The Ten Year Decline of Sony


As a gamer, I want Sony to succeed because competition helps create and maintain quality products.  Having three consoles on the market puts pressure on all three companies to give gamers an amazing experience and I don’t believe gamers are better off if any of the three companies dropped out of making consoles.

With that said, there is fear for Sony’s future.  It’s not hyperbole when people say Sony is in trouble.  Nobody is exaggerating Sony’s problems.  It’s not false gloom and doom.  The truth is, there’s enough financial data provided to the public to piece together the big picture of Sony’s long term problems.  I don’t pretend to be a financial expert, but I believe the available data shows worrying trends of Sony being in a deep decline for the last 10 years.

There is a large group of people who act like Sony is too big of a company to fail.  Some gamers think Sony is the same corporate giant they’ve always been and that Sony continues to be this giant threat to Microsoft and Nintendo, regardless of their current financial problems.

Sony’s total liabilities have increased dramatically for the last ten years.  Sony’s market cap value is more than 9 times less than it was in the year 2000, and their ROA and ROE have also fallen in the same period.  The company is drowning in debt and historical net losses.  While Sony currently has high quality products, there’s no product at the moment that is really getting Sony out of the red.  Currently, the company is compounding more losses while organizational restructuring is going on.

For the financial data in this article, I have provided dates to put the data in better context.  Please understand that financial data changes constantly, so the numbers will change on the available sources. With that said, don’t expect drastic changes because the data I am providing is in a span for 10 years.  So if Sony is in a decline for 10 years, their problems will not dramatically change in the near future.

Now let’s begin.


 

Sony’s Shrinking Market Cap Value

Market Cap definition by investopedia.com:  “The total dollar market value of all of a company’s outstanding shares.”

Market Cap definition by Wikipedia.com:Market capitalization is defined as the share price multiplied by the number of shares in issue, providing a total value for the company’s shares outstanding.”

 

Below is a chart of Sony’s market cap value between September 2002 through September 7th, 2012.

Sony’s Market Cap Value on September 2000:  $100 billion   (Source: Bloomberg)

Sony’s Market Cap Value on December 2007:  $54 billion  (Source: ycharts.com)

Sony’s Market Cap Value on December 12, 2011:  $18 billion  (Source: Bloomberg)

Now lets skip to the most recent day that the stock market opened on.

Sony’s Market Cap Value on September 7th, 2012:  $11.69 billion  (Marketwatch/Wall Street Journal)

Nintendo’s Market Cap Value on September 7th, 2012:  $15.9 billion  (Marketwatch/Wall Street Journal)

(Please Note: Market Cap Values typically change every day/week so any numbers posted for September 6th, 2012 will slightly change the next day or week.)

click this link for enlarged pic.

How bad are Sony’s Total Liabilities and Debt?

“We’ll have to fasten our seat belts and get ready for the turbulence,” Yuuki Sakurai said.  “Hirai is in a tough position, I don’t envy him.” (Source)

Total Liabilities as of June 2012:  (Source)

Total liabilities are the total amount of all financial obligations (short term and long term) of a company.  This includes all creditor claims on company assets.

Electronic Arts Total Liabilities: $2.27 Billion
Google’s Total Liabilities: $21.33 Billion
Apple’s Total Liabilities: $51.15 Billion
Microsoft’s Total Liabilities: $54.91 Billion
Sony’s Total Liabilities: $135.61 Billion

Sony has more total liabilities than Microsoft, Apple, Google, and Electronic Arts combined.

Total Assets as of June 2012: (Source)

Total assets include cash in the bank, property, accounts receivable (money owed to the company), equipment, and inventory.

Google’s Total Assets: $86.05 Billion
Apple’s Total Assets: $162.90 Billion
Microsoft’s Total Assets: $121.27 Billion
Sony’s Total Assets: $166.22 Billion

Compare Apple’s total assets ($162.90 billion) to Apple’s total liabilities ($51.15 billion).

Compare Microsoft’s total assets ($121.27 billion) to Microsoft’s total liabilities ($54.91 billion).

Now compare Sony’s total assets ($166.22 billion) to Sony’s total liabilities ($135.61 billion).

Since total assets include everything that Sony owns (cash, buildings, divisions, intellectual property, etc.)…Sony would have to sell over 80 percent of their total assets (Total Assets = Every single thing Sony owns including cash) just to pay off their total liabilities.

If you combined the June 2012 total liabilities of Microsoft ($54.91 billion), Apple ($51.15B), Google ($21.33 billion), and Electronic Arts ($2.27 Billion), that would equal to $129.66 billion in liabilities. Sony would STILL have $5.95 billion more in total liabilities than Microsoft, Apple, Google, and Electronic Arts combined.  It really paints a picture of just how out of control Sony’s total liabilities have become.

Based on the chart below, you’ll notice that Sony’s liabilities (light blue) have been skyrocketing for ten years now.

Click chart below to enlarge size.

The biggest problem here is that Sony’s total liabilities show no sign of declining.  They keep increasing and eventually, this bubble is going to pop.  It’s important to understand that not all liabilities are inherently toxic. Companies are expected to have significant liabilities at all times. It’s when we compare Sony’s liabilities to assets ratio with that of other major corporations that it suddenly becomes clear that something has gone wrong.

