Thursday, February 15, 2007

Memory Lane

Today, let's take a stroll down memory lane.

Do you remember when you were in college and your best friend decided to throw a party? Even better, he somehow got the best-looking girl in school to show up. When you saw her walk in, you had one thought: this is going to be the best party ever.

There was only one problem: the best-looking girl in school. Yes, she was totally hot, but all she did was talk about how hot she was, and how we were all lucky that she showed up, and how every single girl at that party looked like ass compared to her. She was so loud and so obnoxious that you went into the backyard just to get away from her.

Later that night, though, you came back inside the house and saw her again. This time, though, she was sitting against a wall. Passed out. With vomit all over the front of her smoking hot halter top. And as you took a picture of her with your cellphone, you had one thought: this is the best party ever.

That smoking hot girl, my friends, is Sony.

I've said this before, but I don't have an anti-Sony bias. I've been extremely pro-Sony at various times in the last ten years. But I do have an anti-dickhead bias.

I haven't mentioned Jack Tretton making an ass out of himself in the latest issue of EGM because it's nothing new--every executive at Sony has been making a gigantic ass out of himself for the last year. When was the last time you saw an interview with any of those guys where they didn't act like an ass?

In case you hadn't heard, here's what Tretton said in the latest issue of EGM:
JT: If you can find a PS3 anywhere in North America that's been on shelves for more than five minutes, I'll give you 1,200 bucks for it. I can get any retail buyer on the phone with you and get them to verify that there's not a single retail location in America where there's been a Playstation 3 on the shelf for sale. They've all been sold in a matter of minutes.

There was a note attached to the article at that point that said [Editor's note: This interview took place in early January 2007].

I wrote about eBay auction prices on December 18, over two weeks before Tretton's interview took place. In the vast majority of auctions, the premium was under $100. And there were plenty of anecdotal reports of PS3's sitting on store shelves in the week before Christmas. And here's an excerpt from what I wrote on January 4:
One thing we do know is that there are plenty of PS3's available right now. I called a Best Buy on Tuesday and they said they had fifteen in stock. The Best Buy website? In stock. Circuit City website? In stock. Amazon website? In stock.

Why did we have far more accurate information than the CEO of SCEA? Because to us, data is data. We're not trying to spin it or manipulate it or ignore it if it doesn't agree with what we believe. Either Tretton was ignoring data or, even worse, he wasn't even being given the latest data.

Tretton's comments display how dangerous it is to live in an insular corporate culture, and from what I've been told, Sony is incredibly insular. He was absolutely correct--a month before he gave the interview. But in the consumer entertainment industry, a month is a long, long time, and in that month, the PS3 buzz went to sub-zero.

To EGM's credit, they challenged Tretton:
EGM: But we called 18 random retailers, including Best Buy and EB Games, and half of them had PS3's in stock...some had as many as 20 in the store.

Watch Tretton backtrack:
JT: I am not sitting in the store to know when they got put on the shelves or if a salesperson is giving you accurate information, but if only nine of the 18 stores you contacted had supplies, that seems to be a clear indication that sales continue to be outstanding.

Wait a minute--asshole--you JUST SAID that there's not a "single retail location in America" where there's been a PS3 for sale, because they've all sold in a "matter of minutes."

Do you see how impossible it is to respect these people right now? Executives used what's called "puffery" all the time. It's exaggeration. This is not exaggeration. This is fabrication.

But wait, you say. Didn't you see where Sony said this:
Sony also noted that according to an SCEA customer survey data, 90 percent of current PS3 users have watched a Blu-ray movie on their PS3, 80 percent stated that they plan to purchase a Blu-ray movie and 72 percent stated that they plan to rent a Blu-ray movie in the near future.

And, of course, this was big, big news, right?
In response to an inquiry from Next-Gen, SCEA states that cumulative Blu-ray movie unit sales stand at just over 439,000 units in the US, while total HD-DVD sales are just under 438,000 units. Blu-ray currently stands as the number one new DVD format in unit and dollar sales in the US, according to research firm NPD Group.

Here are two more data points (from the same article linked in the preceding paragraph) that we'll be using:
According to Sony, the company currently lays claim to 40 percent of the the Blu-ray player market with the PS3 and the company's $1,000 BDP-S1 standalone player.

Sony had shipped 2 million PS3s worldwide by mid-January, with 1 million of those shipped to the US by the end of 2006.

Sony has been crowing about the rush to adopt the Blu-Ray format since the PS3 was introduced. If you listened to them, you'd think it as wan absolute landslide (never mind that Blu-Ray and HD-DVD combined represent less than .1% of the market right now).

That's not 1%--that's .1%.

Beyond that, though, Sony's numbers never seem to add up. Ever. They throw out a bunch of numbers at one time, declare victory, and hope that we can't count.

We can.

So let's take a look at this. The article about total sales was from Next-Gen, and it was published on February 7. According to NPD, the end-of-year installed base for the PS3 in North America was 687k units.

Why am I using end-of-December numbers? To be as incredibly lenient to Sony as possible. So let's assume that Sony is talking about end-of-December hardware numbers, but end-of-January Blu-Ray movie sales.

Now when Sony says they are 40% of the Blu-Ray player market, even if they had sold ZERO of their standalone players, even if 100% of their Blu-Ray player share was made up of the PS3, it would still work out to an installed base of over 1.7 million units in North America.

An installed base of over 1.7 million units has purchased a grand total of 439k movies? Roughly one movie purchased for every four Blu-Ray players sold?

Are you kidding me?

There are only two possiblities here: either people with Blu-Ray players aren't buying Blu-Ray movies, or Sony is just lying. I think the truth is a combination of the two: people who bought PS3's are buying far fewer movies than Sony claimed they would, and Sony is lying about the installed base. I'm willing to be that the PS3 represents 75% of the Blu-Ray player market, at a minimum. And the total installed base is still under a million units.

And really, the numbers are even worse than that. To get hardware numbers that truly correspond to the movie sales, you'd need to add the January hardware sales to the installed base, and that January sales period is a five-week period for NPD.

Last data point this week (Reuters):
Sony Corp. will cut back on future chip spending and may not produce advanced chips used in its PlayStation 3 (PS3) in-house, a senior executive said on Tuesday, in a move aimed at driving the semiconductor unit's nascent earnings recovery.

That's interesting. So is this (from 11/2003):
Sony is also building its own fabrication plant for the 65nm Cell chips, with an investment estimated to be in the region of €5 billion being made in new plant in Nagasaki prefecture.

Five billion Euros. That's a lot of money to invest in manufacturing, just to abandon it three years later.

I can't tease the answer out of this right now, but Sony trying to back out of these massive investments indicates that they badly miscalculated something.

NPD numbers for January are supposed to come out later today, I think, and I'll post an update.

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