Gaming, electronics sales compensate for Sony's lagging music, movies

The keyword this morning for Sony is "up," especially with regard to its performance over the holiday quarter. The PlayStation brand would finally steal the show, if it weren't for Bravia hogging the spotlight.

The reason you build a corporation with highly diversified operations is because, regardless of the state of the global economy, no single market segment can ever be guaranteed to grow. Sony, in light of that fact, is a very smartly combined operation, and its careful balance of market segments helped it once again weather a year that at least seemed at the time to have been going badly.

In its quarterly performance report for Q3 2007 (its fiscal year is one quarter behind the calendar year) released this morning, Sony cleverly reported its PlayStation 3 sales numbers for the quarter were up 295% in 2007 over the prior year's fiscal third quarter. It doesn't take much gamesmanship to recall that the PS3 was introduced in North America and Japan -- and not yet even in Europe -- in November 2006, right in the middle of Sony's fiscal Q3.

The company reported worldwide PS3 sales for the holiday quarter of 2007 to have reached 4.9 million units. That's much closer to where Sony wants to be.

But during that same quarter, the PlayStation 2 sold 5.4 million units, and the PlayStation Portable surged to 5.76 million units in the wake of its redesign. With this report, Sony acknowledged that it has switched to reporting sales as units sold by virtue of someone having purchased them, as opposed to units shipped in anticipation of future sale.

The surge in all three products and their associated software gave Sony a quarterly sales record of just under $5.1 billion, a 31% increase over the prior holiday quarter -- which even Sony acknowledged at the time was a dismal quarter from which a company's fortunes could only go higher.

Anyone who thought Sony was a movie producer that happened to make games on the side, needs to become reacquainted with the company's balance sheet. During that same quarter, its Pictures division took in just under $2 billion in revenue.

But in an even more extraordinary indicator of the times we live in, the Pictures division ended up being just a hair more profitable, with $116 million in operating income for the quarter versus $113 million for the game division.

Let there be no mistake, though, Sony is an electronics company that just happens to make electronic games on the side, and some movies and music on the side of that. Due to the stellar performance of the Bravia high-def brand and the Vaio PC brands -- both of which have been redirected more toward mainstream buyers on budgets -- Sony's electronics division reaped over $18 billion in revenue in just the third quarter, earning $1.46 billion in operating income alone.

Sony actually owns just 50% of Sony BMG Music Entertainment, one of the "big four" record producers. So on the surface, the fact that Sony BMG's revenue from music sales were almost literally flat on the year, would seem to be bad, especially when you divide that flatness in half and share the other half with Bertelsmann.

But because the cost of doing business there is so low, Sony BMG earned $208 million in revenue during that quarter. And because that business is separate and not reported in Sony's sum total every quarter, it can use its $104 million cut to offset the rising cost of doing business in gaming, where the margins are much narrower.