara said. "Is PlayStation going to be a profitable business? It needs to be and it intends to be a profitable business over the next year.

"The balance of everything we do, whether that's the console, the software, the accessories or the digital business, it all needs to be profitable and we expect it to be profitable in the short term and the medium term."

Last year Sony's PlayStation business recorded a slide in sales of more than 12 per cent, with profits dropping from $310 million to $18 million. The company warned in May that it had reduced expected profit margins from 8 per cent to 2 per cent.

This week rival console manufacturer Microsoft revealed that its new Xbox One console would retail for $499, putting it at a price disadvantage with Sony. But Gara explained that Sony had a $399 price in mind at the beginning of development for the system, after the company launched the PlayStation 3 at $499 and $599 to much criticism and slow initial sales.

"The reference point was PlayStation 3," he said. "It wasn't the competition because up until very late we had no idea what their price was going to be. Getting to a price point doesn't happen in the final days and weeks, it happens years in advance as you plan for a target price point alongside your engineering, design and architecture of the system.

"You have to hit that combination of price and performance in power. I'm delighted in the horsepower per pound that we've delivered, it genuinely is one very high powered machine. It's uncompromisingly built for one purpose above all other. Gaming, and performance around gaming, is front and centre. It's been a considered effort for seven years, not a knee jerk decision in the last days and weeks.

It's not just on price where Sony is winning in a new round of console wars. Microsoft is under fire for a number of online and sales initiatives that consumers feel are unfair and exploitative.

Sony used its pre-E3 conference this week to directly attack Microsoft, raising the roof from a supportive crowd and playing to an online community hungry for conflict.

"Expect premium games to carry a fairly premium price tag"

"Of course there was a little bit of play to the audience with the script and underlining the points of difference that we knew would be loved," admits Gara. "We chose to do that, who wouldn't? It's a competitive market." But he also makes it clear that there was never any other intention for Sony to copy Microsoft's unpopular stance on used games or it's insistence of an online connection "We knew what our message was, we'd decided on that some time ago. There were some small adjustments and refinements going on closer to the time but the fact is the message we have has gone down very well."

But it's still early days for both console manufacturers, and there's time for both to either claw back public support or slip up in the months ahead.

One contentious issue may be the price of games. While smaller indie and downloadable titles can sell for reasonable prices, blockbuster games such as The Last of Us and Uncharted command high retail prices. When asked if there's the possibility that triple-A games may rise further to help cover the cost of increasingly expensive development, Gara was more vague.

"We haven't announced our pricing yet, we're still looking at it. We'll make our minds up to as exactly where that will sit. Expect premium games to carry a fairly premium price tag. But expect a lot more in between. We'll have the full breadth of games both in terms of content and price," he said.

20 Comments

Rick Lopez
Illustrator, Graphic Designer

1,203 816 0.7
It will be... 3 PS4's have already been pre-ordered in my family alone :)

Edited 1 times. Last edit by Rick Lopez on 13th June 2013 11:24pm

Posted:10 months ago

#1

Sandy Lobban
Founder and Creative Director

317 174 0.5
Along with achieving an install base that's attractive to developers, the indie share on self publishing will be massively important. Unity integration is a big plus for the platform. Probably their best decision in the last ten years actually. This has to be ready to go from the off so that development is straight forward and simple. Any complications in the development process will result in less attention from devs.

Posted:10 months ago

#2

John Karageorgiou
consultant

17 11 0.6
@ Rick
Awesome - I have also booked my PS4 with local ditributors in South Africa. It was a no-brainer decision as we are not in a priviledged position to support the "always-connected" condition imposed by Microsoft. Internet connectivity comes at a premium in South Africa, so was elated when the PS4 was announced this week with its "no-restrictions" policies.

Posted:10 months ago

#3
If Sony and MS divorced their console business in 2014 – could the current sector continue without that infusion of marketing and development investment?

To see Sony executives openly talking about extracting their games business into a separate operation – and now MS reveal that their advisor’s have suggested that the Xbox division should be separated from core business, this would sound like quite a definitive atmosphere in favour of divorce?

As the dust settles after E3 – there is a undercurrent of concern regarding the viability of the whole console empire – though heartened by a better Sony PS4 showing than the train wreck management handling of the Xbone, there still seems to be a publisher concern that the markets viability is at a serious cross road, and some may be sleep walking into another 1983!

Posted:10 months ago

#4
gonna check o see if decent ps4 bundles are on offer

Posted:10 months ago

#5

Aaron Brown
BA Computer Science Student

59 22 0.4
@Kevin Williams

The terrain is very unstable, but the nature of the industry today does not resemble the build up to the crash of 1983.