Below: Chart of Sony’s growing liabilities over the years according to stock-analysis-on.net

On June 27th, 2012, Sony held an annual meeting with over 9,303 shareholders in Tokyo, Japan.  After years of multiple disappointing quarters, some of Sony’s shareholders began to release their anger on Howard Stringer.

At the meeting, a heckler shouted:

“What a job, Mr. Stringer! Can someone tell me why we need to appoint this man―who built Sony’s debt to nearly a trillion yen―to chairman of the board?  Is Sony that starved for personnel?”

Another heckler proclaimed:

“I am against reappointing Ryoji Chubachi and Howard Stringer as directors. Mr. Stringer tried to blame the company’s poor results on the 2011 Japan earthquake and flooding in Thailand, or anything else he could find in the business environment.  He’s been giving excuses from the outset.  The slow actions of those two have slaughtered the value of Sony.”

The room of shareholders exploded into applause around the auditorium.


 

Sony’s Capital Structure

Quote from investingdecoded.com that sums up Sony’s situation:

I see a higher chance of revival for Panasonic than Sony.
~ Yuuki Sakurai,
CEO at Fukoku Capital Management Inc.

On April 15th, 2012, investingdecoded.com wrote, “When subtracting deposits in its financial services arm, Sony still has 87 cents in liabilities for every dollar in assets.  This rising debt balance has lead to increases in the firms interest expense. Sony is on the cusp of being deemed “non-investment grade” by Standard and Poor’s, which rates the firms credit as BBB+.  Sony burned through 12.8% of its cash in the 1st 3 quarters of FY11.”

On August 6th, 2012, Moodys Investors Services placed Sony Corp. under review for a possible second downgrade for this year.  At the current moment, Sony’s credit rating is three levels away from being declared “junk”. Moody’s is unsure whether Sony’s restructuring will even help.  Moody’s commented on Sony’s restructuring process by saying, “Sony has not been able to deal with these issues effectively.”  Moody’s added, “concern that weak consumer sentiment, especially in Europe and China, and a strong yen versus the euro may hinder the timely recovery of Sony’s earnings and leverage.”

Below are charts displaying Sony Corporation’s entire capital structure from quicktake.morningstar.com.

On June 2009, Sony only had 40.6% debt and 59.4% equity.  By June 2012 (3 years later) Sony’s debt is now 50.1% of their capital structure, and their equity shrank to 49.9%.  In three years, Sony went from a company that use to be mostly equity to a company that is now 50/50 on debt and equity.

Anyone will tell you that when you look at Return on Assets (ROA) and Return on Equity (ROE) together, they are probably one of the biggest indicator of a public corporation’s health.

According to investopedia.com

Definition of Return on Equity:

“It’s a basic test of how effectively a company’s management uses investors’ money – ROE shows whether management is growing the company’s value at an acceptable rate.

Definition of Return on Assets:

“Return on Assets reveals how much profit a company earns for every dollar of its assets. Assets include things like cash in the bank, accounts receivable, property, equipment, inventory and furniture.

The chart below uses data from the year 2002 all the way through June 30th, 2012.

You’ll notice that the red line (ROE) is rapidly sinking, the orange line (ROA) is slowly declining since 2009, and the blue line (total liabilities) is skyrocketing out of control.  When you look at all three of these things on the chart, it makes Sony’s financial situation look worrisome.


 

Asset managers, analysts, entrepreneurs, and credit agencies doubt Sony’s recovery plan

 

On August 2nd, 2012, iTechPost.com reported: “Since he [Kaz Hirai] moved into the CEO office, Sony’s shares have tanked by more than two-fifths.”

When Kaz Hirai laid out his plans for saving Sony, he listed it in four steps:

  • Focusing on core businesses (Gaming division, digital imaging)
  • Streamlining Sony’s TV business
  • Cut costs by transforming Sony’s business portfolio
  • Speeding up innovation

I can’t see a scenario in which they boost their top line.  The environment is still severe, demand for TVs won’t recover, and they’ve got no hit products. ~ Ichiro Takamatsu,
Bayview Asset Management Co

After hearing Hirai’s plans to save Sony, many of Sony’s asset managers have felt unimpressed with both his plan, execution, and recent results.

Yuuki Sakurai, CEO at Fukoku Capital Management Inc., oversees $7.3 billion of Sony Corporation’s assets.  In June 2012, Sakurai said he doesn’t think Sony can turn things around:  “I see a higher chance of revival for Panasonic than Sony,” said Sakurai, “Sony still hasn’t been able to show us the path for revival.”

Hirai announced a plan to cut 10,000 jobs at Sony, reduce the number of TV models, and exit out of PC-use optical drives.  This month, Sony announced cutting 15 percent of the mobile phone workforce.  Some of Sony’s asset managers think Sony’s strategy of cutting costs isn’t enough to make the company profitable.

“What they’re doing now is trying to squeeze out profits with cost cuts,” said Ichiro Takamatsu, who helps oversee $2 billion of Sony’s assets at Bayview Asset Management Co. in Tokyo, “I can’t see a scenario in which they boost their top line.  The environment is still severe, demand for TVs won’t recover, and they’ve got no hit products.”

