This morning, I came across the most absurd article I’ve read in a while. The author argues that because of the massive financial loss Sony is set to incur with the launch of the PS3, the company could very well go bankrupt and sell off its various divisions. The author goes on to claim that Microsoft could very well buy Sony’s game division. The article itself starts off decently enough, and it’s obvious that the author spent quite a bit of time researching the various figures. It’s too bad they shot themselves in the foot with terrible math, a lot of baseless speculation, and an absurd prediction reaking of fanboyism (“Oh, wouldn’t it be great if Microsoft and Sony somehow merged to form a super console”).
There’s no arguing that Sony is going to lose a lot of money with the PS3 in the short term. Most consoles (save Nintendo’s) are launched at a loss per unit. Any profits in the first part of the console’s life are made through software sales and tie-ins. As time goes on, economies of scale eventually allow for the cost of the console to drop low enough to derive a profit from the actual hardware. The same thing will happen with the PS3.
Sony has invested quite a bit into the console both financially and reputation-wise. The PS3 is make or break for Sony, but there is no way that they will fail. They won’t retain the same market share as they did with the PS2 (it’s hard to stay at the top when you reach it), and they may even lose their title of market leader, but the PS3 will be a success for Sony eventually. The only question is how much of a success. Sony’s name brand and history with the PlayStation ensures that it will at least sell enough units in the first few years to be able to recoup their investment.
Furthermore, it will stake out a place in the home entertainment sector with the strong (and highly subsidized) introduction of the Blu-Ray format. Sony’s gamble with the PS3 is as much important for its movie and music divisions as it is for its game division. Pushing Blu-Ray onto customer is a risky strategy, especially when so few are ready to embrace it. It may not be as successful as was piggybacking the rise of DVD with the PS2, but it will firmly entrench Blu-Ray as a viable format for the next generation of video content.
And since Sony is the creator and license owner of the BluRay technology, they stand to make a small chunk of change for every BluRay movie or title released. Sony has tried quite a few times to introduce their own formats in the entertainment industry, with a variable success rate (see UMD). With BluRay, we are seeing the most concentrated strategy so far. Sony should have learnt from the issues with UMD, and will find a way to turn BluRay into a success because, again, the future of the company depends on it.
Finally, who in their right mind can envision a scenario where Microsoft would buy Sony? You have to be quite ignorant of Japanese culture and business practice to believe that either Sony executives, the Japanese public or the Japanese government would ever allow the Sony to be bought out by a foreign competitor, let alone a massive American company like Microsoft. Sony would never sell their game division, their crown jewel to Microsoft. It just wouldn’t happen, not in your wildest dreams.