The crash of 1983 was a result of half baked, under developed games flooding the market. Today, the industry is "over" developing because costs are soaring. Disappointingly the game play experience really isn't changing all that much.

Posted:10 months ago

#6

Caleb Hale
Journalist

144 209 1.5
I'm pretty confident the PlayStation 4 will have the edge over hardcore early adopters, especially since I think this crowd makes up the majority of the people voicing concern over DRM and the always-online features of the Xbox One. If Sony can get this thing on shelves a week or two earlier than Xbox One, it might also push some more last-minute deciders to the PS4 camp.

I doubt the GameStops and Best Buys want to deal with lines of rabid Sony and Microsoft fanboys at each other's throats for hours in line for a dual launch night.

Posted:10 months ago

#7
@Aaron -
Thank you for that positional observation - but I have heard a number of reasons for the 1983 collapse (also remember I was working in the business at the time), the most popular versions are:

- Too many consoles & too many poorly performing consoles (I am also surprised that many pundits miss out the influences of all the personal computers that added gaming to their menu of feature... remember the ELAN!)
- Supersaturation of the market with hundreds of mostly low-quality games (the Wiki claim for the crash, written by a very bad author)
- Resulting loss of consumer confidence in publishers, manufacturers and media (factors influenced by the above)
- Investor confidence damaged after expensive failures (both game publishers and over hyped AAA-titles)

I think the above list of issues that fueled the collapse are "Resembled" in the current market, if not mirrored perfectly. I can also see examples of fractures similar to the mini-collapse in 1995 (though less reported with no Wiki entry!)

It would be very blinkered not to see the large number of independent studio collapses over the preceding years (E3 awash with CV's), the lowering of investment in publishers and resulting collapses (Atari, Take2, etc.,), plummeting year on year sales figures, and the news of evaluation towards divesting their Xbox and PS divisions from Sony and Microsoft as anything more than a blip!

Posted:10 months ago

#8

Greg Wilcox
Creator, Destroy All Fanboys!

1,993 902 0.5
@Caleb: That and hell, imagine the fights that would happen inside those shops AND someone getting mugged outside after getting knocked around by a competing system's fans minutes earlier. Ugh. No thanks. I'm ordering and getting mine shipped, as I live in a not so hot area. The GameStop is down a few blocks about five or so minutes away, but I did one midnight launch and that was a loooong walk/scoot home with all those lurkers out looking for trouble...

That said, even if Sony ships afterwards, i think they'll do well because I'm already hearing some people who can get it will actually wait on the One in case there's an issue with online play functionality or other day one problems that WILL hit BOTH consoles in one way or another...

Posted:10 months ago

#9

Andrew Jakobs
Lead Programmer

209 74 0.4
I wonder how it will be if MS would just drop all the restrictions (the way that Sony does), and also decouples the kinect from the base unit, which would mean they could propably also sell the console for less than $399.. On the other hand, the Kinect 2.0 is much MUCH better than Sony's camera, as just like with the current camera, it will not work in a lowly lit room (and certainly not in a dark room except for tracking the move ball) which is the way I play my games..

Posted:10 months ago

#10
@Andrew -
Though an idyllic hope - the reality is that the XBone is part of a business strategy sold to the MS board, offering a dedicated return on investment and clean path towards possible launch as a separate profit center. To gut all the aspects that generate revenue, and to lay open again to hacking / fake accounts would just defeat the strategy and the board and investors would look real hard at getting a new board of suits if that happened.

This is a make or break strategy after Bill Gates first invested all those Billions into what he promised the board and investors would be "...a really cool way to own the living room and gain a brand new audience." Now some years on and though gaining ground the XB division still hemorrhages a tone of cash!

They could not compete with Sony if they wanted - how long before the latest parachuted executives hired to steer this dream package start to look for the exists! Any one say Milo!

Posted:10 months ago

#11

Aaron Brown
BA Computer Science Student

59 22 0.4
@Kevin Williams

Well put.

I agree that many independents will shut down due to increasing costs and diminishing returns. But I see investor confidence remaining where it is or increasing because there is so much untapped potential in this industry. I cannot contend with your experience, I just hope that the crash you are forecasting never comes to fruition.

Edited 1 times. Last edit by Aaron Brown on 14th June 2013 1:18am

Posted:10 months ago

#12
@Aaron -
You seem to have hit the nail on the head of why I still support the consumer game sector, even though my home is outside of it now.
...there is so much untapped potential in this industry.
I can not agree with you more, as one that joined the sector back around 1984, I have enjoyed video gaming from a arcade and consumer perspective, and am perplexed why only a surface layer has been uncovered of the "gaming experience". If I placed the 1985 '3D Maze' game against the latest fps there would be the obvious comparison in the difference in graphics and audio, but the nuance of play and pacing are fundamentally the same.

