PlayStation losses narrow to $1.15B

Sony revealed in an annual report Monday that losses stemming from its game segment mounted to more than $3.3 billion over the course of fiscal 2007 and fiscal 2008, but there are signs of improvement.

Sony stated in an annual 20-F regulatory filing that the launch of the PS3 drove game segment losses of $2.15 billion for FY07, ended March 31, 2007 (PS3 had been on the market for only about five months at that point). FY08, which ended March 31 this year, saw losses of $1.15 billion in the game segment.

Strategic pricing of PS3 hardware drove losses in the segment, as Sony retailed the console at a lower price than the cost of manufacturing. Such a strategy, known as the razor and blades model, has also been used by Microsoft in order to establish a large installed hardware base.

Royalties on software ideally offset such expenses.

While $3 billion is a hefty number, Sony did reduce losses year-on-year in the games segment, despite selling nearly twice as many consoles (again, at a loss) in FY08 as it did in FY07.

Sony attributed the segment's year-on-year cost reduction of about $1 billion to "successful PS3 hardware cost reductions."

The fact that Sony sold 267.4 million software units across PS3, PS2 and PSP also played a major role in offsetting hardware costs.

Sony CEO Howard Stringer recently said that restoring profitability to the company's TV and games businesses is a top priority.

Courtesy of Next Generation.

Jun 24, 2008