Sony's Credit Rating Downgraded

Gamasutra has the news that electronics giant Sony has had their credit rating downgraded from A+ to A by credit ratings firm Standard and Poor's. The move is seen primarily as a result of the PSP's impending launch. From the article: "Although Sony's PlayStation Portable (PSP) was not mentioned by name, many consider the unexpectedly low Japanese launch price of the console, 19,800 yen (USD$186), to be one of the major causes for concern. With some suggesting that Sony will lose significant amounts of money on every PSP sold, the company will be looking at a loss of tens of millions of dollars in the first year of the format."

Comments

AYPABTU

[Anonymous Coward]

All Your PSP Are Belong To Us!

Open source could help

[CrazyJim1]

If a company wants more games released for their platform, they should release an SDK with it so everyone in the world could make games for it. Of course the company would hold final say if you're homebrew game can be published.

I don't know why they don't open source development for these game platforms, I know I'd love to develop games for new consoles.

Re:Open source could help

[hab136]

I don't know why they don't open source development for these game platforms, I know I'd love to develop games for new consoles.

Because they make money off every game sold, by licensing access to the SDKs and whatnot.

That's why they want more games - they get more revenue. Homebrew games normally don't make them money.

Re:Open source could help

[Mycroft_VIII]

Not only that, but they really don't make much if any money off of hardware sales. How much has Xbox lost MS sofar? Not shure but it was sold considerably BELOW cost at first.
As the parent suggests they make thier money off of licensing out the right to make games for thier consol and the SDK's and special developer versions of the hardware and so on.
I wouldn't mind if they swapped thier Plan to making money off the hardware and selling thier official seal of aproval on games they felt deserved it.
They could even decide the warrenty may not apply (at thier option of course) if you ran code that had not gotten thier seal of aproval in case it did somthing Bad(tm) to the hardware.
If they did that then they could give away, or sell very cheaply, the sdk's.
However I doubt that would work as a everytime a new generation of consoles came out they would cost almost as much a high end pc. (over $1000 most likely) and the games would still cost $49.99 on up. And not only that the other big console makers would have to switch to that model as well or nobody would buy thiers and the game developer would see that comming and pony up to get sdk's for the 'popular' consoles.

Mycroft

Buy a PSP and Sony Loses $$$$!!!

[Anonymous Coward]

I'll be happy to do my part in contributing to Sony's demise. Where do I pre-order a PSP? (Oh yeah, I'll need to pre-order an extra battery, too)

Credit rating bump

[MyLongNickName]

An 'A' credit rating will have very little impact on Sony's bottom line. This still puts it firmly into the credit worthy companies. My only question is why Sony would release a game console that is expected to generate a loss. Is Sony expecting manufacturing costs to drop a lot if they get enough of their product out there quickly? Additional info would be nice.

Re:Credit rating bump

[astrokid]

In the past, most other systems are sold at a loss when they first debut. The manufacturer makes most of its money off of the games and peripherals that it sells during this period.

Of course, when manufacturing costs drop then profits will increase also.

some general info here and here

Re:Credit rating bump

[TechniMyoko]

How come the price is much lower than previously estimated?

Sony was quoted as saying this is due to the fact that they recently built production facilities for 90 nanometer (very small) processors for use in other projects, such as the PS2, PS3 and the VAIO line. With these facilities already built, Sony did not need to build new ones for the PSP.

Also, more than 50% of the PSPs components are manufactured internally. This means Sony is not buying from as many companies who each mark up the price

Is Sony selling it at a huge loss though?

No. Thanks to their cost cutting methods listed above, Sony is actually selling it at a profit. And will pay off their initial investment after selling their initial launch shipment of 3 million PSPs. This does not include or take into account for game sales (attachment rate)

In this interview, Kuturagi was quoted as saying "the company, for the next fiscal year, will ship 1 million units each to North America, Europe, and Japan. That, says Kutaragi, will be the break-even point for Sony's PSP to start making a profit.

Now since they will have paid off their initial investment after 3 million PSPs. They are selling it at profit.

3 million negative numbers dont add up to a positive number. hence, profit

Re:Credit rating bump

[Anonymous Coward]

I don't believe for a second Sony isn't selling these things at a loss.

Re:Credit rating bump

[Phisbut]

In the past, most other systems are sold at a loss when they first debut.

IANAL, but I though anti-dumping laws were supposed to prevent a company to sell something at a loss to undermine competition... isn't that exactly what Sony is trying to do to the NintendoDS?