One of Sony’s own former executives thinks Sony’s days might be over.

On April 15th, 2012, Yoshiaki Sakito, a former Sony executive, was quoted sayingIt’s almost game over at Sony.”  He then continued, “I don’t see how Sony’s going to bounce back now.” Yoshiaki Sakito has also worked for Walt Disney, Bain & Company, Apple and a start-up focused on innovation training.

On August 10th, 2012, Standard & Poor announced they were evaluating the possibility of downgrading Sony’s credit rating again, citing a weak recovery.  In a statement released on August 31st, 2012, S&P said, “Standard & Poor’s sees weakening prospects for Sony to restore profitability at its core electronics businesses in fiscal 2012 (ending March 31, 2013).”  The statement later says, “In light of the weak prospects for earnings and planned increases in strategic investments, we expect Sony to make negative free cash flow in fiscal 2012, reducing the likelihood of improvement in debt and cash flow ratios for the company in the near term.”

Moody’s had similar thoughts as S&P.  On August 6th, they released a statement saying, “Sony has not been able to deal with these issues effectively.”  Moodys had cut Sony’s rating to its current level three notches above speculative investment, or “junk” status.

To cut costs, Hirai mentioned that Sony would analyze which products aren’t adding much value; he would then decide either to drop those products or figure out ways to reduce costs through “collaboration”.  For numerous years, Hirai was very emotionally invested into Sony’s gaming division.  Discontinuing the PS Vita would basically be an admission that he had launched a failed product during his time at Sony Computer Entertainment, and it seems Hirai would rather cut jobs or streamline other divisions at Sony before that happens.  To discontinue the PS Vita would be a stain on his past legacy at SCE.

Now that we’ve discussed Sony’s financial problems in detail, we should try to pinpoint why this happened.  A big reason would be Sony’s culture, which we will be discussing in the second half of this article.  The culture within a company can impact how a company managed, financed, organized, and supervised.  Let’s move onto the second half.


 

 The War Inside Sony:  Engineers vs Executives

“Engineers have always been stars at Sony—more so, perhaps, than their creations.” – Gizmodo

Sony remains dominated by proud, territorial engineers who often shun cooperation. For many of them, cost-cutting is the enemy of creativity. ~ Hiroko Tabuci

Sony always gave full creative freedom to its engineers as a strategy to push quality and innovation.  This is the vision that Sony’s founders always had when they created the company.  Engineers are treated like rockstars for creating many of the different products and proprietary formats coming out of Sony.  Is it possible that Sony’s loyalty to the creative visions of their engineers might be partially responsible for Sony’s financial problems?  It’s easy to say that Sony should cut their costs and stop putting out super expensive products.  But the truth is, Sony’s culture was built on giving engineers (not accountants) the ability to make the final decisions on Sony’s products.  By giving engineers so much control, Sony forgot that making a profit is most important to the overall health of the company.

To promote thinking outside the box and innovation above all else, Sony became a culture of where failure is acceptable and has little consequence or threat to most engineers’ jobs.  This is partly because the founders, Masaru Ibuka and Akio Morita, failed multiple times before having their first major success.  The founders adapted this logic to Sony’s culture.  This explains why engineers who have worked at Sony in Japan for a very long time have amazing job security even after numerous products have failed.

Gizmodo says, “There are countless examples of Ibuka and Morita’s successors following in their footsteps, taking up the mantle of the brash engineer, forging ahead despite warnings of over-ambition or even unprofitable results, all in pursuit of a now-mythical Better Way.”

The rivalries between engineers is part of why Sony has lost its identity over the years.

Sony’s strategy never comes together as a cohesive whole because their engineers are constantly in competition with each other to become famous for creating the next big proprietary format or gadget. There are so many proprietary formats or unnecessary electronics coming out of Sony that it makes Sony’s overall strategy and identity very confusing.  The engineers all want to be the guy who creates something as big as the Walkman or PlayStation, they are all competing for that recognition inside of the company. However their ideas are created based on the love for technology, not long-term profitability.

On April 2012, Hiroko Tabuchi wrote an article to the New York Times saying, “Sony remains dominated by proud, territorial engineers who often shun cooperation. For many of them, cost-cutting is the enemy of creativity — a legacy of Sony’s co-founders, Mr. Morita and Masaru Ibuka, who tried to foster a culture of independence.  But the founders had more success than recent executives in exerting control over division managers.”

Businessweek had an article which explained how Howard Stringer couldn’t convince Sony’s engineers because Sony engineers only trust other engineers, and have very little trust for anyone else.  Sony’s engineers refused to listen to Stringer that content was key because their egos were too consumed with creating hardware.  This is part of why the creators of the Walkman, even though they had huge assets and an entire music record label, weren’t able to release an MP3 device before Apple’s iPod.

