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Forums - Sony - Breaking News: Sony to post massive $1.7 billion loss

NJ5 on 22 January 2009
WiiStation360 said:
NJ5 said:
darthdevidem01 said:
When willw e know what the restructuring is?

This is what we have now.

I noticed Sony is 14% down today in the stock market, though still higher than the lows of early December.

 

Looks like Sony's games division may be safe from job cuts.

Sony job cuts unlikely to affect games division.

 

 

I will take the word of Sony's investor relations website over SCEE's PR anytime, especially as SCEE is Europe only. Either way, what will happen is still unclear, even for the Electronics division.

@axumblade: No one knows the exact results of the gaming division yet. Yes, the electronics division is likely to lose much more since it's bigger, as for relative loss margins it's unclear.

 



My Mario Kart Wii friend code: 2707-1866-0957

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NinjaKido on 22 January 2009

Many things are unclear , a what form a restructuring of SCE will take is also unclear . What is certain is that SCE is here to stay.



darthdevidem01 on 22 January 2009

@smashed

this topic was needed as we got official news from them.

also I agree....I dunno if they will close any divisions..maybe its best to just cut costs in each one on a huge level.



All hail the KING, Andrespetmonkey

wholikeswood on 22 January 2009
BengaBenga said:
Demotruk said:
BengaBenga said:
Demotruk said:

 

Agreed, though I only think we'd say that because we'd not have taken an in depth look at the division if we weren't a gaming forum. They've been unprofitable by trying to win the generation, and because of that, most of their losses are already sunk and will never be returned. However, it's a division that can be switched over to moderate profitability in the short/medium term more easily than the other parts of the company.

All they have to do is admit defeat in the console war(internally). Once they've done this, they can switch focus to simply short term profit instead of loss-leading. How do they do this? No price cuts, and profit focussed software as opposed to unprofitable "system sellers". This doesn't require the restructuring that the TV's and other areas will require.

Ehm, how? And why does SCE suddenly will outperform the rest of the company while it has underperformed past years?

All I see is 3 years of losses in a row. Doesn't look like a division that can be switched to profitability very fast. If it was easy it would definitely have happened this year, since that was the main message from last year.

As it stands now PS3 won't have a pricecut therefore will likely lose marketshare and it's very probably the rising PS3 software sales won't keep up with decreasing PS2 sales. Meanwhile SCE has an infrastructure built around marketleadership. Sony has more studio's than Nintendo, which is unsustainable with PS3's development costs and low install base.

 

 

And in that time they've maintained a loss-leading strategy. Of course they've made a loss.

The reason I see this division as more flexible is because it's more based on software than the others. It's much easier to switch strategy in software than it is with hardware.

Stringer made it absolutely clear that SCE had to make a profit this year, so they didn't have a loss-leading strategy for this year. Yet they made a loss.

Software development in Sony's case is not flexible at all, because

a) Their userbase is out of their hands
b) Big AAA projects take 3-4 years to make (or longer...GT5...) 

When all these massive first party projects started Sony's estimates must have been much higher than what the PS3 actually sold. But you can't cut the budget for big games like GoW3, GT5 and Killzone 2 halfway through the dev cycle of course. This doesn't mean these games will make a loss, but profit margins will be much lower than initially expected.

If they were to do a Sega your statement becomes more valid, cause they could spread the risk around several platforms and distribute investment among different sized project. Sony bet big with AAA mega games only, which hurts them now.

Surely GT5 is on track for a 4 year dev cycle? Didn't development start in 2005?

 



SleepWaking on 22 January 2009
Smashed said:
If anything's going its financial services. Gaming division getting closed is very unlikely, and nothing is going to change my mind about that.

On a side note: Is it really necessary to constantly make topics about Sony losing money?..

 

Is it really necessary to ask if it's necessary, it's getting annoying. We unlike you do not reject reality.



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bardicverse on 22 January 2009
Smashed said:
If anything's going its financial services. Gaming division getting closed is very unlikely, and nothing is going to change my mind about that.

I agree here. They will have to restructure the way it operates, scale back research and development, scale back any funding for games for a bit and just thrive off 3rd party title licensing fees for a while.

 



Demotruk on 22 January 2009
BengaBenga said:
Demotruk said:
BengaBenga said:
Demotruk said:

 

Agreed, though I only think we'd say that because we'd not have taken an in depth look at the division if we weren't a gaming forum. They've been unprofitable by trying to win the generation, and because of that, most of their losses are already sunk and will never be returned. However, it's a division that can be switched over to moderate profitability in the short/medium term more easily than the other parts of the company.

All they have to do is admit defeat in the console war(internally). Once they've done this, they can switch focus to simply short term profit instead of loss-leading. How do they do this? No price cuts, and profit focussed software as opposed to unprofitable "system sellers". This doesn't require the restructuring that the TV's and other areas will require.

