Sony's Gaming Sales Collapse; PS4 Launch Looks Increasingly Desperate

For years, Sony's game division has been one of the major revenue earners at the beleaguered company; in 2011 gaming provided more operating income than any other division. That leg was rudely kicked out from under the company this past quarter; Sony's gaming revenue fell 17% while operating income dropped by 86%.

Yearly sales for the PS2 and PS3 are now projected at 6.8 million units, down from the 7.4M devices the company moved in 2011. The really ugly story, however, is in handhelds. Sony counted all of its PlayStation Vita sales as part of 2012, but only expects to move seven million PSPs and PlayStation Vita's by the end of the year. In FY 2011, Sony sold 6.8 million PSP's.

That means Vita has barely managed to replace the falling volume of PSP sales and provided no net increase to Sony's bottom line. In fact, the product will have cost the company dearly; Vita's hardware is far more expensive than the chips inside the older PSP and its screen is much nicer. Game sales, at least, are expected to match their 2011 levels.

For the year, Sony expects revenue and income to be down dramatically. That's standard operating procedure for a company launching a new console, but it comes at a tricky time. Microsoft, after all, can afford to eat the cost of Xbox development, even if its own Windows and Office empire appears to be eroding. For Sony, games and the PS3 were a strong and necessary pillar to staunching the blood flowing out of its TV business.

The PS4's unveiling is less than two weeks away, and Sony has an opportunity here to establish itself as a next-generation leader -- if it can avoid jamming both legs in its own mouth and swallowing frantically. When the PS3 was unveiled the company came off as incredibly out-of-touch, arrogantly predicting that "the next generation doesn't start until we say it does." Executives defended the unit's price as justified, claiming they wanted to inspire workers to work overtime just to afford one.

Then there've been the network hacks and the decision to throw supercomputing and scientists under a bus when it looked like piracy might threaten the platform.

I've avoided writing anything to the tune of "And if Microsoft locks out used games, Sony could win gamers by allowing them." For 20 years, Sony has pursued a policy of locking content down on specific hardware, even when doing so destroyed any chance of creating a standard around its products. The chances that it <em>wouldn't</em> jump at the opportunity to prevent used sales is negligible, despite the negative impact it might have on sales.

Still, money is on the PS4 being top dog in hardware power this time around. With the Xbox 360 and PS3, the two consoles essentially split the difference -- the Xbox 360 had a more flexible, programmable GPU and was easier to program; Cell could offer huge performance in certain circumstances, but lacked some of Xenos' GPU features.

If the PS4 is based on x86 hardware as is expected, it could turn AAA titles around much more quickly than was possible in 2006, and could drive adoption up at a much faster rate. With Vita tanking, Sony needs a major win in this space -- and the PS4 is its best bet for delivering one.