According to the Businessweek article (Via gizmodo.com):

“Stringer also encountered a hardware-worshipping culture that mistrusted him because he wasn’t an engineer.  He was a ‘content guy’ who supposedly cared less about making devices than pushing movies and music. ‘Whenever I mentioned content,’ [Stringer] says, ‘people would roll their eyes because, ‘This is an electronics company, and content is secondary.” That resulted partly from longtime rivalries between engineers in Japan and generally better-paid movie and music people in California. Sony’s consumer electronics unit sometimes declined to send products for use in Sony movies even as Samsung was generating buzz with placements of its phones in blockbusters like The Matrix.”  Earlier in 2007, Stringer told a reporter: “I HAVE said before that without content, most gadgets are just junk.”

William Saito also thinks in-house rivalries kept Sony from reaching their goals.  Saito is a venture capitalist and council member on national strategy and policy at the Japanese government’s National Policy Unit.  Saito argues: “The Japanese are very intelligent as individuals, but as a collective they become incompetent.”

Sony’s desire to control everything kept it from controlling anything. ~ James Surowiecki,
in an article to the New Yorker

James Surowiecki tells the New Yorker:  “The Betamax video tape recorder failed in part because the company refused to co-operate with other companies. But in recent years the problem got worse. Sony was late in making flat-screen TVs and DVD recorders, because its engineers believed that, even though customers loved these devices, the available technologies were not up to Sony’s standards. Sony’s cameras and computers weren’t compatible with the most popular form of memory, because Sony wanted people to use its overpriced Memory Sticks. Sony’s online music service sold files in a Sony-only format. And Sony’s digital music players didn’t play MP3s, which is a big reason that the iPod became the Walkman’s true successor. Again and again, Sony’s desire to control everything kept it from controlling anything.”

Universal Media Disk (UMD) format for games, movies/tv shows, and even music: Another example of Sony trying to conquer the world with proprietary formats that ended up failing.

 

On February 3rd, 2012, incoming CEO Kaz Hirai told The Wall Street Journal, “I thought turning around the PlayStation business was going to be the toughest challenge of my career, but I guess not,” he said.  “It’s one issue after another. I feel like ‘Holy s***, now what?’”  He continued saying, “We really need to buckle down and be realistic. I don’t think everybody is on board, but I think people are coming around to the idea that if we don’t turn this around, we could be sitting in some serious trouble.”

I don’t think everybody is on board, but I think people are coming around to the idea that if we don’t turn this around, we could be sitting in some serious trouble ~ Kaz Hirai

When Hirai says not everyone is on board, he’s not joking.  The idea of “buckling down” and “being realistic” typically means cutting costs and downgrading certain divisions, which would be a Sony engineer’s worst nightmare.  Howard Stringer basically lost control of the company.  It’s foreseeable that even more in-fighting may occur at Sony with Kaz Hirai running the show as a result of engineers protesting any cost cutting decisions that Hirai makes.  Sony is so dysfunctional right now because engineers, not the executives, run the show.  It will be difficult for Kaz to cut costs when Sony’s entire culture since the beginning of the company’s birth was founded on giving engineers freedom to create their ideas.  If Kaz wants to be tough with cost cutting, he will have to completely reverse Sony’s entire culture.

However, that’s easier said than done. The most influential people at Sony have been there for more than 20 to 30 years, and they have been shown to flat out refuse drastic change. This is part of why Sony still acts like they are still the huge corporation that they were in the 90′s.   The culture at Sony refused drastic change when Howard Stringer ran the show and the same will likely happen with Kaz Hirai.

Howard Stringer mentioned to Bloomberg that change has never come easily at Sony.  This is mostly due to Japan’s lingering culture of lifetime employment that makes it difficult for Sony to shrink payrolls or close Japanese plants. Stringer also mentions Sony’s Japanese tradition of consensus building which makes it difficult for Sony to respond quickly to the orders of a strong leader.  Howard Stringer says: “People mostly say to me, ‘You don’t need to do this. Why are you doing this?’”

PlayStation 3 is a great example of Sony giving too much creative freedom to its engineers by allowing them to create the Rolls-Royce of game consoles without any watchful supervision over the project to pay attention to the costs of materials.  The engineers had very little respect for both Sony’s executives and former President and CEO Howard Stringer.  The engineers tried hiding the costs from any non-engineer who would be a threat to their creative vision.

A Wall Street Journal article (via Kotaku.com) gave some more insight: “In developing the PlayStation 3 console, the device’s latest iteration, Mr. Kutaragi went over budget on development costs without informing Mr. Stringer, according to a person familiar with the situation.” The article continues by saying, “Mr. Kutaragi was notorious within the company for his reluctance to communicate with his bosses or other units. In 2005, Mr. Kutaragi hosted an event at a big electronics conference in Las Vegas to celebrate the U.S. launch of the PlayStation Portable handheld game machine — one of the company’s biggest products that year. He didn’t invite executives from Sony’s electronics division, which provided the parts.”

In 2006, Ken Kataragi said that PlayStation 3 was being sold too cheap and Sony was doing gamers a favor for giving it to them for $600.  This is just another example of the arrogance displayed by Sony’s engineers and Sony’s top brass at the start of this console generation.  In a 2006 article, PCWorld.com explained: “iSuppli called the PlayStation 3 an ‘engineering masterpiece‘,” with a motherboard that looks more like that of an enterprise server or network switch than a games console.”

