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Not so long ago, a typical American household might have been full of Sony devices. There was probably a Walkman or a Discman lying around, not to mention Sony boomboxes, VCRs, stereos, TVs and a list that went on and on.
These days, most of the domestic Sony collections have been reduced to one product: a PlayStation game console.
As it prepares to start selling its fifth major gaming console in 25 years on Thursday, Sony has largely become the PlayStation company. Just as the $ 160 billion video game industry outpaced film and music in the global marketplace, the company Sony started in the 1990s is today its largest and most profitable division.
Sony has carried major responsibility for popularizing entertainment technology, from transistor radio to color television, cassette and compact disc. Yet the company then squandered opportunities in digital music, smartphones, and TVs, leaving PlayStation its most important and powerful connection to everyday consumers.
“We have had a difficult time,” Kenichiro Yoshida, Sony president and CEO, said in an interview last week. But the gaming industry, he said, has helped the company get back on its feet.
Mr. Yoshida was instrumental in initiating a heart-wrenching transformation in Sony’s culture and business model about six years ago, when he became CFO. It cut costs, took huge downsizing in the smartphone division, and pulled out of consumer PCs and TVs.
Sony shares have grown more than eleven times since 2012, profits have risen, and the company is still one of the largest in Japan, with around 110,000 employees and a market value of around $ 108 billion.
“Entertainment, led by games, is the new face of Sony, the new engine of growth for the company,” said Kota Ezawa, analyst at Citigroup in Tokyo. “There has been a clear statement and a direct change in leadership from Ken Yoshida to move Sony from a traditional box-selling electronics business to an entertainment business.”
In the first half of Sony’s current fiscal year, the games division generated over 27% of the company’s revenue and around 42% of its operating profit. Sony’s electronics business, on the other hand, accounted for 20% of revenue and only 8% of operating profit.
After games and electronics, the most important segments of the company are its image sensor business – which sells advanced camera chips to companies such as Apple and Huawei – and financial services, which include a major Japanese insurance provider. Sony’s music and Hollywood divisions are the smallest, but they have remained relatively profitable in recent years.
“The way the PlayStation has moved beyond consumer electronics and become Sony’s core business really reflects the change in the way people engage in the modern world,” said Damian Thong, analyst at Macquarie at Tokyo. “Many Japanese conglomerates have struggled with this.”
The new PlayStation 5 received a favorable review in the face of formidable competition from a new generation of Xbox gaming machines introduced on Tuesday by Microsoft.
Companies pursue different strategies. While Microsoft has drawn over 15 million users to its Netflix-style game subscription service, Sony is building on a more traditional retail model and the popularity of new exclusive games like Demon’s Souls and Marvel’s. Spider-Man: Miles Morales.
Citigroup analyst Mr. Ezawa estimated that Sony could initially lose up to $ 100 on every $ 500 PS5 sold, although the loss is expected to decrease as manufacturing efficiency improves.
This is normal in the high-end console industry. Sony and Microsoft each appear to initially sell their gaming hardware at a loss and subsequently make a profit by selling gaming software and levying licensing fees from independent publishers. Piers Harding-Rolls, analyst at Ampere Analysis, predicts that Sony will sell five million PS5s this year while Microsoft will move 3.9 million new Xboxes.
Sony attributes much of its success on the latest generation of consoles to the popularity of its exclusive game franchises, including mainstays like God of War (over 51 million copies sold) and newcomers like Ghost of Tsushima. , with more than five million copies sold since its debut in July.
Neither Mr. Yoshida nor Jim Ryan, the British man who runs the global company PlayStation, grew up in the company’s content operations. Mr. Yoshida led the unglamorous Japanese internet service provider Sony for many years, while Mr. Ryan built the operational PlayStation ground game around the world – a major part of the brand’s success.
After working at Ford Motor and software company Oracle, Mr. Ryan joined Sony in 1994 just as it was preparing to bring the original PlayStation to Europe.
“My initial mission was to put the PlayStation infrastructure in mainland Europe, where there was nothing, literally nothing,” Ryan said in an interview last week. “Like going to Ikea in Frankfurt to buy some really cheap desks for the PlayStation desktop there and try to find out if we had enough money to pay someone to put them together or if we had to do it ourselves. “
At the time, the main competing consoles were from family-owned toy companies such as Nintendo and Sega. Even before commissioning a spooky PlayStation commercial from director David Lynch, Sony introduced the first contemporary adult sensibility to mainstream gaming.
“Putting video game consoles in the relaxation rooms of the hippest nightclubs in London was totally unheard of, inconceivable at the time,” said Mr Ryan. “We used influencers even before the word was invented.”
Mark Cerny, Sony’s architect for the PS5 and decades-long advisor to the company, said in an interview last week that Sony Music executives’ involvement in the birth of PlayStation is important. This instilled a respect in the culture of the gaming division for the creative process and was a forerunner of the company’s shift towards entertainment.
The second PlayStation, released in 2000, was a hit (and remains the best-selling game console in the world) powered by Grand Theft Auto III from Rockstar Games and Sony’s expansion into new geographic markets.
The PlayStation 4, released in 2013, dominated the competition, selling more than twice as many units as Microsoft’s Xbox One. This victory gave Sony the financial leeway it needed to stage a revival and perhaps become a beacon for the wider Japanese electronics industry.
Mr. Yoshida described the PlayStation business and its focus on hardcore gamers as “kind of a niche”. That’s because Sony has little presence in PC or mobile games, which together account for around three-quarters of global gaming activity.
But “niches can be very profitable, and that’s what Sony is focused on,” said Carolina Milanesi, analyst at Creative Strategies. “They’re not trying to compete with Microsoft and Xbox in everything.”
Even as the PlayStation business has thrived in recent years, Mr. Yoshida and the CEO who came before him, Kazuo Hirai (a former PlayStation executive), subjected Sony to a painful calculation. In 2014, Sony sold its PC business, refocused its TV business on luxury models, and began cutting costs in other parts of the business, including layoffs.
Wall Street analysts said Yoshida had made it clear his intention to run the business based on financial efficiency rather than other metrics such as revenue growth or market share.
Mr. Yoshida acknowledged that the survival of any business ultimately depends on making money, but said Sony’s true goal, revealed even through video games, goes beyond bottom line. net.
“Increasing profits is not our goal,” he said. “Our goal as a company is to fill the world with emotions through creativity and technology. Profit is a target. The goal is different from the goal. “
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