You wouldn’t have thought it possible a year ago, but games company Nintendo was briefly worth more than rival Sony yesterday, on the back of skyrocketing sales of its Wii entertainment console and continued strong performance from its DS range of hand-held devices.
The revolutionary Wii gaming console (pronounced “wee”) is outselling the far more expensive PlayStation 3 by 3 to 1. During May, Nintendo sold 340,000 Wiis in the United States, compared with only 81,000 PS3s; in Japan the situation was even worse for Sony, with the Wii outselling the PS3 by 5 to 1.
The more diversified Sony, which also makes electronics, owns a music label and the Columbia film studio, is worth US$52.35 billion. Meanwhile, Nintendo, which is a purely focused on video games, briefly hit a market capitalisation of US$52.9 billion yesterday (having more than doubled in value during the past year), despite its earnings being a third of Sony’s.
Game consoles haven’t been Sony’s only problem of late, with the company being hit by flaws in its computer batteries (which led to a small number of laptop computers catching fire in the US), stiff competition for its Blu-Ray HD DVD player and a little product called the iPod destroying Sony’s portable music business.
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However, Sony’s biggest headache is its previously dominant games division, which on the back of poor sales and high development costs lost US$1.91 billion for the fiscal year ending 31 March 2007. Sony had previously dominated the industry with its Playstation and Playstation 2 for the past decade.
Sony’s woes aren’t the first time that game consoles have captured Wall Street’s or Tokyo’s attention. Way back in 1979, Warner Communications (now, part of Time Warner) launched one of the first game consoles, the Atari. After Space Invaders was released, Atari sales of Atari skyrocketed, earning Warner US$70 million in 1980 and US$300 million in 1981. At one stage, Atari was responsible for 70% of Warner’s profits.
Then the wheels fell off, savaged by competition and inventory problems, Atari lost US$536 million in 1983, almost sending Warner into bankruptcy. Atari was then sold for US$50 million and Warner survived, just (later controversially merging with Time Inc and then AOL).
Video games may be for kids, but after the Warner experience, and a US$1.9 billion loss, Sony executives will be treating them very seriously.