Sony Interactive Entertainment has announced plans to cut 900 workers from the PlayStation payroll, which accounts for about 8% of its global workforce. This news comes as no surprise, as several other gaming companies have also implemented layoffs this year. However, Sony’s decision is unexpected given its position as a consistently profitable market leader. So, why the layoffs?
According to Sony president Hiroki Totoki, the PlayStation business is profitable but not profitable enough. The projected profit margin for the Game and Network Services division for fiscal year 2023 is 5.8%, which marks a decline from previous years. However, when comparing the profit margins of the PS5 generation with the PS4 generation, it becomes evident that the PS5 years have been successful for Sony.
During the PS4 generation, Sony faced challenges due to selling hardware at a loss. It wasn’t until the release of Uncharted 4 that the company’s profits improved. The recent decline in profit margins can be attributed to various factors, including declining third-party sales and the escalating cost of AAA development.
Totoki criticized Sony’s first-party studios for not being more profitable, stating that there is room for improvement in terms of how money is used, development schedules, and accountability. However, it is unlikely that the 900 employees being laid off were responsible for budgeting and scheduling decisions.
Other factors contributing to Sony’s profit margin problems include investments in expensive virtual reality headsets without adequate marketing and software support, as well as an acquisition spree that inflated headcount and payroll. Sony acquired 13 companies in 2021 alone, including Bungie, which has struggled to meet revenue projections since the acquisition.
Furthermore, Sony’s focus on live service games has not yielded the expected results. The company planned to launch a dozen live service games before April 2026 but reduced that number by half due to changing player habits and increased competition. Without a successful live service business, Sony is facing a year without major first-party releases, which will negatively impact its profit margin.
The consolidation of Sony’s three main branches under a single leader in 2018 may have contributed to the company’s current challenges. While centralization can lead to greater efficiency, it requires effective decision-making and direction from the top. The acquisitions and focus on live service games may have been misguided or poorly timed.
Despite the current difficulties, there is hope that Sony’s future releases and live service games will be successful. However, the company needs to address its profit margin issues and ensure that leaders are held accountable for their decisions. The layoffs are unfortunate, but it is crucial for companies to make responsible choices that prioritize both profitability and employee well-being.
