Nightengale
Member
So, a few days ago, Sony had its Investor Relations Day 2014, where each division talked about their business overview, financial expectations and short-to-mid-term strategy moving forward for Sony as a whole. We've had threads talking about Sony in general, but not so much focusing on what SCEI and SEN are doing specifically, so I figured I start a thread on it :
Anyway, for those who wants to read the slides or listen to Andrew House's presentation/Q&A directly, here's the links:
http://www.irwebcasting.com/20141125/4/b81075ec7f/mov/main/index.html
http://www.sony.net/SonyInfo/IR/info/irday2014electronics/GandNS_E.pdf
Anyway, there's a few interesting tidbits:
Regional Sales:
The contribution from Americas/Europe+ME are pretty well-balanced.
Japan/Asia is what it is, but it's noted that Asia is showing significant growth as a market.
Financial Performance:
Profit increase due to higher PS4 sales and higher profit margin from Vita2K models.
Software side is roughly flat, with negative impact from 'delayathons' which are offset from all that PS+ $$$.
And they're making investments in PSN/infrastructure/network.
Anyway, probably the most interesting part of the presentation brings us to Andrew House's presentation of their :
SCEI/SEN Mid-Term Business Strategy:
Strategy I : Retain & Expand Engaged Playstation User Base
a. Hardware :
- Add New Features (SharePlay,etc)
- Expand Ecosystem (Morpheus)
- Reduce Cost ( Higher profit margin + price cuts)
b. Software & Content
- Strengthen Engagement of Core Audience w/Core Titles
- Acquire Casuals with Family-friendly Content
c. Services
- Increase customer base beyond hardware limits with stuff like :
- Playstation Now (increase the availability, content and consumer proposition like sub model)
- Playstation Vue (to revolutionise TV exp.combining live TV+DVR with cloud-based TV)
d. Market Opportunities
- New Markets : China & Latin America
- Evolution of Mature Markets :
eg. Middle East (4x faster adoption of PS4 than any other consoles)
Germany (PC market transitioning to console, now Sony's 2nd biggest European market for first time in history)
Strategy II : Increase ARPPU (average revenue per paying user) and drive ancillary revenue
ARPPU as the new core metric of business success
- SCEI is moving away from the generic software/hardware tie ratio as a core business success metric, and instead looking at average revenue per paying user.
How does SCEI intend to increase ARPPU?
a. PS+
- Paywall = $$$$. Paywalling Online MP = Increased PS+ subscription 4x since PS4 launch.
- Sony's strategy with PS+:
a. increasing presence of online titles to drive subscription (no details on what's the approach to this. Develop more MP games? More MP-game partnerships like Destiny? )
b. Improve IGC offerings
c. Prioritised Alpha/Beta, etc.
d. Enhance community features of PS+ (looking into making PS+ more appealing to non-gamers)
b. Ancillary Revenue from TV, Music, Video, stuff.
- Curated Music Playlist based on your game library (presumably Music Unlimited feature)
- TVTVTV (stuff like Powers)
- More 3rd-party video/music apps like Netflix, etc.
Financial Target:
FY2017:
- Increase revenue by approximately 10~20% over the next 3 years.
- Increase current operating margin of 2.7% to 5-6% over the next 3 years
What I was able to take away from this all is that, in general, Playstation has a surprisingly conservative overview of their business growth :
- Business growth in short-to-mid-term will be largely driven from their existing pillars, which are hardware/games.
- Key focus is increasing engagement with their console userbase, and acquire a broader userbase with stuff like different portfolio of games, and stuff.
- PSNow/Vue are closer to being more ancillary parts of the business, and in the short-term is not expected to be any sort of real profit generator. The main aim for these services is to look into expanding the brand/service/offerings to people outside the console-buying audience.
- The broad idea is as described, 'Bigger, Broader, Better.' By making their existing things better/bigger, they expand the revenue stream from their current userbase and continue to gain more of their core user base. On the side, they have 'broader' business goals with ancillary/experiments like Vue/Now/Morpheus which are their aim to make the Playstation brand broader than what they currently are right now, to engage audiences that historically never bought consoles, etc.
