Reality caught up with troubled Sony (NYSE: SNE ) over the weekend, when Chairman and CEO Nobuyuki Idei and President Kunitake Ando announced their resignations. If you didn't know that Sony was having problems, the five-year chart ought to get you up to speed. The company's shares are trading at a little more than a quarter of where they were when they peaked in 2000.
Even though Sony is a diversified entertainment conglomerate with various stakes in music, movies, and electronics, the company had come to rely heavily on the success of its video game business. That was fine when times were great on that front. But take fiscal 2002 as a classic example of why it became a problem: Video games back then accounted for the majority of the company's operating profits despite generating just 12% of its sales.
Sony remains the market leader in consoles, well ahead of rivals Microsoft (Nasdaq: MSFT ) , with its Xbox, and Nintendo (Nasdaq: NTDOY ) , with its Gamecube. But console sales tend to peak three to four years after their introduction, even though the software titles will continue to sell well.
The company does, however, have a noteworthy ace up its sleeve. Later this month, it will roll out its PlayStation Portable handheld gaming and entertainment system. Nintendo has ruled the portable market the way Sony has on the console front for years. That means the PSP faces an uphill battle, though you have to admire the new system's multimedia features, which include the ability to play music and movies, the latter in a proprietary format. Sure, when you think of Sony and proprietary video formats, Betamax has to spring to mind. But Sony has something that Nintendo doesn't have on that front -- access to content. In fact, Sony will be shipping its first batch of PSPs stateside with a free copy of Spider-Man 2, the property licensed from Marvel (NYSE: MVL ) that served Sony so well at the box office. Last week, Lions Gate Films (NYSE: LGF ) announced that it, too, would be supporting the Sony format with its own movie releases for the PSP.
That's why the timing of the executive shuffle couldn't be any worse for Sony. Yes, the numbers dictated change, and the company has had to go through some painful restructuring. But it would have made more sense to see how the PSP pans out for the company -- and its investors -- before making these moves. Sony needs to stay focused on the marketing task at hand.
This isn't a game, you know.
More related content on the Sony PSP:
Longtime Fool contributor Rick Munarriz does have a Nintendo DS lying around the house -- though his kids rarely give him the chance to check it out. He may have to buy a PSP and keep it out of their reach. He does not own shares in any of the companies mentioned in this story.
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