Ehm, how? And why does SCE suddenly will outperform the rest of the company while it has underperformed past years?

All I see is 3 years of losses in a row. Doesn't look like a division that can be switched to profitability very fast. If it was easy it would definitely have happened this year, since that was the main message from last year.

As it stands now PS3 won't have a pricecut therefore will likely lose marketshare and it's very probably the rising PS3 software sales won't keep up with decreasing PS2 sales. Meanwhile SCE has an infrastructure built around marketleadership. Sony has more studio's than Nintendo, which is unsustainable with PS3's development costs and low install base.

 

 

And in that time they've maintained a loss-leading strategy. Of course they've made a loss.

The reason I see this division as more flexible is because it's more based on software than the others. It's much easier to switch strategy in software than it is with hardware.

Stringer made it absolutely clear that SCE had to make a profit this year, so they didn't have a loss-leading strategy for this year. Yet they made a loss.

Software development in Sony's case is not flexible at all, because

a) Their userbase is out of their hands
b) Big AAA projects take 3-4 years to make (or longer...GT5...) 

When all these massive first party projects started Sony's estimates must have been much higher than what the PS3 actually sold. But you can't cut the budget for big games like GoW3, GT5 and Killzone 2 halfway through the dev cycle of course. This doesn't mean these games will make a loss, but profit margins will be much lower than initially expected.

If they were to do a Sega your statement becomes more valid, cause they could spread the risk around several platforms and distribute investment among different sized project. Sony bet big with AAA mega games only, which hurts them now.

 

While they're still going ahead with long cycle projects, they're clearly still practicing a loss leading strategy. It might seem like blasphemy, but they could reduce the budget and cycle of those games, get them out the door and sell them. The only reason they're not doing that is to make the game so awesome that new people will buy PS3's, a strategy that has been failing them so far(even MGS4 was not a sustained system seller as it was hoped), which is part of a loss-leading strategy. If they reduce the cycle and budget of these games, they will likely make more profit, and will be able to begin smaller, more profit oriented projects sooner.

If it's difficult to shift programmers and artists etc. off software projects, it can only be harder to shift factories and hardware designers onto new and more profitable phones/tv's/other electronics.



A game I'm developing with some friends:

www.xnagg.com/zombieasteroids/publish.htm

It is largely a technical exercise but feedback is appreciated.

BengaBenga on 22 January 2009
Demotruk said:
BengaBenga said:
Demotruk said:

 

And in that time they've maintained a loss-leading strategy. Of course they've made a loss.

The reason I see this division as more flexible is because it's more based on software than the others. It's much easier to switch strategy in software than it is with hardware.

Stringer made it absolutely clear that SCE had to make a profit this year, so they didn't have a loss-leading strategy for this year. Yet they made a loss.

Software development in Sony's case is not flexible at all, because

a) Their userbase is out of their hands
b) Big AAA projects take 3-4 years to make (or longer...GT5...) 

When all these massive first party projects started Sony's estimates must have been much higher than what the PS3 actually sold. But you can't cut the budget for big games like GoW3, GT5 and Killzone 2 halfway through the dev cycle of course. This doesn't mean these games will make a loss, but profit margins will be much lower than initially expected.

If they were to do a Sega your statement becomes more valid, cause they could spread the risk around several platforms and distribute investment among different sized project. Sony bet big with AAA mega games only, which hurts them now.

 

While they're still going ahead with long cycle projects, they're clearly still practicing a loss leading strategy. It might seem like blasphemy, but they could reduce the budget and cycle of those games, get them out the door and sell them. The only reason they're not doing that is to make the game so awesome that new people will buy PS3's, a strategy that has been failing them so far(even MGS4 was not a sustained system seller as it was hoped), which is part of a loss-leading strategy. If they reduce the cycle and budget of these games, they will likely make more profit, and will be able to begin smaller, more profit oriented projects sooner.

If it's difficult to shift programmers and artists etc. off software projects, it can only be harder to shift factories and hardware designers onto new and more profitable phones/tv's/other electronics.

Making a loss is not the same as actually having that as your strategy. Again: Howard Stringer very clearly stated after last year's 1 billion loss for SCE that the only target was profitability for the company.

You can't just stop software projects halfway the development cycle to make them cheaper. These projects aren't lenear progressions. The scale of the games has been decided quite a while ago and they can't change that now. We likely won't see a big system seller for PS3 anymore. The market will progressingly become more casual (because hardcore gamers tend to buy their systems earlier in the gen) and GT5, the one true massivive Sony game, is far too late to change anything, even in the remote case it will release in 2009.

Obviously it's hard to shift recources and to cut, but fact is that they have to do something.

 



Demotruk on 22 January 2009

I don't agree, unless there's a contract involved, you can cut a project down to something shorter and more manageable/profitable. Stalker for example stopped being vaporware when it decided to be less ambitious. GT5 could cut out planned content, unless it's gone beyond that stage. It might piss hardcore fans off but it can save them time and money.