Edit : Added Q&A stuff.
Q&A Tidbits:
PS4 expected operating margins vs PS2 peak operating margins:
(Clarification: Its actually potentially a negative impact, moving from PS2 era royalty model to the current e-commerce model)
PS Vue Target Audience & Branding:
PS4 Console Life Cycle:
PSNows Future & Risk of Cannibalisation:
.Volatility of Game Business & Fluctuation of Profitability:
PSVita (In Japan!):
Music Unlimited Trivia:
Anyway, for those who wants to read the slides or listen to Andrew House's presentation/Q&A directly, here's the links:
http://www.irwebcasting.com/20141125/4/b81075ec7f/mov/main/index.html
http://www.sony.net/SonyInfo/IR/info/irday2014electronics/GandNS_E.pdf
Anyway, there's a few interesting tidbits:
Regional Sales:
The contribution from Americas/Europe+ME are pretty well-balanced.
Japan/Asia is what it is, but it's noted that Asia is showing significant growth as a market.
Financial Performance:
Profit increase due to higher PS4 sales and higher profit margin from Vita2K models.
Software side is roughly flat, with negative impact from 'delayathons' which are offset from all that PS+ $$$.
And they're making investments in PSN/infrastructure/network.
Anyway, probably the most interesting part of the presentation brings us to Andrew House's presentation of their :
SCEI/SEN Mid-Term Business Strategy:
Strategy I : Retain & Expand Engaged Playstation User Base
a. Hardware :
- Add New Features (SharePlay,etc)
- Expand Ecosystem (Morpheus)
- Reduce Cost ( Higher profit margin + price cuts)
b. Software & Content
- Strengthen Engagement of Core Audience w/Core Titles
- Acquire Casuals with Family-friendly Content
c. Services
- Increase customer base beyond hardware limits with stuff like :
- Playstation Now (increase the availability, content and consumer proposition like sub model)
- Playstation Vue (to revolutionise TV exp.combining live TV+DVR with cloud-based TV)
d. Market Opportunities
- New Markets : China & Latin America
- Evolution of Mature Markets :
eg. Middle East (4x faster adoption of PS4 than any other consoles)
Germany (PC market transitioning to console, now Sony's 2nd biggest European market for first time in history)
Strategy II : Increase ARPPU (average revenue per paying user) and drive ancillary revenue
ARPPU as the new core metric of business success
- SCEI is moving away from the generic software/hardware tie ratio as a core business success metric, and instead looking at average revenue per paying user.
How does SCEI intend to increase ARPPU?
a. PS+
- Paywall = $$$$. Paywalling Online MP = Increased PS+ subscription 4x since PS4 launch.
- Sony's strategy with PS+:
a. increasing presence of online titles to drive subscription (no details on what's the approach to this. Develop more MP games? More MP-game partnerships like Destiny? )
b. Improve IGC offerings
c. Prioritised Alpha/Beta, etc.
d. Enhance community features of PS+ (looking into making PS+ more appealing to non-gamers)
b. Ancillary Revenue from TV, Music, Video, stuff.
- Curated Music Playlist based on your game library (presumably Music Unlimited feature)
- TVTVTV (stuff like Powers)
- More 3rd-party video/music apps like Netflix, etc.
Financial Target:
FY2017:
- Increase revenue by approximately 10~20% over the next 3 years.
- Increase current operating margin of 2.7% to 5-6% over the next 3 years
What I was able to take away from this all is that, in general, Playstation has a surprisingly conservative overview of their business growth :
- Business growth in short-to-mid-term will be largely driven from their existing pillars, which are hardware/games.
- Key focus is increasing engagement with their console userbase, and acquire a broader userbase with stuff like different portfolio of games, and stuff.
- PSNow/Vue are closer to being more ancillary parts of the business, and in the short-term is not expected to be any sort of real profit generator. The main aim for these services is to look into expanding the brand/service/offerings to people outside the console-buying audience.
