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How Sony is fighting its way out of its deepest crisis with the Playstation

Morita Akio founded the Tokyo Tsushin Kogyo K.K. company immediately after World War II, which later became Sony.

Getty Images, Shutterstock, Sony

When the journalists left the darkened press room at the Los Angeles Convention Center on the evening of May 10, 1995, they had witnessed a historic moment in video game history. As part of the E3 games fair, the industry giants Sega and Nintendo as well as video game newcomer Sony invited the trade press to a keynote. It all started with Sega’s then US boss Tom Kalinske, who revealed details of the upcoming Sega “Saturn” console and announced a US retail price of 399 US dollars.

Then it was Sony’s turn. The journalists present expected details about the US launch of the first Sony console “Playstation” – and got them, but only one. US boss Steve Race stomped on the stage, looked briefly into the audience and said dryly into the microphone “Two Ninety Nine” – then he disappeared again.

Sony puts everything on the Playstation

When developing the Playstation 4, Sony focused on games. Expensive multimedia functions will be cut in order to put the console on the shelves at the end of 2013 at a price of 400 euros – 100 euros cheaper than the new Xbox from Microsoft. The success is enormous: The PS4 is sold out immediately, Sony cannot keep up with production in the first few weeks.

Staff will be handing out free pizza to waiting fans one night before the PS4 launch in London.

Staff will be handing out free pizza to waiting fans one night before the PS4 launch in London.

Getty Images

In the years that followed, Sony aggressively expanded the Playstation brand: The Japanese bought game studios that would in future develop exclusively for Sony consoles – a high-margin profit driver. With Playstation Plus, Sony is pushing players into a monthly subscription for 9 euros if they want to play against each other online. As of August 2020, Playstation Plus has over 45 million members – this ensures predictable sales every month. In 2016, the share of total Sony sales was 16 percent, in 2018 it was 20 percent.

Most recently, the Playstation brought Sony safely through the Corona crisis and cushioned declines in other areas. In the first half of the 2020 financial year, sales in the games division jumped by almost a third, and operating profit rose from almost 600 million to almost 1 billion euros. In contrast, sales in the electronics division, which had recently recovered due to tough cost-cutting measures, plummeted by 31 percent. As a result, more than half of the total group revenues come from the Playstation. Sony is on the drip of its successful console.

A new pain?

The Playstation 5, which has been available since Thursday, initially seems to continue the success of its predecessors – in the USA, Sony sold as many pre-orders for the console in 12 hours as for the Playstation 4 in 12 weeks. Good news were it not for an old competitor threatening to revolutionize the video game market again: Microsoft is investing heavily in its Game Pass subscription service. Unlike the € 9 subscription from Sony, users get significantly more games for € 10, and million dollar Xbox blockbusters like Halo will be available from day one.

As with Netflix, thanks to cloud technology, the titles should in future be able to be used on a wide variety of devices such as smartphones, smart TVs or PCs. Microsoft’s customers only need a subscription – and no longer a console. A declaration of war on the Playstation – and the creeping end of stationary consoles?

“Cloud gaming is definitely a trend that will develop alongside the console and PC market,” says gaming expert and PwC partner Niklas Wilke to NewsABC.net. “But it will take some time until we have the technical infrastructure with high upload and download speeds across the board to a sufficient extent to be able to play graphics-intensive games really smoothly via a cloud.”

Wilke therefore does not believe that the cloud will replace the console in the next few years and that there will be another generation of consoles after the Playstation 5. “Especially people who grew up with stationary consoles and play intensely, they want the technology at home too.”

Sony does not want to leave its business to chance. The wounds of reacting too late to digitization at the time are too deep – and it would be too risky to abandon the cloud. In May 2020, the Japanese announced that they would be experimenting with the Azure cloud in the future. The data centers are owned by Microsoft.

Sony CEO Kenichiro Yoshida and Microsoft CEO Satya Nadella announce the partnership in the cloud area.

Sony CEO Kenichiro Yoshida and Microsoft CEO Satya Nadella announce the partnership in the cloud area.

Sony

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