Friday, December 12, 2008

Analyst calls PS3 a "sinking ship"

PS3 "flopping so badly"

An analyst with Silicon Alley Insider has called the PlayStation3 a "sinking ship" which is "flopping so badly". The site is run and written by reputable industry analysts.

Sony's PS3 is dying on the shelves. (...) There's really only one option left for Sony to remain in the game: deep price cuts, and not just for people with good credit. Tell yourself the PS3 has superior graphics if it makes you feel better, but a $400 console with a mediocre game library simply cannot compete against an Xbox 360 priced at $200 in this economy.

The same analyst later wrote a similar article about the PlayStation Portable, noting it was in just as much trouble.

What's wrong? The problems with the PSP are surprisingly similar to the problems with the PS3. It's overpriced ($170 to $130 for the DS Lite), has superior graphics no one cares about, and a mediocre game library. And because PSP console sales stink, game publishers are unlikely to devote resources to making more quality PSP titles.

Sony rules out PSP2 for now

These are harsh words to say the least, if not exaggerated. Of course, the discussion whether the PSP is a dead platform is an admissible one. SCEE president David Reeves told MCV UK in unusually blunt words that the PSP was struggling and that a successor was not yet being planned - at least not to his knowledge.

There are currently no plans for a PSP2. I go to Tokyo quite a lot and no one has referred to it – I think they have their hands full at the moment. (...) We just launched the PSP-3000 so we are still focused on this generation of the platform. (...)

The PSP is as successful in numbers as PS2 – it tracks its numbers in a cumulative basis. (...) Its weakness, however, is its software. And that’s because developers, when it comes to placing their bets, have to choose PS3 and 360, then Wii, then DS, maybe even PS2 before PSP. It’s the same at our internal studios, where the focus has been on PS3. They’ve also focused a lot on PS2 as well because we have to get the SingStars out for that format. So PSP games will come – they just take a while longer.

EDIT A PSP2 is in the works, after all, Eurogamer has learned from anonymous "publishing sources". Apparently, yet another PSP revision is due to launch in 2009. A proper successor to the handheld will follow later. Publishers have already started developing games for the new system, the article claims.

Third round of Sony lay-offs

One worrying sign are another round of lay-offs at the corporation. A three year restructuring program called ´Transformation 60´announced in October 2003 already cut the workforce by 20.000 employees.

In 2007, around a hundred people were fired from the US PlayStation division, Sony Computer Entertainment America. The division's then head of PR, Dave Karraker, attempted to reassure everyone that these renewed redundancies are "not wholly related to any one product in our portfolio."

Now, Sony is firing another 8.000 employees from the "electronics business". This means that SCE will again be affected.

EDIT Apparently, Sony Computer Entertainment Europe will not be affected by those job cuts. Dutch television station RTL Nederland broadcast a 15-minute interview with SCEE president David Reeves today (interview in English). Reeves talks at length about Sony's hardware and software sales in the face of the worldwide economic crisis. About a PlayStation4, similarly to what he said above about a PSP2, Reeves notes that he has no knowledge of it and is "not even sure it is being planned."

Sony platforms in last place

Remember the analyst who said two years ago that there will never be a PlayStation4? The same analyst now said in a Reuters article that the race for supremacy in this console generation is over. Yuta Sakurai from Nomura Securities believes that the Wii will remain at the top.

The competition stage is over. (...) The spread on shipment volumes is so large that it's not even worth talking about it. They aren't rivals.

The sales figures are indeed quite clear. Reuters compiled a nice chart comparing the three home consoles, as well as both portables. Take a look for yourself, but bear in mind that Forbes painted a more grim picture with their PS3 lifetime sales totalling a mere 13 million units.

The Reuters figures source the manufacturers and Sony only ever publishes sell-in data, i.e. the amount of consoles sold to stores. If the Forbes figures are a true reflection of consoles sold to consumers, then the PS3 is indeed dying on the shelves - millions of units, that is.

So, here we have another harsh analyst's statement. Should we care? Of course, we need to cut the populist rhetoric (particularly the swear words). What remains, is still a substantial problem. Both Sony consoles have been caught in the downward spiral of dwindling sales causing third parties to devote their money to other platforms, which in turn makes for even worse sales figures.

As noted above, the PSP may be seen as a dead platform, (although some key publishers have recently told me about renewed interest). The PS3, it may be argued, will stay in third place. I strongly believe so and in this, I agree with the articles above.

But there is a key difference between PSP and PS3. The former introduced a storage medium which failed. The latter introduced a storage medium that is set to become the new industry standard. Of course, winning against HD-DVD was no final victory. Blu-ray still has to win against the regular DVD - and before physical storage media become obsolete. But continued adoption of the Blu-ray format may make for a push significant enough to keep the PS3 afloat. It may end up in the same situation Nintendo was in when their Gamecube came in a close third.