According to iSuppli (in November 2006), the combined materials and manufacturing costs for PlayStation 3 came to about $806 for the model with a 20GB hard drive. This excluded the cost of the controller, cables, and packaging.  For the $499 20 GB PS3, Sony took a loss of about $307 on each console they sold.  For the $599 60GB model, they lost an estimated $241. By June 2009, GameSpot reported that manufacturing costs for the PlayStation 3 were down 70 percent.  In a 2010 article from CNet/Wall Street Journal, Sony was losing 6 cents for every dollar of PS3 sales.  At the time, the PS3 was selling at a retail price of $300 which means they were losing about $18 for every console sold.

Sony never learned from any of this.

That’s why Sony will  sell PS Vita at a loss for three years.  I don’t get the feeling that Sony looked at PS3 and said, “Maybe we should try to make a profit with Vita on year one”.  There’s no sense of learning from past mistakes about taking major losses.  There’s so many branches at Sony that the top executives seem clueless of what’s going on inside their own company, and nobody knows why Sony is selling so many television models when they are constantly losing money in that division.

Final Thoughts

Is Hiroko Tabuci correct in [her] Wall Street Journal article about Sony’s engineers having too much power and control over Sony’s product lines? [She] is correct, but Sony’s executives should always take more accountability/responsibility for the company’s actions more than anyone else.  When Howard Stringer was in office, all he did was blame earthquakes and the fall of the yen/dollar/euro, instead of admitting that Sony released products that weren’t major hits.  The fact remains that Sony’s executives make a lot of excuses, they poorly communicate with their engineers, and this causes disorganization and confusion within the company.    A great example would be when Sony’s PlayStation network was hacked by Lulzsec.   Sony was more concerned about hiring lawyers and getting their insurance company to pay for the damage, than getting their engineers to fix the problem in a swift and efficient manner.

Because there is a lack of communication between the branches of Sony,  Sony’s product line has no real identity right now.  Every division and branch is made up of people who are doing their own thing, and not caring about what the rest of Sony is doing.  That’s why the only thing that comes to a consumer’s mind about Sony products right now is, “Oh yeah.  That’s the company that makes stuff I can’t afford unless I get multiple jobs.  They put out $600 game consoles at launch, and $40,000 4K resolution televisions“.  Sony is stuck.  Everyone expects amazing quality and technological leaps from Sony products, but most people don’t have the money to buy them due to economical reasons.  If Sony changed their strategy and started manufacturing cheap products, it would go against everything that the Sony brand stands for.

Sony is an example of a company that has become so large that they’ve lost focus of their main priorities.  This is also a company that thinks they can afford tons of failures as long as they have a few successes along the way.  But at what cost?   At what cost can you keep launching products that don’t make a profit until the third or fourth year that it is released?    At what cost can you keep launching failed proprietary formats like the UMD, or failed peripherals like PlayStation Move?

Sony releases brilliant products time from time.  I am especially a big fan of their PlayStation brand.  But Sony is not the Sony of the 90′s.   Sony is not today’s Apple.  Sony is not today’s Samsung.  Sony is not today’s Microsoft.

It won’t be easy for Sony to return to their glory days after ten years of negative trends.

2 years ago by in Feature Articles , features | You can follow any responses to this entry through the RSS feed. You can leave a response, or trackback from your own site.
About

https://twitter.com/Emi1yRogers

57 Comments to The Ten Year Decline of Sony
    • Simon
    • Very good article – This confirms what I’ve been thinking for a while and that is the PS4 may never see the light of day as unthinkable as that may sound. If Vita sails fail to pick up this Christmas season it’s game over for Sony’s game division.

      • MisterED
      • Oh, we will see the PS4 alright. These engineers have been working on that for a while. Like the article says, they won’t change their ways and they will release the PS4 unto the world.

        The big problem is that Sony once again will try to sell a game console that will become a money pit.

        Sony engineers are so proud, that they cannot accept that an American company like MS can beat them two times in a row. And they will try to match whatever MS delivers with their next gen console. Even if it breaks the company and puts them in the red for the majority of the next console wars.

        So yes, I expect to see the PS4 in 2013 and it will indeed be a powerful and EXPENSIVE console. But if they keep acting so foolishly, I expect the PS4 to be their last console.

        Nintendo was right in not going head-to-head with MS with both the Wii and soon the Wii U. They just don’t have the deep pockets for that. So their strategy is to be a bit thrifty and sell consoles that are both affordable for most consumers and that actually provide them with a profit with each unit sold. This strategy is what keeps them from fulfilling Michael Pachter’s “Nintendo is Doom” prophecy.

        Hope that Sony learns what Nintendo learned to stay in the business. It would be sad to see them go.

        • AJ
        • “Sony engineers are so proud, that they cannot accept that an American company like MS can beat them two times in a row.”

          Pure nonsense. The Xbox 1 was a failure. It had a small handful of reasonable quality games. It lost very badly in market share to the Playstation 2. It never reached the market penetration levels that MS had predicted and promised to developers. It was ultimately withdrawn from the market. The PS2 on the other hand was a huge success. Round one went to Sony decisively.

