Sony Struggles as Nintendo Soars

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"Everything is pointing to Nintendo having another record-breaking Christmas," says KBC Securities analyst Hiroshi Kamide. "It's starting to sound like a scratched record."

The fact that Sony's games division isn't profitable at this stage is no big shock to investors or analysts. Launched last November, the PS3 was expected to lose money in its first two years on the market. That's been the strategy since Sony first entered the business in the mid-1990s: attract buyers by selling the machines at prices below cost, and recoup the losses a year or two later when production costs drop and royalties from game software and sales of games developed in-house start pouring in.

Sony Putting on a Brave Face

But the PS3's sales have badly trailed the Wii's, and analysts think Sony should be worried. Japanese game developer Capcom's surprise announcement this month that its Monster Hunter 3 would debut on the Wii shows how influential game developers previously allied with Sony are defecting to Nintendo's camp (BusinessWeek.com, 10/10/07).

In the first six months, Sony delivered just over 2 million PS3s to stores worldwide—less than a third of the Wii's tally. Sony hopes to have 11 million PS3s in stores this fiscal year. "This sounds very ambitious, indeed," Ovum analyst Carl Gressum wrote on Oct. 25. Getting more than diehards to buy PS3 titles (BusinessWeek.com, 10/5/07) such as Gran Tourismo 5 Prologue and Guitar Hero III: Legends of Rock will be key. For now, Sony executives are putting on a brave face. "We have no intention of changing the PS3 sales forecast," Chief Financial Officer Nobuyuki Oneda told reporters in Tokyo. The next few months will tell whether Oneda is right.

Hall is BusinessWeek's technology correspondent in Tokyo
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