Re:Credit rating bump

[Mycroft_VIII]

Problem is when ALL the console makers are selling thier main consol under cost.
Nintendo crying "but sony is selling at a loss to drive us out of bussiness" won't go far when it's discoverd they are also selling at a loss.
Now they might get somewhere if sony was also giving away the sdk's and selling periphereals so cheap that they obviously were taking a loss across the board from undercutting.
Basically the consols are just ONE part of the whole bussines for consol game systems and the practice of selling that part below cost and making it up and then some through the rest of the system is an industry standard practice.

Mycroft

no-login article

[Anonymous Coward]

If you don't want to log in, the article at http://www.gamespot.com/news/2004/11/22/news_61137 56.html works great.

Re:no-login article

[Anonymous Coward]

Haha, if you actually follow that link to the original report it doesn't even mention PSP or games at all. It just talks about the MGM purchase and profits in general terms.

not too surprising

[Moustache N Tits]

this shouldn't come as a surprise really.. MS has done this for years with the XBOX... it's a good business move though since all the money is made off the games anyway, so pushing the console out, at even a loss, will get people to buy the real money makers.. the games.

What Sony really needs to do is make sure that there are a large number of QUALITY launch titles... sure, sell the PSP at a loss but you'll make it up VERY fast if each person also buys 2-3 games with the system. However, there have already been rumors that there aren't enough launch games. If this is true it will be in Sony's best interest to delay the launch... they might piss off some people but absense makes the heart grow fonder.

Re:not too surprising

[TheKidWho]

The system is only slightly lacking in launch titles for japan. The system is not due in the US for another 4 months, and when it comes out in the US it should have a bunch of great launch titles, too bad it got beat though by Nintendo DS as far as launch time goes. Hopefully when it comes out to the US, they will also figure out a way to beef up the battery life on that sucker, I mean it takes me over an hour just to set up my car in GT3! thats like 1/4 of the battery gone in the current PSP revision!

Re:not too surprising

[Anonymous Coward]

It doesn't come as a surprise because many people have been speculating that Sony is going to take a huge loss on each PSP ever since the price was announced.

MS has done this for years with the XBOX... it's a good business move though since all the money is made off the games anyway

Just because Microsoft has done it doesn't make it a good business move. It's generally acceptable to take a small loss on hardware that is made up within two or three game sales. That way even the most casual game player will probably give you a little money. Microsoft, however, is supposedly taking a much larger loss than that. They have an obvious reason to tolerate such losses, though. They're buying a place in your entertainment center that they expect will pay off in the future.

Sony is probably going to do the same thing to buy their way into the handheld gaming market. Nintendo has been mostly unopposed for a while now, and it has been extremely profitable. I don't know if Sony can stomach the losses long enough to get a profitable presence in the market, nor do I know how long they anticipate this loss period to last before hardware and process improvements bring their costs down.

sell the PSP at a loss but you'll make it up VERY fast if each person also buys 2-3 games with the system.

I don't know how big a loss they're taking, but since they announced a price for the PSP that is fully $100 lower than most people anticipated, it must be pretty big. Assuming they made $20 on every game sold (a number I pulled out of thin air, but it sounds generous to me), they'd have to sell 5 games to each PSP owner on average to get that $100 back, and even that may not be enough to get out of the red (I, at least, thought that they'd be taking a small loss even at $300, but perhaps I'm overestimating the quality of the unit).

I know I love my GBA SP, but I only actually own three games for it so far.

Re:not too surprising

[SetupWeasel]

MS may, and I stress may, make a profit from their Xbox division this financial quarter due to the Halo 2 release. This would be the first profitable quarter for the Xbox EVER. This includes software licensing and game sales.

Microsoft is dumping money they recieve from their Windows and Office monopolies. It was previously reported that 86% of the price you pay for Windows and 79% of the price you pay for Office is profit for MS. This is how they can keep the Xbox afloat. This is a business practice only a monopoly can pull off.

Why a loss?

[Fr05t]

Simple.. if they are going to saturate the market with PSPs - which is what they need to do to beat Nintendo on their turf.

It's a new market for Sony and they need to get their foot in the door. I'm sure they look at it as an investment not a loss - the loss part comes if noone buys it and they can't recoup their inital loss on game/accessory sales over the next 4 years.

Re:Why a loss?

[superpulpsicle]

If they really want to beat out nintendo and take an even bigger loss, they should sell PSP under $100. I guarantee they'll have the market pwned overnight.

Battery

[Red Moose]

WIth a downgrading of credit rating what could happen Sony if the PSP is *not* a success - the battery life issue could kill it although they probably have cash to push it along meaninglessly for years like Minidisc.

If it doesn't work, surely that would mean *another* adjustment of credit status in a year or so with sales to look at. Then I suppose it's PS3 time but what if...oh my god.....Sony got fucked and we were left with only Microsoft.

ARGHHHGH

Re:Battery

[Anonymous Coward]

If Sony "got fucked," WTH makes you think we would be "left with only Microsoft?"

