Sony Slips Further Into The Red, Clings To Dying Handheld Market

Sony is halfway through an ugly restructuring period as it seeks to cut costs, consolidate markets, and turn its once-mighty television business around. That's a difficult proposition for any company, but the Japanese giant's recent earnings call was gloomy even under these circumstances. Modest upticks in Imaging Products and Services and Pictures were offset by heavy declines in gaming, home entertainment, and music. The company reported a $314M loss for its first quarter of fiscal year 2012 and cut forecasts for a number of markets.

Sony pinned part of the blame on continuing economic turbulence in Europe and America, but investors weren't willing to accept this as the sole explanation. As Daniel Ernst of Hudson Square Research observed, "Looking at the big picture reduction in sales forecast for the year, clearly, currency is not helping, the macro environment is not helping. But those 2 issues were present in May when we heard the forecast previously, and I'm wondering to what extent is the reduction in forecast also a function of product positioning relative to competitive products on the market?"



Translation: Are you cutting prices because you were overly optimistic back in March, or because the Vita is tanking? Sony has slashed its yearly sales projection for handheld devices to 12 million, down from 16 million in March. What the company refuses to do is admit that the Vita is dead on arrival.

Think I'm exaggerating? Let's check the long-term sales charts. (Charts and information courtesy of VGChartz.com). You can click on each graph to enlarge it.

Click for high res

The chart is a bit busy, and our customization options are limited, but the lines we care about are the top blue line (Nintendo 3DS), the forest green line (Sony PSP), the 3DS (lime green, starts at the 2011 mark) and the Vita line (brownish, starts at the bottom of the graph above 2011.


Click for high res

Here's the same data graphed month-by-month, from April 2011 through July 1, 2012.

Handheld Gaming's Rapid Decline

From 2004-2010, Nintendo's DS kicked ass and took names on a global scale. The PSP never matched it, but Sony's last-generation handheld put up serious figures of its own straight through the end of 2011. In the zoomed data, we see the 3ds bumping along at the half-million a month mark until the price cuts of last summer, which kick sales nicely upwards. The availability of new titles starring Nintendo's most popular characters kicked sales into overdrive at Christmas. Since then, the 3ds has followed the overall market and moved southwards.

The Vita's trend is even more depressing. Sales peaked at ~750,000 units/month earlier this year and have fallen steadily thereafter.

There's nothing wrong with the PlayStation Vita. There's nothing wrong with the 3DS or 3DS XL. The problem here is that phones are steadily absorbing the market base that once bought these devices. The reason we've focused on Nintendo in a Sony article is because Nintendo has the highest number of first-rate franchises and genres that can count on drawing fans.

When Nintendo launched the 3DS, it clearly expected to prove naysayers wrong. Gamers would flock to the company's handhelds, the same way they had since the launch of the original Game Boy. The faithful would rally and sales would soar. Except, of course, that never happened. Unlike the DS, which scaled steeply and held for years, the 3DS saw a short, sharp spike followed by a return to early 2011 shipment-levels. It's only a success if you blatantly ignore the past ten years and the DS's entire sales arc.

The Vita has it even worse, and the problem isn't even with the product. Sony and Nintendo's position would look awful familiar to anyone who built PDAs in the early 2000s. The entire video games industry is built around the idea that a console, even a handheld, is a consistent performance/development target for 3-5 years. Neither one of the handheld giants can issue yearly revisions without breaking the underlying model, and neither can afford to match the subsidized prices US customers pay for their phones. By Christmas, the Vita will be outperformed by smartphones at the same price point. By Christmas 2013, when the handheld should have been hitting its prime, it'll be laughably outmatched.

Sony needs to kill the Vita. Kill it now, before it becomes a further drain on resources. Kill it to show Sony's investors that you understand the tough choices it takes to turn a company profitable after four straight years of losses. Kill the hardware, and integrate what you learned into next-generation mobile products under the PlayStation brand if you like, but Vita, like Sony's TV business, is an example of the company's blind self-faith. Both products are driven by the same elitism and out-of-touch mentality that've driven the company to ruin.

Tags:  Sony, Gaming, Nintendo, PS3, PSP, DS, 3ds, Vita
Via:  Seeking Alpha

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