Sony Corp. CEO and president Kazuo Hirai has now presided over two major lay-offs.

MARCH 4, 2015 • Sony Computer Ent. has announced another PlayStation 4 sales milestone after a week of major layoff announcements corporation-wide. The company has attained 6 million PlayStation 4 units sold worldwide since its November launch through March 2, with 370,000 of that number sold in Japan since February 22. With 30 titles available for the system, consumers have purchased 13.7 million software units. Sony’s own Killzone Shadow Fall has sold 2.1 million units globally. Such success was tempered somewhat as Sony began another round of substantial cost cutting last week. In addition to the decision to sell its Vaio PC business, the company is attempting to save ¥100 billion ($978 million) a year over the long term, and as a result has slated 5,000 employees to be laid off, 3,500 of them outside Japan. One thousand Sony Electronics staffers are slated for termination, with 400 of those coming from the Rancho Bernardo, Calif. facility. Twenty of the 31 Sony Store retail locations will also be shuttered. Closer to Sony’s PlayStation business, around 50 of the 240 employees at SCE’s Santa Monica studios were laid off. Recent reports out of other Sony Computer Entertainment Worldwide Studios divisions are that employees are worried about losing their jobs as Sony cuts back on internal development. Only two years ago Sony chief-executive and president Kazuo Hirai initiated 10,000 lay-offs company-wide.

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Impact: The PlayStation 4 is Sony’s first breakout hit product in years.  However, whether this can do anything for a long-term turnaround at Sony remains to be seen.  Sony is a fraction of the company it was at the PlayStation 2 launch in 2000.  Sony’s valuation of around only $17 billion in early 2014 is only about 15% of what it was 14 years ago.  Meanwhile, the competition has continued to soar.

Unfortunately, even with the success of the PlayStation 4, Sony is still in major cost cutting mode.  The PlayStation 4 has a clear market advantage right now but Microsoft is being very aggressive and not taking matters lying down. Our concern is that the initial success of the PlayStation 4 will dim somewhat as Sony looks to cut corners. 

Of course, the game Titanfall will be a huge major exclusive for the Xbox One.  However, that is only a small part of the overall battle. This is a marathon and our concern is that Sony sprinted out of the gate and will not be able to finish as fast. Right now DFC Intelligence is forecasting the PlayStation 4 to be the leading game system but not by a huge margin. These forecasts are updated every three months and this early in the race conditions can change very fast.  So while six million units is a very impressive number it is really just a start.

Most exciting is that demand for new console systems seems to be extremely high. The biggest opportunity for the game industry at large is the ability to benefit from the fact that most consoles are now connected right from the start. In the new DFC report Video Game Consoles in the Connected Home, DFC Intelligence looks at the revenue opportunities presented by new online game business models. These business models are expected to grow and by 2018, DFC estimates that 45% of console game software revenue will come from online business models as opposed to shipment of packaged discs.  Furthermore total console game software revenue is expected to reach record levels of around $27 billion.  As long as game hardware builds a significant installed base it does not matter too much which system does the best.

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