Sony: PlayStation2 Restrictions Won't Hurt

By Yvonne Chang, Reuters

19-Apr-00

Japan electronics giant Sony Corp. played down the risk to its business from export restrictions imposed on its flagship PlayStation2 video game due to concerns it could be used for military purposes. The company could not compromise the technology for its most profitable product just to escape a government control when it needed to stay ahead in a highly competitive market, said an official for Sony Computer Entertainment (SCE) , a subsidiary of Sony Corp. ""We need PlayStation2 to remain competitive for the next five years and given the rapid developments in technology, we could not afford to compromise,"" the official said. Analysts said the restriction was unlikely to affect Sony's planned exports of the hugely popular game console to Europe and the United States from later this year, given the strong demand. The machine, which includes a digital video disc (DVD) player and will eventually offer Internet access, is key to Sony's profit outlook and the company said it had shipped 1.4 million in the month after the game's March 4 launch. ""Demand for the product is strong and restrictions of this nature will not prompt Sony to hold back its global business,"" said Masahiro Ono, analyst at Warburg Dillon Read.Sony Computer Entertainment has said it aimed to ship four million PlayStation2 consoles in Japan and three million each in Europe and the United States in 2000 and 2001. European and US shipments are due to start later this year. ""We don't expect any impact on our business because of this restriction,"" said a spokeswoman for SCE, adding that the company had been aware of the restrictions since PlayStation2's launch. The company had already received permission from the trade ministry to export to the United States and Europe, she said. Company officials said the restrictions amounted to little more than some additional paperwork. Japanese media reported at the weekend that the government had slapped export controls on the hit home game machine because it is so sophisticated it could be used for military purposes. The government has become increasingly wary that products for civilian use could be diverted for use in weapons, and a Trade Ministry official confirmed the government had imposed the export controls on PlayStation2 in March. The PlayStation2 console and its eight-megabyte memory card have been designated as ""general-purpose products related to conventional weapons"" because they contain components that could be used for military devices such as missile guidance systems. Sony shares were trading down 8.96 percent, or 1,190 yen, at 12,090 in afternoon trade, in line with the entire market's plunge as record losses in US stocks prompted selloffs. Restrictions Won't Deter Advances Sony is facing tough global competition, with US software giant Microsoft Corp. due to enter the lucrative video game market later next year with its own high-performance console, tentatively called the ""X-Box."" The SCE official said the company had structured its business model, which includes overseas sales, with government export restrictions in mind and the export controls would have little impact on business strategy. ""The purpose of the law is different and all we have to do is structure our business model with that in mind,"" he said. The first version of the PlayStation generated approximately 40 percent of Sony's group-based operating profits. Restrictions Likely To Change Government export restrictions based on traditional physical trade of goods are likely to change given the rapid adoption of electronic commerce and globalization of trade, analysts said. ""I expect restrictions will become more and more vague in the future as national boundaries become vague in the world of e-commerce,"" Ono said, adding that the market would be the driving force prompting changes in the restrictions. Under the law, the export of restricted products worth more than 50,000 yen ($479) requires approval from the trade ministry. Thus the export of more than two consoles would be controlled because a console is priced at 39,800 yen each. Japanese radar and communications devices for civilian use were discovered in a North Korean submarine sunk by the South Korean military in December 1998, and two Japanese men were arrested in January on suspicion of illegally shipping parts for anti-tank rocket launchers to Iran.

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