          Round two early on was looking to got the other way as MS had a compelling product in the Xbox 360. This was mainly because they priced it correctly for the North American market. However the whole RROD saga stemming from bad engineering coupled with price reductions on the technically superior PS3 have leveled out the market to a great extent. Round two is still up in the air as both consoles continue to sell.

          MS has won nothing yet.

          • WontonTiger
          • MS has won the battle for profits, which is the first stage of a long life of a company. Sony has made plenty of great advances, however their idea to banish the though of money from their plans has been their downfall.

            MS makes money of console sales, which is the key to surviving in this business.

    • Aiddon
    • Holy CRAP, I knew Sony had severe financial issues but this is absurd. These guys really did learn nothing with the PS3 or the PSP. They’ve botched THREE launches in a row and made two systems be sold at a loss. I really wonder if Sony is going to survive the next ten years what with executive bungles, engineers showing off with their tech instead of making it affordable to consumers, and the fact that they’re being beaten hands-down in music, players, and games. It’s really amazing how badly they’ve been managed.

    • ben
    • Hiroko is a woman’s name in Japanese.

      Great article, worthy of major publication. The way that you were able to distill financial and economic information into a form easily read by laymen is impressive.

      It’s increasingly rare to find such clearly expressed process of thought and argumentation online, even from major news outlets. Thanks for the read.

      • Emily Rogers
      • Thank you for catching that. I should have double checked. It’s been fixed. Meant no disrespect to her.

        And thank you very much for reading it. I try to write content that people might enjoy reading. Glad you liked it.

    • Aiddon
    • It is pretty amazing at how badly Sony has floundered over the last few years due to executive blunders and engineers not willing to scale things back so people can actually AFFORD their products. With having screwed up TWO system launches in a row by making them sold at a loss it REALLY shows that Sony is a mess right now.

    • Ndivhuwo
    • Bravo. Never has such a long article captivated me from start to finish. I can tell alot of research went in to it and it is wonderfully written. I tip my hat to you good madam. Thank you!

    • Hisiru
    • I was really excited to see this article, and the wait is finally over. :)

      I still need to read it (and I will post another comment later) but I just want to say already that so far it looks great. Youre really good Em, thanks for the read.

    • kadare
    • this is a good article, but you failed to note that’s sony’s stock is currently trading at a discount to its book value (ie. (book assets – book liabilities) > market cap). this typically implies a negative market outlook for the company, and lends extra support to your hypothesis that they’re probably not headed in a good direction (it can also mean that the company is a good value buy, however, depending on your appetite for risk… as students of investment finance know, on balance a diverse portfolio of value stocks beats out low b/m stocks). that being said, im not sure if their gearing ratios are a serious problem (you might have overemphasised this), given the ease of financing in yen for large japanese corporations (japan has a low rate of marginal consumption, with a lot of liquid floating about as a result); their costs of debt haven’t increased much, as far as im aware, despite the downgrades (your article would be a lot better with a time series graph of their bond yields). i think their negative outlook stems more just from the rudderlessness you alluded to. like you, im a bit of a fan of their playstation brand, and worry about what gaming would be like without sony’s market influence. hopefully they pull their act together, although like you im not terribly hopeful… hirai has been a bit of a wet blanket so far.

      (your point about an unwillingness to disco the vita due to such actions amounting to an admission of personal failure was interesting. fwiw studio liverpool was axed instead of evolution for no other reason than many of present scee corporate being responsible for the evo buyout… if you’re gonna fire a bunch of people, are you gonna fire the people you decided to hire, or people your predecessor decided to hire? look busy, jesus is coming.)

      also, 40k for a tv is ridiculous. as a veblen good, it doesn’t exist. as prestige marketing, it’s sending entirely the wrong message. that should NEVER have happened.

      l_f

    • Aiddon
    • It seriously amazes me at how badly Sony has floundered in recent years what with executive bungles, engineers more concerned with showing off than making their products affordable, and the fact that they’ve messed up TWO system launches in a row. They really need to get their act together because this is becoming ridiculous.

    • nagmine
    • On the first paragraph. If Sony bailed out wouldn’t that also just leave room for someone new to step in and try something different. Just like how Sega leaving the console market gave room for MS. I would not be surprised if Apple or somebody tried to step in if given a chance.

    • Wayne R
    • I always like a numbers article. And it is completely believable that Sony’s engineers are unhinged. If Sony does not cooperate with itself the PS4 will not be a step in a positive direction for the company.

      Thank you for the good read.

    • Hisiru
    • Hey, Em! It’s an incredible read, thank you for that! I translated the article (to portuguese) and I added some additional info.

      The article is much better than I first thought but Sony’s problems are much worse than I thought…

      I wonder what will happen with PSV in the fututre or what they will try to do with PS4, it’s really a bad situation and I don’t see how Sony can be big again like it was in 2000. And I wonder if they will close more studios…

      If the PS4 is a strong and expensive piece of hardware, they will lose money with each unit sold and it won’t sell very well with high price (in this current economy), but if it’s weaker, then they will lose a part of their userbase, and it’s still going to be expensive enough to make some people chose WiiU or x720.

