How Sony Got Game?

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Nonetheless, investors won't see a payoff for years. Sony will probably lose $1.7 billion selling PS3s in its 2007 fiscal year. Analysts for the Yankee Group estimate Sony spends $700 to $800 to make each PS3, creating a loss on every sale. The games division won't return to profitability until several million units have been sold, as component prices fall and revenues from higher-margin software kick in. Said Stringer: Sony will "have to generate some excitement and profits from elsewhere in the company."

And that won't be easy. Sony faces relentless competition in its core consumer electronics business. In the TV category, Sony is just now beginning to break even, partly because it was so late to switch to production of flat-screen TVs. In typical Sony fashion, the engineers weren't convinced that existing LCD technology was up to Sony standards and wasn't worth investing in. Wrong. Sony was forced initially to buy flat panels from rivals like Sharp. In digital cameras, though, Sony has been far more successful.

The uneven results have critics wondering if Stringer should break up the company. "It's time Sony takes a hard look at where their non-electronics divisions fit in the larger picture," says Yasunori Tateishi, author of Sony Inside Story. "The company talks about synergy, but it's never been realized."

This criticism drives Stringer nuts. In a world where everything is connected, he says, why disband a brand that can fulfill a consumer's every entertainment wish? He says the plan to get sprawling divisions to work together more closely is succeeding. "I just came back from China and the word Sony United is being stamped across every office there," he says. "People want to bring the company together." Slogans are one thing, though, and even Stringer acknowledges, "We still have a ways to go." Game on.

The original version of this story gave the incorrect price for the Xbox 360 video game system as $400 for the basic version and $500 for one with a hard drive. In fact, the two versions of the Xbox cost $300 and $400 respectively.