More PS3 Woes: Sony cutting jobs in struggling games division

Amid intense competition in the video game console market, Sony is planning a restructuring of its games division that will include job cuts in Europe and possibly in Japan and the U.S.

Sony used to welcome competition when it came from the Nintendo 64 and Sega Dreamcast. However, with financial behemoth Microsoft steadily growing their Xbox brand and a resurgent Nintendo printing money with their Wii, Sony is feeling the pressure from stagnant PS3 sales worldwide and the latest result is the elimination of 160 jobs, which translates to roughly 10% of their entire European workforce.

According to Forbes, a Sony (nyse: SNE - news - people ) spokeswoman said the job cuts in Europe are under negotiation with employees and she declined to confirm numbers.

“In order to maintain our healthy business operation, we need to make structural changes,” she said, adding that it is needed to better reflect the convergence of different forms of content.
She said the business model would be very different from that for the previous two generations of its PlayStation games console, she said.

The move follows the reorganization of the executive team at the game division last November which saw Kaz Hirai, former president and chief executive of the Sony’s American gaming unit, replace Ken Kutaragi, the father of the Playstation, as president of the international group. Kutaragi was named chief executive and chairman of the unit, allowing him to save face while essentially stripping him of any real decision making power in regards to the Playstation brand's future direction.

Anyone who thought Sony was going to repeat the success of the PS2 and walk all over Microsoft and Nintendo in this generation of console hardware was sadly mistaken. Sony has made one mistake after another so far with the PS3; from marketing blunders to supply chain issues and a lack of games for launch. At the same time, Microsoft and Nintendo have both capitalized by making great strides with their own gaming divisions. Nintendo has deep pockets thanks to it's overwhelming domination of the handheld market and Microsoft continues to work the three step plan they've touted ever since they entered the market with the original Xbox. Step one was get in the door even if it meant losing money. Step two was making a profit while increasing market share, which they've done with the Xbox 360. Step three is to dominate the market in the 3rd generation which will begin in or around 2010-2012.

So, what will Sony do now to spur sales of the PS3? A price cut is the obvious quick answer, but with the amount of money Sony has gambled trojan horsing Blu-Ray players in the PS3 they can hardly afford to cut the price and take on even larger losses. Unless of course they offered a PS3 model without Blu-Ray. They would have to restructure some game manufacturing processes to allow for such a move, but it is not impossible.

Sony’s chief executive, Howard Stringer, told reporters this week that it has sold close to 800,000 units of the machines in Europe since its release in March, but the company has yet to confirm whether it met its target for global sales of 6 million units by the end of the fiscal year in March. Stringer's silence is as good as an admission that they have not met that goal. Global sales figures seem to indicate they are no where NEAR 6 million units sold.

I wouldn't count out Sony or the PS3 as dead in the water...yet. But clearly, they need to make some major moves to convince gamers to buy into the PS3 and it's games in a big way before they dig a hole so big they can't climb out. With Bioshock, Mass Effect and Forza Motorsports 2 right around the bend, Microsoft isn't going to stop to let them catch up. Things will come to a head this holiday season when Halo 3 hits. Sony will have to have one of their BIG guns like Metal Gear Solid 4 loaded and ready to counter it or this could very well be the end of a long era of Sony console domination.