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Sony needs fresh hit as PlayStation fans face middle age

LiveMint logoLiveMint 23-05-2017 Tim Culpan

To understand the future that awaits Kazuo Hirai, consider this: Sony Corp.’s PlayStation4 is 39% cheaper than Apple Inc.’s iPhone 7, yet it ships a tenth as many units annually.

The reason is obvious. Smartphones have morphed from a geeky business tool into a ubiquitous must-have. Sadly for the CEO of Sony, games consoles have not.

Kaz has done a fabulous job turning Sony around over the past five years. Bloomberg’s Yuji Nakamura outlined this resurgence in a series of charts that show how he cut staff and shipped fewer devices to drive profits, resulting in a doubling of the company’s share price since April 2012.

Now it’s time to look to the future. According to a company statement on Tuesday for investors’ day, the key will be to “remain the ‘last one inch’ that delivers a sense of ‘wow’ to customers,” expand recurring revenue, and pursue new businesses.

Those three strategies are closely linked. With TV sales in decline, its Vaio PC business spun off, and its smartphones barely a blip on the radar, Sony’s last inch is heavily dependent on the PlayStation.

But the games console business is stuck in time. That Sony boosted PS4 sales last year is testament to an enduring nostalgia for the platform, and the fact that this $399 box offers incredible value for money.

To be sure, Sony’s profit growth won’t come from hardware, and Kaz doesn’t pretend it will. Competition for recurring revenue confronts Sony from all corners including Netflix Inc., Spotify Ltd., The Walt Disney Co. and even Amazon.com Inc. and Apple.

What Sony has that others don’t is its PlayStation. The nearest equivalent is Apple and the iPhone. Few competitors have hardware in 78 million homes. On Tuesday, Kaz said now was the time to harvest that base, which includes 70 million active users each month who spend 600 million hours per week on the PlayStation network.

That’s an impressive figure, but Sony will have to ship a lot more than 20 million units a year if it wants to expand its customer base.

Sony needs to build a device that will be far more ubiquitous and can appeal to consumers beyond the current male-skewed slowly aging hard-core gamer base. Amazon and Alphabet Inc., with Echo and Home, are two such examples, and Apple will probably follow suit.

With its background in audio, video, sensors and entertainment, Sony has all the right parts to make it happen. For the company that invented the Walkman, dreaming up another hit shouldn’t be so hard. Bloomberg

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