Global Economics

The PlayStation 2 Still Rocks


Sony's PS2 is likely to outsell newer consoles such as the PS3—not just this year but next

In December video game maker Square Enix Co. began running prime-time TV ads in Japan featuring battle scenes from its new adventure game Seiken Densetsu 4, or Legend of the Sacred Sword. Every 30-second spot ended with a familiar logo: PlayStation. But the game isn't played on Sony Corp.'s (SNE) new PlayStation 3 console. It's for the PlayStation 2.

This might seem an odd time to launch an ad blitz for a game designed for the PS2, which has been around since 2000. The PS3, after all, was just introduced this fall and offers richer graphics with more lifelike action. But despite all the hype surrounding the PS3, its predecessor is likely to outsell it for two more years. "The PS2 will have legs well into 2008," says Michael Pachter, an analyst at Wedbush Morgan Securities in Los Angeles. And while Nintendo Co.'s Wii console is getting most of the industry buzz, and the Xbox 360 from Microsoft Corp. (MSFT) has racked up big sales in its year on the market, some say the PS2 might even beat out each of those offerings in 2007. "The PS2 probably has the capacity to sell more than any other gaming" console, says Simon Jeffrey, chief operating officer at game maker Sega of America (see BusinessWeek.com, 12/28/07, "Sega Games the Systems").

The PS2 already owns the industry's all-time sales record. As of last March, Sony had shipped more than 103 million units worldwide. In the year ending in March, 2007, Sony expects to sell an additional 11 million—and just 6 million PS3s. In the following year, Sony will likely ship another 11 million PS2s vs. 7 million PS3s, according to research by rating agency Standard & Poor's (MHP).

The PS2's direct rivals, Microsoft's original Xbox and Nintendo's GameCube, are no longer in production. So why is the PS2 doing so well this late in life? For starters, it's cheap. Sony has cut the PS2's price to about $130, down from a high of $300, to entice casual gamers and kids. And with continuing sales and so many PS2 consoles in living rooms worldwide, there's plenty of demand for new titles. "All the media focus is on next-gen consoles and games, but a lot of the software companies will make a substantial portion of their earnings by selling [older] games," says Erik Whiteford, marketing director at California game maker 2K Sports.

FAMILY FARE

To keep sales growing, software makers are tweaking their PS2 efforts. In the console's early days, hard-core gamers were its main audience, but those diehards are now moving on to the PS3. So makers are beefing up offerings of family-oriented titles, kids' games, and movie tie-ins. Square Enix next spring plans to sell Kingdom Hearts II: Final Mix Plus, a collaboration with Walt Disney Co. (DIS) Around the same time, Paris-based Ubisoft will unveil Teenage Mutant Ninja Turtles to coincide with the release of a film in that series. And Sega (SGAMY) is working on a game based on a film from Philip Pullman's story The Golden Compass, due before the holidays in late 2007. While some of these will be available for other platforms as well, game makers have no plans to discontinue PS2 titles.

Nor is Sony in any hurry to kill the PS2. The launch of a new console always puts game makers in the red, and the PS3 is no exception. With delays and production snafus for the machine, Sony's game unit is expecting a $1.7 billion loss this fiscal year. The PS2, meanwhile, long ago turned profitable as component prices have plunged and development costs have been written off. Even at $130 a pop, Sony earns about $8 on each PS2 it sells, compared with an estimated loss of $250 per PS3. (Nintendo is believed to break even on the Wii, while Microsoft takes a loss on the Xbox 360.) And Sony will rake in some $1.4 billion this year from license fees paid by game makers and sales of its own game titles for the PS2 and its predecessor, the PSOne, Goldman, Sachs & Co. (GS) estimates. So it's clear Sony will want to milk the PS2 for all it's worth.

Hall is BusinessWeek's technology correspondent in Tokyo .

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