During the Investor Relations Day held in Tokyo by Sony, PlayStation honcho Andrew House has a long presentation about the situation of the PlayStation Business, touching several relevant points.
House sees the PlayStation Business as” sitting in between” the Electronics segment and the Entertainment segment of Sony. It’s basically a hybrid, as it provides world-class electronic products, but it also works on and pioneers new forms of interactive entertainment.
He doesn’t think there’s a negative impact for being part of the Electronics division, and the PlayStation business is well understood within the group. During his ten years at Sony he noticed PlayStation built better relationships with the Entertainment segment due joint projects, but they can deliver benefits to other electronic groups. Remote Play is an example of that.
According to House, the game division is comfortable about where it sits organizationally and strategically within Sony.
He then moved on to talk about profits, investment and costs, admitting that in the past the game business has seen significant volatility in profits, but he pointed out that there have been significant improvements. He compared the launch year of PlayStation 3, with huge investments and negative performance, with the launch year of PlayStation 4, with all the R&D costs for the new platform. Despite that, due to the choice of a simpler architecture and to the fact that the console is easier for software developers to work on, Sony was able to eliminate to a great extent the huge “bottoming out of the bottom line” seen in previous life cycles.
In the same spirit, it’s Sony intention to eliminate the “rollercoaster” effect that has been seen in the game business, lowering the dips but still investing where necessary, particularly in the area of network services, and achieving stable profitability over the years.
House admitted that there has been an increase in the cost of development of “really cutting-edge” PS4 titles, but third party publishers now have multiple revenue streams that did not exist before, like add-on content and in-game digital merchandising. Those have very small costs but can provide very stable revenue.
He also mentioned that Japan is different, as PlayStation Vita plays a bigger role in the PlayStation ecosystem there. He explained that he hears from Japanese publishers that they view Sony’s portable console as a very stable and attractive business for them, because there’s a large and growing user base and an opportunity to recoup very easily against low development costs.
In addition to that, while the company provides services to different regions depending on what is more attractive to the local user base, it intends to keep making appropriate investments in all regions.
Talking about the investments made in PlayStation 4, House mentioned that while the PS3 was a very specialized platform with very unique hardware. PS4 has a less specific approach in terms of components and architecture, and that is already contributing to profitability. The x86 architecture also makes the platform easy to develop with and the cost reduction curve is showing a very good development. Due to that, Sony intends to continue with this strategy going forward.