PlayStation2 Isn’t Game to Meet Heavy Demand

Sony Corp. dropped an early lump of coal in the stockings of retailers and hundreds of thousands of video game fans Wednesday, by drastically cutting the number of coveted PlayStation2 video consoles it will put on store shelves this fall.

PlayStation2 was expected to be the year’s hottest holiday item, the first consumer device to allow users to play games, surf the Internet and play DVD movies on their TVs.

The move is likely to disappoint consumers, many of whom have put down cash deposits for the sophisticated $299 console, and will cost retailers hundreds of millions of dollars in lost holiday sales. The news, coming only four weeks before its scheduled launch date, represents a serious production gaffe by the consumer electronics giant.

Sony blamed a parts shortage--the same shortage that has stifled production this year of numerous electronic products, such as Palm hand-held computers. Unable to meet its own goals, Sony slashed in half--from 1 million to 500,000--the number of consoles it will make available Oct. 26, the system’s launch date.

“It’s a black eye for Sony, no doubt. And parents will [be] upset [when] their kids start asking why they don’t have a PlayStation2, and all their friends do,” said James Lin, senior analyst with Sutro & Co. But “the demand for these things is not going to go away. Sony’s just going to have to ride this out.”

In Japan, Sony sold 1 million PlayStation2 units in its first week of release in March because its appeal went beyond the traditional community of hard-core game players.

“A million units were pre-sold when Sony announced the U.S. launch date back in May,” said Van Baker, vice president of the e-business group at research firm Dataquest. “This is going to make customers furious.”

The reduced shipments mean that Sony will be far short of the 2 million units that retailers and game fans had expected. On Wednesday, Sony promised to ship 100,000 additional consoles each week until year’s end, bringing the total to 1.3 million.

“I don’t think everyone who wants it will get one,” said Jack Tretton, Sony Computer Entertainment senior vice president of sales.

The disappointment was immediate. In a sign of how financially and culturally powerful the $6-billion domestic video game industry has become, Wednesday’s announcement promptly roiled everything from video game stocks to Internet bulletin boards. And it could cost retailers--from Target to Best Buy--as much as $250 million in holiday sales.

Sony’s stock fell in anticipation of the move, as did the shares of software companies developing games for PlayStation2. On EBay, the online auction house, frantic customers on Wednesday bid as much as $620 to buy a PlayStation2--with no guarantees when it will be delivered.

PlayStation2 is Sony’s premier product in an industry it essentially took from rivals Nintendo and Sega. Before the launch of the original PlayStation in 1995, the company had no video game presence.

Today, Sony holds more than half the market. But it faces serious challenges from Nintendo and, particularly, Microsoft Corp.--both plan to launch advanced video game systems of their own in 2001.

Even before Sony made its announcement after the stock market closed, investors got wind of the reduced shipments. Sony shares in New York Stock Exchange trading fell $3.63 to close at $99.38. Likewise, shares in video game makers Electronic Arts, headquartered in Redwood City, Calif., fell $5.69 to close at $45.19 a share, while Activision, based in Santa Monica, fell $1.98 to close at $12.63.

Customers also expressed their anger. Sony’s announcement leaves hundreds of thousands of consumers empty-handed and feeling cheated by the company.

In an Internet chat room, one video game consumer named Peter complained about Sony: “You guys might just have the best system out there, but if nobody can buy it, what damned difference does it make?”

Since the spring, many retailers have accepted deposits from buyers to guarantee a PlayStation2 on its launch date, even though Sony executives said they discourage the practice. One software retailer alone claims to have taken more than 200,000 cash deposits. Retailers would not comment on whether they will refund deposits if customers want to cancel their orders.

Retailers had already started telling customers that their orders, even ones that were submitted months ago, might not be filled any time soon. Retailer Electronics Boutique posted a warning to consumers on its Web site, telling people not to count on them for their holiday shopping.

“If you placed your order after July 24, may the Force be with you,” according to the company’s site. “We don’t even want to speculate as to when you might receive your order.”

Rick Raymo put in his order to Amazon.com for a PlayStation2 in the spring. The avid game player, who is director of developer relations for the Irvine online company GameSpy Industries, said he couldn’t wait to get his hands on what seemed to be the hottest device of the year.

Then, this month, he received an e-mail from Amazon’s customer service. “We’ve recently learned from our supplier that the item you requested . . . PlayStation2, will not be available in the foreseeable future. We’re sorry not to have better news for you,” the e-mail stated.

The note then directed Raymo to see whether someone was selling the machine through Amazon’s auction site. “Are you serious?” Raymo said. “I know a whole lot of people won’t get them until next year. This is crazy, especially because I ordered so early.”

But rumors that Sony might not be able to deliver on its promise of 1 million units by Oct. 26 had been swirling for weeks. In Japan, the company had problems with the special circuitry that enables the machine to play both games and movies. Plus, the company was caught in a global shortage for high-end electronic components.

And anxiety about the situation had been mounting, particularly among retailers who have been waiting to find out how many consoles they will get from Sony. With 700,000 fewer PlayStation2 units than expected, retailers are bracing for lower sales. Worse, though, is that consoles drive more lucrative sales of video designed just for PlayStation2.

“Listen, I can’t really talk about this. I can’t afford to piss off Sony,” said an assistant store manager at a San Jose Funcoland, a nationwide chain that sells new and used video games along with accessories. “We’ve been taking tons of orders from people for months.”

Most customers have made a $10 deposit to ensure that they will have a PlayStation2 on Oct. 26. Some people have even shelled out the entire $299, the manager said.

“I guess all I can do now is pray,” the manager said. “Or quit.”