- The broad idea is as described, 'Bigger, Broader, Better.' By making their existing things better/bigger, they expand the revenue stream from their current userbase and continue to gain more of their core user base. On the side, they have 'broader' business goals with ancillary/experiments like Vue/Now/Morpheus which are their aim to make the Playstation brand broader than what they currently are right now, to engage audiences that historically never bought consoles, etc.
Edit : Added Q&A stuff.
Q&A Tidbits:
PS4 expected operating margins vs PS2 peak operating margins:
In the PS2 era, peak opms hit double digits, yet Sonys forecasting only 5-6% opm by year 4 of the PS4.
Reason is due to shift in business structure from purely physical disc to a more complex margin structure with networks. The increased complexity of the e-commerce business models (which now has F2P, microtransactions,etc) are leading Sony to take a conservative outlook in terms of margins and balance their planning around a conservative profit margin rather than aim for the heights of the PS2 era margins.
(Clarification: Its actually potentially a negative impact, moving from PS2 era royalty model to the current e-commerce model)
PS Vue Target Audience & Branding:
Not purely a Sony-invested play, budgeting has been balanced with other content providers. No hard numbers revealed, but it has a significantly lower break-even subscriber count than most would guess.
PS Vue is aimed to be complementary to something like Netflix. Prime target for Vue are highly engaged PS users who are major consumers of all forms of entertainment. User data shows that said audiences are major consumers of PayTV services in addition to stuff like Netflix, and that is the aim of PSVue is to target that, leveraging innovations in their platform/service over PayTV
Playstation branding was a deliberate decision. Based on consumer research that came back stating that PS-brand was the best option. Will be expanded beyond PS-platforms, first being the iPad.
Our target clients for PSVue will be Neilsen-rated devices, highly important for advertisers. The Playstation brand is elastic enough to be more than just hardware and broaden to be that of a service brand.
PS4 Console Life Cycle:
In terms of the console life cycle of the platform, I think its extremely hard to judge in the first year on the platform, as to whether this will be smaller, bigger or in line with previous life cycles. What I can say is that all of the early indicators have been extremely good. Im sure youve seen yourself that sales of PlayStation 4 in its first year on the market are significantly outpacing those of PlayStation 2.
That being said, again in the spirit of taking a conservative and reasonable view of our business outlook, we are very conscious of the fact that in contrast to say, the PlayStation 2 lifecycle, consumers are now faced with a panoply of different choices and devices on which they can play games. We have to feel that that will have some impact on the life cycle overall.
Again. Not giving hard numbers, but the best guidance that I think I can offer based on the landscape that we see right now, is that we have high hopes that the PlayStation 4 will exceed the overall life cycle of PlayStation 3. It remains a significant question mark as to whether this will approach or exceed that of PlayStation 2
PSNows Future & Risk of Cannibalisation:
Within the plan of SCEI, PSNow is a very small part of the overall view of Playstation. Its not a large contributor, either in topline or bottomline. We think that it will take time to scale, and more of an attempt to pioneer a new way of playing games. Risk of cannibalisation is seen as small.
Although its currently being tested on PS-devices, the aim of PSNow is broaden the funnel and to make it available on non-console devices, to grow the pie overall and offset any small cannibalisation.
.Volatility of Game Business & Fluctuation of Profitability:
Its true that theres a lot of volatility in said business, but SCEI mentioned areas where theyve made improvements in that regard to reduce volatility. 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. Due to the simpler archicture, SCEI was able to eliminate to a great extent the huge bottoming out of the bottom line seen in previous life cycles.
Sony intends to eliminate the roller coaster effect of profitability in the business, lowering the dips but still investing where necessary, particularly in the area of network services, and achieving stable profitability over the years.
PSVita (In Japan!):
Vita plays a far greater part of the PS ecosystem (IN JAPAN!). Publishers are seeing Vita as a more stable and attractive business for them, with opportunity to recoup easily with lower investment cost.
Music Unlimited Trivia:
Theres more MU subscribers on Playstation devices than there are on Android.