I myself am sceptical whether Sony president Howard Stringer really can rally up shareholder support for another multi-billion investment called PlayStation4. Perhaps he himself has no such intentions. But also bear in mind that the PlayStation brand remains one of the strongest brand names in consumer electronics and even Stringer will try his utmost to reap at least some rewards from it.

Incidentally, this is the very reason why Microsoft will not pull out of this market. For all their investments into both Xbox projects, Microsoft has losses of around six billion dollars to show to the shareholders. But after establishing a strong brand, as well as making and solidifying third party relations, they would be fools to pull out now. Of course, Microsoft has the money, if they only want to. With Sony, money may end up too tight to play the home console roulette for a fourth time.

EDIT The people over at Ars Technica have more interesting graphics to illustrate the console race in November in the US. And Chart Get! has calculated that Nintendo platforms took more than 65 percent of the total console market in that time, promising more charts to break down the numbers in detail soon.

EDIT The above article has now appeared over on CNN Money.

EDIT A number of other media outlets have picked up on the Silicon Alley / CNN story. Here are their key points below, in the familiar style of guest commentary.

A little hard to swallow

It's hard to argue with their conclusion that the PS3 needs a price cut soon, and a substantive one at that. Ten year lifespan or not, it stands on the brink of falling behind the Xbox 360 by an insurmountable margin. (...)

Acknowledging the price issue, the other two [key reasons given] fall into a much more gray area. Blu-Ray shows more signs of life with each month that passes since it won the HD format war. (...) Admittedly, the question of whether the PS3 has a library of must-have titles is more subjective. But dismissing Metal Gear Solid 4, LittleBIGPlanet, Resistance 1 and 2, and Uncharted alone is a little hard to swallow.

PC Magazine (via Yahoo News)

What were the Sony execs thinking?

The Nintendo Wii remains the most popular system in the land, and, at $250, isn't necessarily a budget buster. XBox 360 has made serious inroads by dropping the price of its core system to $199. So how did Sony respond?

By releasing a new version of the PS3 ... that's $100 more expensive. Yes, it comes with a game, and yes, it has more hard-drive space, to which I respond: Who cares? Was the marketplace clamoring for more memory from the PS3? Is that why its market penetration is so low compared to its predecessors and competition? What were the Sony execs thinking? (...)

Market penetration remains low, and every month people don't buy a Blu-ray player is a month they get closer to downloadable HD movies and the death of the format as a whole. Sony would be wise to step it up and do a better job at getting Blu-ray players into people's homes.

Washington Times

Sony has actually been playing catchup

Sony rightly points out that the PS3 has seen hardware sales grow 60% year-to-date. I realize the PS3 wasn't selling well in 2007, so that figure's less impressive than it sounds, but growth is growth, any way you slice it. What's more, look at PS3 and Xbox 360 units sold in total worldwide, and Sony pretty much throughout 2008 has actually been playing catchup. (...)

On the other hand, CNN's whacking the nail on the head when it raises the problem of the PlayStation 3's price. The recession's been on well and long enough for Sony to have reacted by now, and yet it's stubbornly clung to that $400 entry point.

Washington Post

Sony has put on a brave face

Sony has put a brave face on its Christmas failure. It said that over the last year sales have been picking up on the console. The figure it claims is about 60 per cent.

Now given the fact that sales during 2007 were even worse than 2008 that is not something you want to crow too much about. However Sony seems to think that means that 2009 will be even better.

The Inquirer

How far should Sony go?

The question is, how much of the PS3's sluggish sales are due to pricing? And if they do cut prices, how far should Sony go? $300? $200?

Firing Squad

Blu-ray awesome, exclusives are there

Blu-ray is catching on big time, and I think the first-day sales numbers of The Dark Knight and Iron Man will back me up on that one. As for the third point, LittleBigPlanet, Valkyria Chronicles, and Resistance 2 say “Hi.” Heck, even IGN declared the PS3 the place to go for exclusives in 2008.

It’s obvious that a price cut would help the PS3’s competitive position, but it seems silly at this point to brand the black beauty a sinking ship. After all, Blu-ray is awesome, the exclusives are there (with more on the way), and we haven’t even begun to review emergency procedures (it’s men and old people first, right?).

TVG blog

Sales will need to improve significantly, and soon

Sony is still trying to make the PlayStation 3 business profitable and start paying off the costs of developing the hardware. Its software sales are strong, despite weaker hardware sales, but both will need to improve significantly, and soon. Given Sony's ironclad devotion to profitability in the near term, the quickest route to higher PS3 sales -- a price drop -- simply is not feasible.

As an alternative, Sony could publish a must-have software title that attracts more consumers willing to pay the price for its hardware. Short of Metal Gear Solid 4 in June 2008, it would appear that no exclusive software has really driven hardware sales. Even Sony's flagship holiday title, LittleBigPlanet, only managed 141,000 units during November.