      Looks like they don’t have a good plan to make things better in the near future.

      Thanks for the good read!

    • Johnno
    • They’re comitting another mistake again… With concern to 3DTVs, consumers prefer passive even though it’s not up to snuff with active shutter for progressive 3-D. But Sony was stubborn to stick with the high end stuff. They’re finally going passive… but with 4K televisions, whcih indeed will deliver good quality passive on par with active, but are going to cost a hell of a lot for a while…

    • mrnoname2012
    • This was a very informative article. However, no disrespect, this was information we already knew. So as a “whole” Sony is not doing so great, I think the general public gets it and understands it. As gamers we all hope Sony can jump back from this, because as you stated “competition” is great for the consumer. I just wish you “so-called” journalists will you stop posting the same articles over and over again.

    • usrev2
    • the ps3 did fail this gen. but it doesn’t mean sony will fail. they are in the strongest position at the end of the gen which could easily bring people from nintendo/xbox to get the next playstation instead.

      next gen could very well see sony return to power.

    • Proto Cloud
    • Fantastic article. I finally understand why Sony has stumbled so much in recent years.

      I have your website bookmarked now. Your stuff always amazes me.

    • David Chadwick
    • I cant thank you enough for writing an article of such caliber, Its all just plain and simple facts, no Bullshit corporate excuses no bullshit media hype & cover ups… its evident when a corporation has build its brand on the quality & excellence of its hired talent who the real star is.., Then they seem to always get stuck on the brand as if the brand made the products, engineers clearly need more room to excel. Ask leaders like Google & Apple why they thrive…

      X Sony fan, Xbox Owner… for now….. :)

    • trk_rkd
    • nice article, would’ve been better with some discussion of the book-to-market ratios of the stock (i.e. the ratio of the accounting value to the value placed on the company by the market) – you’ve got all the data there, just no discussion. We see that sony’s stock is currently priced such that (book asset – book equity) > market cap, a relationship which is typically taken as a signal that the market has negative perceptions for the future prospects of the company.

      also, a time series graph of the bond yields would add a lot to this article. increases in gearing ratios don’t necessarily signal trouble for corporate fixed income financing (particularly in japan where big cap companies rarely have difficulty financing), it’s the yields that indicate concern re. solvency etc. that being said, i think the central thesis of your article was still pretty much spot on. good job!

      • trk_rkd
      • (note that a more interesting question might be: is sony’s share price currently at fair value? if you compare the book/market ratios it’s actually pretty good value compared to apple etc. like you, the market is pessimistic about sony’s prospects. and whilst I think it’s almost undeniable that a large chunk of that pessimism is warranted, has the market maybe gone a bit too far? what would a turnaround at sony look like? how quickly could it happen? bad comapnies can still make good buys!)

    • Felipe Lins
    • As a writer too, I must confess I’m astonished by the huge amount of deep research you went through to pull this article off. So much reliable information, and so much pertinent commentaries made me just a fan of your work.

      As I write to brazilian people, I’ll no doubtly be checking on your material and get info for my own articles, with due credits, of course.

      Congratulations, for such an amazing piece, and keep up the good work, lady Rogers.

    • Leo P
    • A great article, based on cold, hard facts. We need more articles like this and writers like you in the gaming industry. Great work!

    • Filippo Veschi
    • I’m astonished. This article is a masterpiece of gaming journalism. Sure, we already knew a lot of these informations, but the way they are presented and the amount of documentation you provide are awesome. I’m a (wannabe) journalist too and i just want to say that i’m impressed and inspired by your work.

    • Dominik Dalek
    • Great collection of data but final thoughts seem completely detached from what’s in the rest of the article. Every piece of evidence leads to broken culture yet final part focuses on management and its share of responsibility. I understand that you feel like that – being attached to the PlayStation brand it’s hard to imagine brilliant developers would cause company’s doom. But that doesn’t justify summary that’s completely out of touch with evidence provided. Culture (or lack thereof) is *the* reason many companies struggle and ultimately fail.

      Stringer was the face of Sony, he had to cover up publicly problems within the company while trying to fix internal chaos at the same time. This is what CEOs and top level managers do. It doesn’t take much to understand it – just some time spent working in a larger corporation.

      Selling cheap products doesn’t really cut it and most likely won’t cut it for Sony. Look at the data on the Android smartphones for example: Samsung is the only company to make monies on devices. None of the manufacturers of cheap hardware turn profit from HW, it’s all services and content, deals with app makers, and what not. It’s the same in the PC market where monies are being made on preinstalled crapware, not HW. Some tried to sell premium experiences and failed trying to compete with Apple, usually lacking some comprehensive vision and conviction to stick to long term ideas.

      In Sony’s case despite the fact that Stringer had a vision, company wouldn’t follow him. We can blame him but that doesn’t change the fact that the core problem wasn’t him, it was the culture. Stringer was just an echo of the problem. Not being Japanese and not being engineer didn’t help him either. Let’s see how Hirai is gonna do.

