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Uphill Struggle

Sony's expected operating loss isn't the PS3's fault, but that's where the blame will rest.

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Image credit: Eurogamer

Published as part of our sister-site' widely-read weekly newsletter, the Editorial is a weekly dissection of one of the issues weighing on the minds of the people at the top of the games business. It appears on Eurogamer after it goes out to newsletter subscribers.

Sony's quarterly results aren't due until January 29th, and its financial year still has two and a half months to run - but storm clouds are already gathering over the electronics giant, after an insider at the firm hinted that it could end up posting a USD 1.1 billion operating loss for the full year.

It's not a good time to be in the electronics business in general - rival firm Toshiba is also expected to report a loss, faced with similar issues of slowing demand for LCD televisions, PCs and laptops. In Sony's case, however, a downturn in its finances will focus attention back on what's widely seen as the company's lamest lame duck - the PlayStation 3.

It's worth being specific here - we really are just talking about the PlayStation 3, not Sony Computer Entertainment as a whole. The PlayStation Portable may not be any threat to the dominance of the Nintendo DS, but it's still a console with a very healthy installed base and fairly solid ongoing sales. (It compares far more favourably with the DS than either the PS3 or Xbox 360 do with the Wii, for a start.) The PlayStation 2, meanwhile, has been the most successful console in history, and even in its decline it continues to be a license to print money for Sony.

It's the PS3 that makes the whole operation look bad - or at least, less good than it might do otherwise. This time last year, many commentators were somewhat cautiously suggesting that 2008 might be the year when things came together for the PS3 - with the installed base rising, developers getting to grips with the hardware and a rash of exclusives (presumably) in the pipeline.

It didn't happen that way. Sony would protest that they sold a lot of PS3s in 2008, and they're right - it was by no means a terrible year for the company. By mid-year, the gap with the Xbox 360 was narrowing slowly, and even if the USA was expressing a clear preference for Microsoft's console, Sony could point to Europe and Japan and claim that two out of three ain't bad.

However, they needed something a lot better than "by no means terrible". By the end of the year, Microsoft's lead over Sony was widening again, with the Xbox 360 hammering its rival in most territories during the run-up to Christmas. Big games like Resistance 2 and LittleBigPlanet weren't flopping, but they weren't making the kind of impact Sony needed. Worst of all, the figures seemed to support Microsoft's claim to have wrested superiority in Europe from its rival.

If Sony reports an operating loss - its first in 14 years, despite the tough times it has endured in the past decade - then all of these things will be pointed to, discussed and dissected. This is, in some respects, a little unfair. The PS3 isn't doing well, but Sony's financial troubles have far more to do with the ludicrous strength of the Yen on the currency markets and the slowing sales of luxury consumer goods thanks to the global recession. The similar situation experienced by Toshiba, which has no hand in the games business, is a demonstration of this - and it's worth noting that Microsoft, too, has been surrounded by rumours of cost-cutting and layoffs in recent weeks.

(I'm reminded, in fact, of the large loss which Nintendo posted towards the tail end of the GameCube era - its first for a century - which was seen as a death knell for a company that had forgotten how to be relevant to the market. The reality was rather different to the commentary of the time. In fact, Nintendo's losses were almost entirely down to currency market fluctuations which had forced down the value of its "war chest" of overseas investments.)

In other regards, however, there's much about the PS3's performance which is worthy of consideration. Sony's console isn't selling as well as Microsoft's, and even when it does sell, it doesn't have the strong attach rate which its rival boasts. The situation only looks worse when you consider that both companies have been roundly trounced by Nintendo in this generation, at least in terms of straightforward hardware sales.

The problem isn't Sony's hardware, regardless of what internet forum arguments may rage. Consumers don't know or care about memory bottlenecks or comparisons of textured, lit polygon throughput, and the success of the PS2 ably demonstrates that developers will work around these issues if the market demands it. In hardware terms, the past few years have proved that from a purely consumer standpoint, the PS3 is more reliable, vastly quieter and offers more non-gaming functionality than the Xbox 360.

Yet they still don't want to buy the machine, and that can perhaps be explained by the areas in which Microsoft is unquestionably superior. Sony is a hardware company, and it has built a reliable, quiet, solid system. Microsoft is a software company currently going through a metamorphosis to become a services company, and it has built a great interface which ties in transparently and effectively with a superb online service.