If features and content can't be cut when the terms have changed, then they're using a flawed business model. But then, they're presumably using the waterfall production model, and that's flawed in more ways than just that.



A game I'm developing with some friends:

www.xnagg.com/zombieasteroids/publish.htm

It is largely a technical exercise but feedback is appreciated.

makingmusic476 on 22 January 2009
BengaBenga said:
Demotruk said:
BengaBenga said:
Demotruk said:

 

Agreed, though I only think we'd say that because we'd not have taken an in depth look at the division if we weren't a gaming forum. They've been unprofitable by trying to win the generation, and because of that, most of their losses are already sunk and will never be returned. However, it's a division that can be switched over to moderate profitability in the short/medium term more easily than the other parts of the company.

All they have to do is admit defeat in the console war(internally). Once they've done this, they can switch focus to simply short term profit instead of loss-leading. How do they do this? No price cuts, and profit focussed software as opposed to unprofitable "system sellers". This doesn't require the restructuring that the TV's and other areas will require.

Ehm, how? And why does SCE suddenly will outperform the rest of the company while it has underperformed past years?

All I see is 3 years of losses in a row. Doesn't look like a division that can be switched to profitability very fast. If it was easy it would definitely have happened this year, since that was the main message from last year.

As it stands now PS3 won't have a pricecut therefore will likely lose marketshare and it's very probably the rising PS3 software sales won't keep up with decreasing PS2 sales. Meanwhile SCE has an infrastructure built around marketleadership. Sony has more studio's than Nintendo, which is unsustainable with PS3's development costs and low install base.

 

 

And in that time they've maintained a loss-leading strategy. Of course they've made a loss.

The reason I see this division as more flexible is because it's more based on software than the others. It's much easier to switch strategy in software than it is with hardware.

Stringer made it absolutely clear that SCE had to make a profit this year, so they didn't have a loss-leading strategy for this year. Yet they made a loss.

Software development in Sony's case is not flexible at all, because

a) Their userbase is out of their hands
b) Big AAA projects take 3-4 years to make (or longer...GT5...) 

When all these massive first party projects started Sony's estimates must have been much higher than what the PS3 actually sold. But you can't cut the budget for big games like GoW3, GT5 and Killzone 2 halfway through the dev cycle of course. This doesn't mean these games will make a loss, but profit margins will be much lower than initially expected.

If they were to do a Sega your statement becomes more valid, cause they could spread the risk around several platforms and distribute investment among different sized project. Sony bet big with AAA mega games only, which hurts them now.

 

Not all of them.  Uncharted only took a bit over 2 years to make.  MotorStorm 2 took a year and a half.  LittleBigPlanet took around three years, but it was made by only 37 people, and probably had the lowest budget of any Sony published title on the ps3 yet (not including PSN titles).  Plus, it's thus far their fastest selling title on the ps3.

As for GT5, Polyphony has only been focusing on the game since early 2006, which is why GTHD (released as a free download at the ps3's launch) was nothing more than the GT4 engine with hi-res graphics and a new GUI.  They were working on Tourist Trophy for the ps2 from 2004 to 2006.  Plus, Polyphony probably raked in a load of cash with GT5: Prologue, a game that has thus far sold 2.80 million units, not including copies sold via the PSN. That should've offset GT5's costs quite a bit.  And it's being used as a beta for GT5's online infrastructure.

Killzone 2, now, is a game that had one hell of a dev cycle.  However, it'll soon be released, and will likely be Sony's best selling game since GT4 (assuming it beats out MotorStorm).  Great shooters with great graphics sell, and the Helghast are a very marketable IP.  Even if it doesn't make that much of a profit (though I'm sure anything over 2 million sold will be pure profit), the development costs of the title have already been written off, and it'll be bringing plenty of cash to offset the dev costs of other games.

My point in all this is that not all of Sony's games take 3-4 years to make, and they usually sell pretty darn well (1+ million), despite a supposedly meager install base, and thus they are in general profitable (with a few exceptions like the NBA series, but Sony San Diego's MLB series does rather well).

Will some studios get downsized or outright closed? Possibly, but it will only effect the small studios that do very little, like Sony Foster City, whom we haven't heard from since they released Jet Li: Rise to Honor for the ps2 years ago.

As for the majority of their studios, I don't see why Sony would be unable to maintain them, as their games sell.

Most of Sony's weak sellers this gen have been from second party studios with whom they have already parted with.  I'm talking Lair, Genji, Foklore, etc. from Factor 5 and Game Republic.  They can't really make further cutbacks in this area.

You can see all the games Sony has thus far released for the ps3 here, ordered by sales:

http://vgchartz.com/games/index.php?name=&console=PS3&region=All&developer=&publisher=300&genre=&keyword=&boxart=Both&results=50&order=Sales