Sony cut losses, but PlayStation 3 and PS Vita sales continue to drag

Layoffs and consolidation throughout Sony's empire helped trim the company's losses over the summer quarter, but its video game business continues to flounder. How will Sony reinvigorate the PlayStation 3 and PS Vita market?

Sony CEO Kaz Hirai continues to take blows as his first year at the head of the Japanese technology giant rolls on. His company reported earnings for the summer quarter on Thursday, and the massive layoffs and consolidation throughout Sony’s empire are helping to stop the fiscal bleeding. Losses continue to drop year-on-year and quarter-to-quarter. Between July and September, Sony recorded a net loss of just over $193 million, down from the $337 million it reported during the same period in 2011 and from the $312 million loss it recorded during the April to June quarter this year. The company is well on its way to a fiscal year where it doesn’t report a $5.7 billion total loss. While Sony itself recovers, though, the PlayStation division continues to drag the company down.

Sony’s video game division reported revenues of $1.85 billion for the quarter, down 14 percent for the approximately $2.2 billion it earned during the same period last year. Operating income fell to just below $29 million for the period.

Hardware, unsurprisingly, is the culprit. PlayStation 3 and PlayStation 2 sales fell hard, total home console sales falling from nearly 5 million machines during the period in 2011 to just 3.5 million this year. Naturally the ongoing erosion of PlayStation 2 sales, about to enter its thirteenth year on shelves, was a contributing factor, but the real culprit is the still-expensive PlayStation 3.

Sony’s handheld business fared much worse. The PS Vita and PSP sold a combined 1.6 million units. During the same period in 2011, Sony managed to sell 1.7 million PSPs and the Vita was still months from releasing in Japan. As a result, Sony further downgraded its forecast for total handheld sales in the fiscal year, from 12 million total to 10 million. Unless the Vita gets a major push in the market, you can expect Sony to keep lowering that forecast after the holiday quarter.

Game sales, at least, were up albeit slightly. Sony sold more than 41 million home console games and just under 9 million portable games, up from above 40 million and 8 million respectively in 2011.

Sony’s between a rock and a hard place. Both the PlayStation 3 and the PS Vita need to drop in price to create sales momentum. Bundles with new games and new models are simply not enough. The PlayStation 3 is old news compared to Wii U and too expensive compared to Xbox 360. The PlayStation Vita is too expensive and too limited in terms of functionality compared to iOS and Android devices. At the same time, Sony needs every penny it makes on the units it does sell. There’s no obvious solution to the company’s predicament in the games industry, but if it doesn’t make a change soon, the PlayStation business will be in grave danger of fading out.