      • Mike
      • To be honest, this article is somewhat off. You are comparing Sony’s debt load to Apple and Microsoft, two companies that have relied very little on debt, and are well known for that fact. You don’t compare Nintendo’s liabilities to Sony’s at all, and that would be the more appropriate metric. There are many other places where the information about capital markets is flawed as well, including saying Sony’s bonds are “on the cusp” of being deemed junk. “On the cusp” means BBB- with a negative outlook. BBB- with a neutral outlook? Not on the cusp.

    • Salvador Diaz
    • Impressive article, congratulations! The best I’ve read in a very long time. I have been looking for something this concrete and focused on Sony but never found anything this good and clear. Despite this being an overall sad picture for a brand I like,I really enjoyed reading it.
      It’s very clear, Sony needs to:
      * Ditch useless devices
      * Start making no more than 3 models of TVs, phones and so on. The premium, the average and the cheap one. And if it’s only the first two, better. No more. And then reroute the resources that were making lots of different models to:
      * Focus on software! Content delivered via software is very important. OS and applications on every device is what defines them these days, not only hardware.
      The way to recover is quite easy, they just need to look at it, and do it.

    • Hisiru
    • Hey, Em! It’s an incredible read, thank you for that! I translated the article (to portuguese) and I added some additional info.

      The article is much better than I first thought but Sony’s problems are much worse than I thought…

      I wonder what will happen with PSV in the fututre or what they will try to do with PS4, it’s really a bad situation and I don’t see how Sony can be big again like it was in 2000. And I wonder if they will close more studios…

      If the PS4 is a strong and expensive piece of hardware, they will lose money with each unit sold and it won’t sell very well with high price (in this current economy), but if it’s weaker, then they will lose a part of their userbase, and it’s still going to be expensive enough to make some people chose WiiU or x720.

      Looks like they don’t have a good plan to make things better in the near future.

    • Cogito Ergo Sum
    • Great article! I think there are some claims I would I wanted to have stronger grounding (like the conflict between executives and engineers being DIRECTLY responsible for Sony’s decline in profit), but great article. I did happen to spot one typo: “Moodys had CUT SONY’S RATING CUT to its current level three notches above speculative investment, or “junk” status.”

      Great article, I am officially a fan of your work!

      Cogito Ergo Sum

    • hyde
    • overall general coverage of the business side of videogames is often terrible and fraught with bias (especially on blogs), and it’s incredibly refreshing to see someone actually do it in a detailed and thoughtful way. congratulations on an excellent piece on a company that has gone from an incredibly innovative leader and yet now stands as one of the worst run companies in the world. I can’t believe they still bother to make tv’s when their television division has lost money in every one of the last 8 fiscal years.

    • WontonTiger
    • Great article Emily.

      Sony has/had plenty of chances to turn it around. There is still time, but only if they can start to change the culture as you have succinctly stated.

    • fileoffset
    • Out of all the reasons given for the decline of Sony, I think this is the most important and resonating one:

      “Again and again, Sony’s desire to control everything kept it from controlling anything.”

    • Dave
    • Nice article but you misuse “it’s”. It’s is short for “it is”. The possessive form is (bizarrely!) “its”, not “it’s”.

      “Sony burned through 12.8% of it’s cash…” should read “Sony burned through 12.8% of its cash…”

      The other one in the article was this one:
      “The rivalries between engineers is part of why Sony has lost it’s identity over the years.”

    • online forms
    • Make sure you put your keyword in the web page title, first paragraph and
      once or twice in the main body. It won’t take you extremely long to work out what way to employ it. If a picture is worth a thousand words then you can just image how much you will absorb by browsing this site.

    • online forms
    • Cheers to your PROFITmatic Turnkey Automated Internet Profit Center,.

      Rather, they’re designed to help spark possibilities in your own mind. Decide now because if you are a weight lifter, you will not build the chest that you are looking for.

    • trampolines
    • Great blog! Is your theme custom made or did you download
      it from somewhere? A theme like yours with a few simple adjustements would really make my blog stand out.
      Please let me know where you got your design.
      Cheers

    • online form generator
    • All they need to do is to enroll with their name, email, contact number
      and country and vemmabuilder will cater to the particular country
      of the person. It’s easy to use a fake IP address on i – Phone and i – Pad, but you need to know what you need the fake IP for. Html form builder renders efficient service to online business companies to create any sort of online form to integrate it into their website and receive incoming information from online visitors.

    • online form generator
    • All they need to do is to enroll with their name, email, contact number and country and vemmabuilder
      will cater to the particular country of the person. Wouldn’t it be easier if we could be able to save changes ourselves whenever we want. Therefore it’s better
      to always do the intelligent point and take these tips.

    • finexo forex trade
    • Very nice post. I just stumbled upon your blog and wanted to say
      that I have truly enjoyed browsing your blog posts.
      In any case I’ll be subscribing to your rss feed and I hope you write again very soon!

    • mold removal ocean county nj
    • I blog frequently and I truly appreciate your content.
      This article has truly peaked my interest. I will book mark your
      blog and keep checking for new details about once per week.
      I subscribed to your RSS feed as well.

    • pnl
    • I have discover several superb material here. Certainly benefit book-marking intended for returning to. I personally astonish that the whole lot attempt you put to produce this kind of impressive insightful web page.

Leave A Response

* Required