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bumidan on 25 July 2008
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DMeisterJ said:
makingmusic476 said:
We have to recall that many of SCE's losses in 2006 and 2007 came from buying studios like Guerrilla, Zipper, and Evolution Studios, as well as developing games, etc. The losses aren't strictly from selling the ps3 at a loss.

Yeah, peopel don't understand that.

Yes, SCE lost 3 bln dollars over three years, but they purchased 3 studios.  It's easy to blame it all on the PS3 when you don't know all the facts.  I'm sure that all the companies they bought weren't for free.  I'd attribute 1 billion + to the acquisition of the three studios.

DJMeister J

Do you have any sources or links showing when they bought those studios?  Also, any sort of financial numbers?

I am not familiar with those because I haven't been following videogame financials that closely until recently.

However, as a general note, in financial statement terms ....

Acquisitions are not part of revenue and expenses.  That is, if a company buys another for $500 million, the $500 million will not appear as an expense.

Only the revenues and expenses of the company will be attributed, starting on the closing date of the purchase.

For example:

Company A - Revenue: 50 million

Profit: 5 million

Purchase Price = $500 million

Then only the $50 million gets added starting when it was actually acquired, same for the profit.

Where you will see the losses, is through the amortization of the goodwill - if there is goodwill.

Though in this type of industry, there will be goodwill - because there is not much hard assets such as property, plant and equipment.

It depends on the amortization schedule, there are general guidelines for them.

But if you take the $500 million example and straight line it for 10 years, then the company will take a charge of $50 million in expenses for the next 10 years due to amortization.

To make a long answer short - if there were acquisitions, then yes, it would show up in the game division financials.

However, unless they were purchased at a ridiculously high price, the amortization charges should not have been that significant - eg. compared to the 1.8 billion loss.

For example, if Sony bought all these studios for $1 Billion - then a 10 year amortization schedule will have an additional expense of $100 million per year.   Significant, but not too much that it affects the original analysis.

Otherwise, if there is a source for those acquisitions and what type of goodwill amortization schedule, then we can calculate it.  But it is not likely that the goodwill amortization will be less than 5 years, as it is quite aggressive.

 

Sorry for the long answer.  Almost like a business lecture.. Haha