A formidable presence in this industry

We're still seeing the PS3 business ramp up and that the story is going to take a little longer to unfold this generation than in previous cycles. Sony is a formidable presence in this industry and year-to-date has achieved a pretty significant increase over last year. I think we're just going to have to wait and see how 2009 unfolds.

NPD analyst Anita Frazier (via GameDaily)

Slow to react to the current crisis

We believe fundamental changes to its business structure are necessary. (...) Compared to its peers both at home and overseas, Sony has been slow to react to the current crisis. [These comments were made after Sony announced worldwide job cuts of 8.000.]

Credit Suisse analyst Koya Tabata (via Bloomberg)

Too overpriced to penetrate the market

If you’re worried about your job, are you going to buy a $400 PS3? (...) Christmas is not going to have the same glow. (...) The PS3 is too overpriced to penetrate the market we are in today.

Janco Partners analyst Mike Hickey (via Bloomberg)

Between a rock and a hard place

Sony should be worried. (...) The value proposition for the PS3/Xbox 360 is now out of whack in favor of the Xbox 360. I think there will be some very hard decisions to make after the New Year. They might not be able to afford a price cut, but on the other hand they might not be able to afford their current price. They are between a rock and a hard place. Like I said, my biggest concern for the PS3 is if they let the Xbox 360 gain big momentum in Europe.

DFC Intelligence analyst David Cole (via GameDaily)

Plenty of time left to catch up

With both the PS3 and the PSP being the highest priced platforms in their segment, it is no surprise that both were the only next-gen platforms to post a year-over-year decline. (...)

In terms of cutting prices, currently, it wouldn't be financially responsible or beneficial for them to cut the PS3's price point; manufacturing costs are just too high. That being said, I do expect the PS3 to receive a price cut in early 2009. This is when Sony should reach a point of manufacturing efficiency that would financially warrant a price cut. (...)

We are not even at the half-way point for this generation, there is still plenty of time left for Sony to catch up and I believe in the long-term, Sony will gain a significant amount of ground on the Xbox 360. It just might take longer than what Sony expected; except in the handheld market – I think we can all agree there is no hope for the PSP in North America at this point.

EEDAR analyst Jesse Divnich (via GameDaily)

A greater victim of the recession

I think Sony is a greater victim of the recession, more because they are a consumer electronics company than a video game company; people aren't buying HDTVs and that's why Best Buy has been talking about their same store sales being down 5-15%. It's really hard to get people to come in and spend on the super big ticket items. I think Sony is feeling the pain of that and I had expected that there would be a high attach rate this holiday of PS3s to HDTVs because Best Buy was pushing it... and that's not happening.

So that's the first problem. Secondly, you can't buy a PS3 for less than $399, and the average of all Xbox 360 SKUs in November was $270. So the Xbox 360 average price is $129 less than the PS3, and that's hurting [Sony]. The other factor is that the Wii is ridiculously cheaper. So Sony has all these things working against it, and then at the end of the day, their game lineup, which is very good, is still not sufficiently differentiated to induce people to say "I've just got to buy a PS3."

Wedbush Morgan analyst Michael Pachter (via GameDaily)

The cash-haemorraghing disaster that has been PS3

So, they've decided to release HOME as a public Beta. That's HOME, the amazing virtual world that had game journalists and PS3 fanboys proclaiming the greatness of Sony and how it would be the best thing EVER! Except, it's not. Two years on, it turns out to be a half empty, badly thought out mess (queuing to play a game of Pool?!) and clearly nothing more than a cynical attempt to actually make some money out of the cash-haemorraghing disaster that has been PS3. And with nothing on the horizon, save GT5, surely the 'nail in the coffin'. Even ThreeSpeech can't be arsed to Big It Up like they did with Little Big Planet (already being sold for £19.99)


Should the price be cut? No.

Yes the PS3 is in last place in sales in November. But once you look at the year over all and add in one other geographic sales area, Japan, suddenly the PS3 is in second place for yearly sales to date. Logic can be frustrating to those with a plan based on a house of lies. I am sure that if the truth were to escape, there are 360 fans that would be hurling themselves off the roof. I would not care for that but I would really like to see Eric Krangel and the staff of Kotaku take a header. The gaming community would be better for their absence.

With the combined sales of the US and Japan putting the PS3 in second place by just over 30,000 consoles, should the price be cut? Again, no. The main persons crowing for a price cut are the uninformered, the cheap, and those interested in Sony losing money. But what about Europe you say? Other than some spurts in the UK, the PS3 is soundly winning in Europe. The only place sweating that territory is Microsoft.

Playstation Army

Sources: Silicon Alley Insider, Silicon Alley Insider, Reuters, MCV UK, EDGE, Eurogamer
Thanks to: Joystiq, Joystiq, Kotaku, Games Industry

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