Were we in the digital out-of-home entertainment sector work in the magic 60-second play duration window the consumer game scene looks at 3-6-hour sessions, but yet the fundamentals of play still seem highly repetitive, and the linear play pattern is still favored (look at all those complaints from those playing the Alpha build of Battlefield 4 at E3!)

The question is - will we have to 'start again' to be able to move to the next layer of the gaming experience - wait on new hardware from independent sources such as Oculus Rift and STEAM - or is this going to be a more gradual progression, possibly from a wholly new industry?

Posted:10 months ago

#13
These consoles also have to worry about if another financial crisis hits the world, this time it may be much larger than 2008. What is happening in Japan right now is nuts, plus Europe is a mess, and the US keeps ignoring fundamentals that show that things are not OK, actually far from it. In a stable economic environment I think both these consoles along with WiiU would be OK, but in this environment, who knows. Its all just one bubble after another. When the central banks decide to say no mas, and start to unwind their positions, its gonna be a wild scene.

Posted:10 months ago

#14

Adam Coate
CEO & Founder

34 34 1.0
The console business isn't profitable for anyone really other than Gamestop at this point. Of course Nintendo chanced upon the magic formula and then lost it 5 years later. I read that all told the PS3 lost Sony $5 billion, and the Xbox 360 lost Microsoft $3 billion. It's pretty sad when you can sell 75 million hardware units and still lose billions. These companies are just clueless as to what the mass market wants. They spend $30 million to make a game that only appeals to a niche audience. Watching them fail is almost as frustrating as watching the US government turn fascist.

Posted:10 months ago

#15
I would argue that the console business has been "made" unprofitable by poorly led publishers and poorly led manufacturers. The level of incompetence that has marred T2, Atari and Activision of late is nothing short of scandalous - and the dependency on focus groups and poling (or just copying the next largest publisher) - for executives that do not know the first thing about gaming is scary. Promoting incompetence ensuring peoples jobs!

One investment house pulled out their whole support in a AAA-Title publisher, because after they walked round the corporate office all they could find were suits that new lots about marketing, but had no idea about the latest games, what was popular - or even how their corporation hoped to stay relevant. One of those very directors later 'parachuted' into MS!

Posted:10 months ago

#16
The question I have is, why would we need physical retailers...

Due to the efficiency of online ordering for both games and consoles, and relatively hassle free service. Would it not make sense to order direct?

Posted:10 months ago

#17

Makeda De'Jene
Creative Director & Founder

15 26 1.7
Lower price and no restrictions-- I'm willing to bet that they would have almost as much pre-orders as Sony, maybe even MORE since Microsoft has such a solid line up of games. Even at launch, if Microsoft offered the system for the same price as Sony and then offered a game with said system as a bundle at $500 and changed the price later, Microsoft would win this one.

Posted:10 months ago

#18

Makeda De'Jene
Creative Director & Founder

15 26 1.7
Also I have my PS4 ordered. I just can't take all the wishy washy info from Microsoft anymore.

Posted:10 months ago

#19

Greg Wilcox
Creator, Destroy All Fanboys!

1,993 902 0.5
Goofball/idea/thoughtcrime # 273.4:

Let's say Sony somehow figures out how to at least get their first party PS3 hits streaming from Gaikai to the PS4 (and/or PS3 and Vita) and charges for the pleasure of renting or buying games there (with maybe an intro offer of oh, three free titles for PS+ users) in order to generate a sort of "used" games revenue AND work a fake "backward compatibility" mode into the system without taxing the hardware at all. I wonder if that were at all possible, would it make the system move more amongst some on the fence about b/c AND PlayStation Plus (despite Plus actually being a good deal?).

Basically, it would be a library of sorts where you could borrow (rent) games for a small fee and choose to "keep" them in a sort of Steam/gog.com/Desura/etc. "collection" and play them offline anytime you like on any Sony device that supports a controller. If it's possible, I can't see this being a bad idea and I'd bet third party publishers might want in on some of that rent money, as it seems that getting people paid for content use is the issue in the industry when it comes to older games.

Granted, people who own physical copies or just don't want the service will opt out. But if this CAN be done, it should at least be field tested and polled so that it's known to work well and gets accepted as a means of getting access to older titles without having to track them down in a shop, borrow from someone who may not have or otherwise play a game missed in the last gen, er this gen...

Again, just thinking out loud here... I can see all sorts of problems along the lines of what Onlive users reported in the past with resolution, non-tweakable graphics settings and sluggish play on some connections. But if that can be worked out so games run stable online or off... might be a big deal... IF it can be done...

Posted:10 months ago

#20

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