Sony chief to step in as PlayStation boss as profit margins shrink
Group president expected to push cost discipline at independent unit
asia.nikkei.com
TOKYO -- Sony Group President Hiroki Totoki will perform double duty as head of the subsidiary in charge of PlayStation, the company said Thursday, after he sounded a warning on the video game segment's earnings downturn.
Totoki begins serving next month as chairman of California-based Sony Interactive Entertainment. Jim Ryan, SIE's current president and CEO, retires at the end of March. Totoki will then become "interim CEO," Sony said.
Sony has long given wide decision-making latitude to SIE's management team. By taking direct leadership of SIE, Totoki may be signaling tighter cost controls are ahead for a unit that has spent heavily on game development and acquisitions.
Totoki also holds Sony's purse strings as the Japanese group's chief financial officer. When presenting quarterly earnings last November, he sounded a note of urgency over the gaming segment's earnings slump.
"Our biggest regret is that we have made a significant downgrade to the operating income forecast" for the second straight quarter, Totoki said during the earnings call.
SIE is known for its strong independent streak. At one point, Sony sent in a finance executive close to current group Chairman Kenichiro Yoshida in a bid to improve collaboration.
SIE "seems like a place with extraterritorial rights from the perspective of Sony Group's head office," said Hideki Yasuda, an analyst at Toyo Securities who has long covered the video game industry. "The head office probably aims to strengthen its involvement at a time when the gaming business faces a worsening earning environment."
Sony Group's gaming segment is forecast to earn an operating profit of 270 billion yen ($1.8 billion) for the fiscal year ending in March, down roughly 20% from three years earlier. The operating profit margin is expected to fall by half to just over 6%.
Sales of the new PlayStation 5 have not grown as expected. Returns on investment has also lagged.
Since June 2021, Sony has purchased nine game developers. Invested capital stood at 1.03 trillion yen in the year to March, more than double the amount two years earlier, with rising game hardware inventories also a factor.
The return on invested capital is projected to be 12.5% this fiscal year, far below the 47.5% logged three years earlier.
The wider gaming industry faces a fast-shifting landscape. More players are moving away from consoles like PlayStation toward online games on personal computers or smartphones. In 2020, Sony rival Microsoft launched a cloud service where paid subscribers can play console games on their PCs or smartphones.
Content is becoming a bigger factor than hardware for creating value. Microsoft is closing a $69 billion deal to buy Activision Blizzard, the developer behind the hit Call of Duty series. New technologies like the metaverse and generative AI are expected to drive up game development costs, even as companies compete to acquire the best content creators.