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PlayStation 5: The next step in Sony’s rebound

Not long ago, a typical American home might have been full of Sony equipment. There may be walkmans or record players everywhere, not to mention Sony speakers, VCRs, stereos, TVs, and lists that keep appearing.

Today, most of the family Sony product lines have been reduced to one product: the PlayStation game console.

Sony is preparing to start selling its fifth major game console in 25 years on Thursday, so Sony has basically become a PlayStation company. Just as the $160 billion video game industry has surpassed movies and music in the global market, Sony’s business started in the 1

990s is now its largest and most profitable sector.

Sony has the primary responsibility for popularizing entertainment technology, from transistor radios to color TVs to cassette tapes to optical discs. However, the company subsequently wasted opportunities on digital music, smartphones and TVs, making PlayStation the most important and powerful connection with everyday consumers.

Sony Chairman and CEO Kenichiro Yoshida said in an interview last week: “We have passed a difficult period.” But he said that the gaming business helped the company regain its footing.

About six years ago, Mr. Yoshida helped start the difficult transition of Sony’s culture and business model. He cut costs, made a significant write-down in the smartphone department, and withdrew from PCs and mass market TVs.

Since 2012, Sony’s stock price has risen more than 11 times and profits have increased. The company is still one of Japan’s largest companies, with approximately 110,000 employees and a market value of approximately US$108 billion.

Kota Ezawa, an analyst at Citigroup in Tokyo, said: “Game-led entertainment is Sony’s new face and a new growth driver for the company.” Ken Yoshida has issued a clear statement and directly changed the direction. From the traditional electronic business of selling boxes to the business of selling entertainment. “

In the first half of Sony’s current fiscal year, the gaming division generated more than 27% of the company’s revenue and approximately 42% of operating income. In contrast, Sony’s electronics business accounts for 20% of revenue, but only 8% of operating revenue.

In addition to games and electronic products, the company’s largest business is the image sensor business (selling advanced camera chips to companies such as Apple and Huawei) and financial services, including an important Japanese insurance provider. Sony’s music and Hollywood business units are the smallest, but they have remained relatively profitable in recent years.

Damian Thong, an analyst at Macquarie in Tokyo, said: “The way PlayStation surpasses consumer electronics and becomes Sony’s core business does reflect how people integrate into the modern world.” “Many Japan Enterprise groups are struggling for this.”

In the face of strong competition from the new generation of Xbox consoles Microsoft launched on Tuesday, the new version of PlayStation 5 has been well received.

The two companies are adopting different strategies. Although Microsoft has attracted more than 15 million users for its Netflix-like game subscription service, Sony still relies on a more traditional retail model and exclusive new games such as Demon’s Soul and Marvel’s Spider-Man: Miles Mora Rice) popularity.

Citigroup analyst Ezawa estimates that Sony may initially lose $100 from selling the $500 PS5, but the loss is expected to decrease as manufacturing efficiency improves.

This is normal in the high-end console business. Both Sony and Microsoft seem to initially sell their gaming hardware at a loss and make money by selling gaming software and collecting licensing fees from independent publishers. Ampere Analysis analyst Piers Harding-Rolls predicts that Sony will sell 5 million PS5 units this year, while Microsoft will sell 3.9 million new Xboxes.

Sony attributed its success to the previous generation of consoles to the popularity of its exclusive game franchise, which includes strong strengths such as “God of War” (more than 51 million copies sold) and “Ghost of Tsushima” (Ghost of Tsushima). ) And other newcomers, since its release, sales of more than 5 million copies made its debut in July.

Neither Mr. Yoshida nor the British man who runs the global PlayStation business, Jim Ryan (Jim Ryan), has not grown in the company’s content business. Mr. Yoshida has run Sony, a disgraceful Japanese Internet service provider for many years, while Ryan has built PlayStation’s ground-operated games on a global scale, which is an important part of the brand’s success.

After working for Ford Motor Company and software company Oracle, Mr. Ryan joined Sony in 1994, when he was preparing to launch the original PlayStation in Europe.

Ryan said in an interview last week: “My initial task was to build a PlayStation infrastructure in continental Europe, where there is nothing, in fact, there is nothing.” “It’s like going to IKEA in Frankfurt to buy the PlayStation office there very cheaply. And try to figure out whether we have enough money to pay to assemble them, or we have to do it ourselves.”

At the time, the main competing consoles came from family-friendly toy companies such as Nintendo and Sega. Even before the weird PlayStation ad was commissioned by director David Lynch, Sony brought the sensibility of contemporary adults into mainstream games.

Ryan said: “The placement of video game consoles in the lounge of London’s coolest nightclub was completely unheard of. It was unthinkable at the time.” “We used influencers even before the word was invented.”

In an interview last week, Mark Cerny, the architect of Sony’s PS5, who has been a consultant for the company for decades, said that it is important for Sony music executives to participate in the birth of PlayStation. It injects respect for the creative process into the culture of the gaming department and is a pioneer in the company’s transition to entertainment.

The second PlayStation was released in 2000, driven by Rockstar Games’ Grand Theft Auto III and Sony’s expansion into new geographic markets (and still the world’s best-selling console).

The PlayStation 4, which was released in 2013, led the competition, with sales more than twice that of Microsoft’s Xbox One. This victory provides Sony with the capital breathing space needed for recovery and may become a beacon for the broader Japanese electronics industry.

Mr. Yoshida described the PlayStation business and its focus on hardcore players as a “niche market.” This is because Sony has almost no business in the PC or mobile gaming sector, which accounts for approximately three-quarters of the global gaming business.

However, Creative Strategies analyst Carolina Milanesi said: “The niche market can be very profitable, and this is where Sony is focused.” “They are not trying to compete fully with Microsoft and Xbox. “

Even with the booming PlayStation business in recent years, Mr. Yoshida and former CEO Kazuo Hirai (the former head of PlayStation) still feel pain for Sony. In 2014, Sony sold its PC business, repositioned its TV business in luxury models, and began to reduce costs in other parts of the company, including layoffs.

Wall Street analysts said that Mr. Yoshida has made it clear that he intends to manage the company around financial efficiency rather than other indicators such as revenue growth or market share.

Mr. Yoshida admitted that the survival of any company ultimately depends on making money, but he said that even through video games, Sony’s true goal is beyond the bottom line.

He said: “Increase profits is not our goal.” “As a company, our goal is to make the world full of emotions through creativity and technology. Profit is the goal. Goals and goals are different.”

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