As far as Sony is concerned, the PlayStation 4 is doing exceptionally well. The new console is outselling both the Xbox One and Wii U, and it has an early lead in the generation race that doesn’t seem likely to let up anytime soon.
Put plainly, the PlayStation 4 is kicking butt. Attribute that success to quality hardware, good branding, nice pricing and top-notch customer appreciation during an aggressive and strong marketing campaign. This is a company that managed to sway the adoration of gamers away from the Xbox platform, practically turning the Xbox One into a villain near E3.
But, let’s shift our focus to the rest of the Sony lineup. The Japanese corporation makes a lot more than video game consoles, and it was once the market leader in home and portable entertainment. Sony practically set the standard for audiovisual goods for a very long time.
Today? Sony’s in trouble.
Sony CEO Kaz Hirai, once in charge of the PlayStation arm of the company, announced another large profit forecast reduction this morning. Sony has lowered estimates two other times for the outcome of the fiscal year that ended in March 2014. Now? Hirai and Sony are warning shareholders that its operating income is set to dip from 80 billion yen to 26 billion (roughly $782 million to $254 million). The results will release in the middle of this month.
The company is trying to address its issues. Hirai is new, and he and the other executives have already elected to ditch the PC manufacturing arm of Sony. Unfortunately, the bloat extends well beyond just the Vaio line.
The 4K TV Problem
Sony is losing a lot of money in its TV division, one that once ruled the roost. Instead of selling it off as well, the company announced earlier this year that its pouring money into high-end model development. That’s right, Sony’s attacking the 4K market.
We’ve talked a little about the current shape of the 4K marketplace. Right now? It sits practically in the same spot that 3D TV sat a few years back. It’s in demand, but the technology is way too expensive for consumers and the supported media is way too few and far between to attract buyers.
You could drop $2,500 on a 55-inch 4K TV from Sony, but then what would you watch with it? The PlayStation 4 supports 4K video, but not games. Television providers don’t broadcast much 4K. YouTube and Vimeo support 4K resolution, but the cost of recording things in 4K is so astronomical in most cases right now that most content creators don’t use it.
4K is very much in a “fad” phase at the moment, and Sony’s pouring money into it.
The Blu-Ray Problem
Then there’s Blu-Ray, a format Sony was partially responsible for bringing to life.
The demand for Blu-Ray discs is evaporating remarkably faster than Sony anticipated. The advent of streaming video, flash storage and On Demand content has all but made the Blu-Ray a useless medium for delivering products.
Consumers can watch movies on Netflix or Amazon Prime. Newer releases can be rented digitally for low costs on all sorts of platforms, from cable boxes to home consoles. Yeah, it’s potentially true that the PlayStation 4’s video marketplace is cannibalizing the Blu-Ray format.
Then there’s the Apple MacBook boom. Apple never added Blu-Ray drives to its MacBook line. Steve Jobs said that “Blu-ray is just a bag of hurt” back in 2008. He cited licensing and such as the problems that kept apple from diving into the platform. Phil Schiller was also at the same event and added that Apple has “the best HD movie and TV options in iTunes.” The rest, of course, is history.
Another thing to blame the death of Blu-Ray on? Porn. Porn has been a deciding factor in the “format wars” for decades now. The industry killed the Betamax in favor of VHS, VHS in favor of DVD and HD-DVD in favor of Blu-Ray. Now? Streaming media, broadband connections and the readily available presence of Internet on nearly a global scale have made physical distribution of porn archaic.
Sony knows all this, and they hit physical media as a contributing factor for their big losses.
Primarily due to demand for physical media contracting faster than anticipated, mainly in the European region, the future profitability of the disc manufacturing business has been revised. Consequently, Sony has determined that it does not expect to generate sufficient cash flow in the future to recover the carrying amount of long-lived assets, resulting in an expected impairment charge.
As for what they’re doing about it? Who knows… Selling it outright might also be a problem. Here’s Sony again:
Primarily due to the reason mentioned above, the fair value of the entire disc manufacturing business also has decreased, resulting in an expected impairment of goodwill.
That basically means that the marketplace knows that physical media is a bust, so they likely won’t be able to sell off the disc manufacturing business like they did for the PC branch.
The PlayStation Line Is Probably Not Enough
Yeah, no bones about it, Sony’s killing it with the PlayStation 4. The PS Vita is slowly turning into a mess, but both the PS3 and PS4 are great platforms that have made or are making the company a good bit of money.
Heck, the PlayStation 4 has been profitable by more than 170 million smackers during the launch period. That’s huge. Consoles typically take on losses initially, not profits.
But, like I said, Sony is more than PlayStation. That bloating is a big deal. Sony makes Blu-Rays, TVs, tablets, phones, movies, cameras, music, car and personal audio and medical equipment. They’re even pushing into real estate in Japan.
The PlayStation line is doing well, but I doubt it’s enough. What’s $170 million profit in the face of an annual forecast reduction of more than $500 million? Not enough.
I’m not suggesting Sony’s going to explode overnight. However, Kaz Hirai and the rest of the executives should be in scramble mode by now. The company that was once synonymous with portable music thanks to the Walkman brand should shed a few pounds.
In fact, they have to.