FEB. 7, 2013 • For the quarter ending Dec. 31, Sony turned in an operating profit of ¥46.4 billion ($495.7 million) compared to a ¥91.7 billion loss ($979.6 million) for the same period a year ago. Television sales were still a drag on the company, however, with the television unit posting its eighth straight quarterly loss of ¥8 billion ($85.5 million). But that loss was much reduced from the ¥89.8 billion ($959.2 million) for the same quarter in 2012. Another drag on Sony has been sluggish PlayStation Vita sales. During the same quarter last year the Sony Computer Entertainment unit posted an operating profit of ¥33.8 billion ($361 million), compared to ¥4.6 billion ($49.1 million) this year. Sony revised projected sales of the handheld down to 7 million units for the fiscal year ending March 31. Last May the consumer electronics company initially projected sales of 16 million units for the fiscal year. That target was reduced to 10 million last November. Chief financial officer Masaru Kato spoke directly about the Vita during a financial conference call:
“Now one thing very clear for us in terms of profitability, we have to do a better job in promoting the PlayStation Vita mobile product. How do we do that? Well, gaming business software is the name of the game. So as a fundamental measure, we are putting all – a lot of resources, not just first party, but also asking third parties to put out more attractive software,” Kato said. “The other thing, well, marketing, pricing of the product, et cetera, I cannot talk about pricing of this platform, but those are the things that we are looking into to improve our profitability in the mobile handheld gaming business.”
Impact: When Sony launched its first mobile game system the PSP in 2004 they were on top of the video game food chain with the PlayStation 2. However, the company as a whole was clearly showing signs of weakness as the core Sony consumer electronics business was struggling and the stock was on a major downward trend. The past nine years have seen two very successful game products from Nintendo (the Wii and DS), increased competition from Microsoft, and Apple changing the mobile entertainment space. Sony is now in an overall restructuring mode and the Vita was unfortunately stuck between management changes. New CEO Kazuo Hirai has been on the job less than a year and has obviously had his hands full with his primary goal of turning the TV business around during the next fiscal year. As a result, the Vita seems to have gotten lost in the shuffle of major corporate changes. The Vita is actually a solid product that theoretically could be able to carve out a nice niche at its price point. Unfortunately, Sony has struggled to get the message out and insists on such consumer unfriendly methods as placing high prices on memory cards.
Of course, Apple can get away with charging ridiculous prices on memory and hardware in general, but Sony is not Apple. The question is whether it is too late for the Vita. On the positive side, proprietary mobile hardware is hot among consumers and the Vita is a nice system. However, Sony needs to find a way to create demand among consumers as they can’t expect consumers to find the system on their own. Most of the advertising we saw for the Vita over the holidays was driven by third-party publishers. That is a net positive for the system yet Sony really needs to go out and make a compelling case of its own why anyone needs to buy a Vita. College students have actually created marketing messages for the Vita (see below) that are more compelling than much of what Sony is delivering. Right now it is estimated almost all Vita purchasers are PlayStation 3 owners. Having a subset of your console base as the target market simply will not work. If the Vita is ever going to go anywhere Sony needs a plan to directly challenge products like the iPad and 3DS. Right now they have nothing close to such a plan. Time won’t wait for such an initiative. As part of its turnaround, Sony is going after short-term profits and banking on the falling value of the yen. Neither of those options may be available a year from now.