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Sony's games division (SCE) generated $8.5bn in sales during Sony's
FY07 (to end of March), a 6% increase (in yen terms) over FY06. However, the division moved sharply into loss for the year recording an operating loss of over $1.9bn, largely as a result of the launch and continued
loss-leading sale of PS3. SCE remains a crucially important part of Sony's overall business strategy as well its financial performance. For each of PS2 and PS3, Sony has invested approximately $2bn - $3bn in R&D
as well as in the establishment of new manufacturing facilities to allow mass production of the consoles.
Sony launched PlayStation 2 in March 2000 and was the video game market leader for that cycle by quite
a margin. The machine, which continues to sell, has now reached shipments of over 104m units (end March 2007). This shipments figure, remarkable in itself, is made more impressive by the speed with which it was
reached. Whilst the original PlayStation took nine and a half years to reach 100m units shipped, PS2 took approximately five and a half years and has now overtaken total sales of the original PlayStation.
As
it strived to do with the original PlayStation, Sony built up a considerable support base of developers and publishers for PS2 and Sony is looking to repeat this with PS3. Indeed, strong third party publisher
confidence underpins Sony's continued success and since most development projects during the last two cycles have been PlayStation-led, Sony has been guaranteed a consistent flow of software releases which in turn
has lead to consistent hardware sales. This momentum is what gave Sony unassailable leads during these last two cycles.
Sony's PS3 console shipped in November 2006 with a European launch in March 2006.
Software support has been consistent with previous generations in terms of volume but the PS3 still lacks killer apps: high quality exclusive PS3 games. Sony is expected to lose market share in this new cycle with
its 67% peak market share of hardware sales in the last cycle reduced to around 40%-50% in the current one. Both Microsoft and, in particular, Nintendo are expected to be the beneficiaries of this with their share
of the overall market forecast to reach 20%-35% each.
Despite having predicted the advent of online console gaming in 2001, and with a many years of trials and service development behind it, Sony has been
remarkably slow to evolve its online proposition to a commercial stage, especially in Europe where Microsoft beat them to a full launch and is widely acknowledged to maintain a technical and strategic lead. Sony's
online service for PS3 appears to have taken much inspiration from Microsoft although its 3d avatar-based Home online world is an interesting and novel online console feature. Sony's approach to its online service
is less prescribed than Microsoft and publishers and developers have greater freedom to use their own servers and online technology for PS3 online functionality than they do for Xbox 360 titles where Microsoft
mandates the use of their own centralised solutions. Another crucial difference is that the PS3 online service will feature a two-way transaction capability (versus Microsoft's payment only system). This allows
players to receive payment into their accounts and, theoretically, to cash out positive balances (a feature which will put Sony into the role of a bank). This opens up a number of possibilities for online
functionality such as pay-per-play gaming, player asset trading, user-created content sales etc..
Sony's first major assault on the portable games market with its PlayStation Portable (PSP), launched
in late 2004 (Japan) and Q1/Q2 2005 (North America and Europe) has met with mixed success. Its UMD movie format predictably failed to gain any traction and has all but disappeared whilst publisher support appears to
be drying up leading to a dearth of good quality PSP titles. However, PSP continues to sell in volume, has exceeded 22m unit shipments and Sony has grabbed (an albeit diminishing) market share from incumbent
Nintendo. Nintendo's DS, however, has the benefit of a considerably stronger software line-up, a lower price and powerful sales and marketing momentum. Sony is launching a new iteration of PSP in September 2007 with
a smaller and lighter form factor although it will still need better games to make PSP a more effective competitor to the DS.
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