7.    Sony

Market Share: 5% (includes SOE) (-3)
2006 Position: 4 (-3)
Revenues: $8.6 billion (+6%)
Profits: ($2 billion) (compare to previous year $75 million profit)
Expectations: losses are expected to continue, though at a slower rate
12 Month Range: $37-$60 <SNE.N>
Employee Count: about 4,500
Age: 13 years in the game industry
SKUs in Top 100: 5 (-3)
Franchises above 80%: 10 (+3)

Sony has spent the last few years bracing itself for last year, as PS3 manufacturing costs dug a huge pit into the company’s bottom line. Last year’s estimates, which called for a loss of close to $1 billion, were off by a factor of two.

It’s no wonder so many on the internet are calling Sony dead on arrival following the switch to next generation hardware – looked at quarter to quarter or year to year SCEA’s financials appear like nothing short of catastrophe. Not only were PS3 losses huge, but the focus on PS3 software meant that less SCEA-published PS2 games were released, and the currently limited PS3 hardware base couldn’t pick up that slack. And just like that, Sony lost nearly half its software market share. Eccentric PlayStation father Ken Kutaragi also left this year, leaving a more measured Kaz Hirai as president of Sony Computer Entertainment. The question of whether Kutaragi left amicably or in disgrace lit up online forums with torrents of fire.

But since it’s important, we’ll state again that this is also what the beginning of a long-term plan looks like. Sony is taking a (admittedly huge) loss now to bolster its position in the future, a future that it is preening to look like the PS2 in its heyday, but with larger profit margins. At the same time, the company is nurturing new first-party properties like Resistance, Motorstorm, Heavenly Sword and Lair – all exciting new properties, any of which could prove to have real staying power. And don’t forget the PSP, which may get a hardware refresh this year and is finally being positioned at the market it is perfect for, the young teen set. The PS2 will also continue to provide briefly, though its twilight is most certainly upon it.

There’s no arguing that Sony is in a precarious position, and needs to carefully weigh the plans of its opposition against what the company itself is capable of. But the management is experienced, the hardware is desirable and the IP is interesting, which is a strong foundation on which to build. Of course, it will take years, and those years will be fascinating ones for this industry.

Pictured:
MotorStorm
Lair
Uncharted: Drake’s Fortune
The Eye of Judgment