You realize that if Sony "got fucked" in the handheld business, it would be by Nintendo, right? Well then.....

Tens of millions dollars?

[Lord Graga]

Doesn't sound like a big deal to me, it's probably not even 0,1% of what they have in total. I would also believe that they have their money in Yen, so that the low dollar price would affect them even *less*.

No surprise here, move along.

[Eil]

Er, companies have always sold consoles at a loss, especially during launch. I just played a Gameboy DS yesterday and I have to say that Sony has a long road ahead of them if they want to top it.

Re:No surprise here, move along.

[Anonymous Coward]

that's a myth and you are wrong. Only Microsoft's Xbox was sold at a loss. All Sony and Nintendo consoles were not now, or ever, sold at a loss.

Re:No surprise here, move along.

[GTRacer]

Cites, sites, and insights please.

In fact, how many new products (new as in design, tooling and first production) AREN'T sold at a loss? I can't imagine too many large-volume items with a break-even point of 1!

GTRacer
- Still loves Sony anyway

Re:No surprise here, move along.

[Anonymous Coward]

Tell me, how does one come to love Sony? What's involved in that, a propensity to shiny advertising and hype? A style over substance fetish? I really want to know!

Re:No surprise here, move along.

[Anonymous Coward]

> - Still loves Sony anyway

How come ?

Crappy hardware. Hates their customers. Minidisc and net md debacle. Atrac. Memory stick. DRM everywhere. Famous "We'll block [copying digital media] at your ISP, we'll block it at your PC" quote.

How anybody can loves sony totally escapes me. I *used* to respect their product (associated them with the so usefull walkman), but now I boycott them because of their DRM stance.

Re:No surprise here, move along.

[Knetzar]

"In fact, how many new products (new as in design, tooling and first production) AREN'T sold at a loss?"

By "at a loss" I think they mean that the revenue per unit sold is less then the variable cost of that same unit, therfore, the more Sony sells the worse off Sony is (this is not taking into account profit from game sales, increased visibility and market share)

Re:No surprise here, move along.

[Carrot007]

Please site proof otherwise stop propergating this urban myth.

I would like to say I have proof either way on your theory but my best efforts (ok 5 mins with google) turned up nothing.

Popular belief is that the dreamcast was 1st console to be sold at a loss, and now the xbox.
Other than that they are sold at no less than cost.

This said though the companies are pretty tight on telling anyone margins hence the lack of proof.

Re:No surprise here, move along.

[GTRacer]

Well, my experience with Sony is pretty much limited to the original WalkMan, the DiscMan (my first-ever CD player) and the PlayStation family.

Yes, I know recently they've been inventing new ways to do cool things stupidly, and are excellent at customer disservice.

I'm lucky I guess that my original PS2 (bought Nov 2000) still runs and my Japanese PS2 (a first-gen model bought used March 2002) also still runs. I'm not blind to the PS2 disc read errors many have had. I joked with my wife that the only reason Sony's cracked 70 million units is that the first 60 mil broke.

All that said, I can't imagine a life without Gran Turismo. I didn't choose my nick thoughtlessly. My real-world driving changed forever that summer... I've since been to racing school and I have a strong appreciation for what motorsport athletes go through, as well as their ridiculous skills (Schuey!).

I doubt seriously I'd ever buy a portable media player or in-car player from them precisely because of ATRAC and DRM.

GTRacer
- How many black monoliths until we ignite the Earth?

Re:No surprise here, move along.

[GTRacer]

I dunno. I sucked at Econ 101. However, I think most people associate "selling at a loss" to mean the price of one unit is set less than the raw material/production cost of that unit.

It gets trickier if dev/plant/design costs are factored in, where revenue from each sale goes to pay off dev costs until they're paid; then the fun begins.

If sales tank, then the company is stuck holding the title to a useless plant/design/etc.

Pretty much every console has started this way, but with enough units moved, all the bills are paid and each unit sale brings in money. It doesn't hurt that as with most production, costs drop as efficiencies are found.

GTRacer
- Don't take my word for it

Eh

[antifoidulus]

I don't really think that the launch perse is what is going to hurt them, it's the fact that the dollar is at a 3 year low versus the yen(about 103), before Bush's re-election, it had been around 105-110 yen on the dollar, but Snow seems to be sending signals that the administration is not about to curb it's deficit spending any time soon, and thus that means the dollar will not improve significantly in the near future. Although the psp launch price in the US is $199, so that should make up for it, but Sony will see significantly less yen per game sale in the US than in Japan, which could really start to affect it's bottom line.

Standard and Poor's

[teh_dg]

somehow Standard and Poor is an amusing name for a ratings firm.