Sony PlayStation Mess: What Should It Do to Recover?
As the repercussions and scope of recent cyberattacks continue to grow, Sony's problems are mounting.
Not only does the company have to rebuild its network infrastructure and continue to inventory what data was taken, but the revelation that another 25 million accounts were hacked will further tarnish Sony's image — something that could impact long-term sales.
Ironically, many investors — and even some consumers — haven't been overly critical of Sony for the actual attack. Most are willing to give the company the benefit of the doubt that its security was up to industry standards and recognize that whatever person or persons stole the data were extremely sophisticated.
However, the way the company has handled the crisis from a public relations standpoint has been harshly criticized.
"They still haven't done enough to reassure people," says Michael Pachter of Wedbush Securities. "The tough talk about prosecuting the hackers is fine, but they still haven't told people 'If your credit card is stolen, here's the number to call and we'll make it right' and 'If your identity is stolen, here's the number to call and we'll make it right.' They need to reassure their customers that they will be liable for anything bad that happens as a result of the breach."
All totaled, personal data has been taken from what now adds up to 102 million accounts. And in Japan, some analysts have called for CEO Howard Stringer to step down.
Stringer has not commented on the incident, letting executive deputy president Kazuo Hirai do all the talking. That spotlight on Hirai has raised questions about whether he might wind up as the company's sacrificial lamb should Sony decide to make a face-saving gesture and terminate a high level executive. Previously, Hirai has been widely viewed as being next in line for the CEO role.
Even if the company doesn't pin the blame on any one executive, the data breach could impact Hirai's chances of ascending to the CEO position, since it happened to the division he was directly responsible for running.
Boardroom shuffles may reassure investors, but they don't have much of an impact on consumers. Sony first must calm the collective fears and anger of its affected customer base. But it also has to be mindful of potential customers, who might be scared away from buying its products as the story continues to dominate headlines.
For the affected, Sony already has detailed some of its plans — a "Welcome Back" program that will offer free downloadable entertainment content (which will vary by region), a 30-day free membership in its premium service and a complimentary 30-day subscription to its Music Unlimited Qriocity service.
It's also offering to assist users in enrolling in identity theft protection services — but hasn't yet provided details.
What it hasn't done — and what could quell some lingering fears — is detailed how it plans to prevent future incursions. While Sony announced plans Sunday to move its data center to a secure location and hire a new executive who would focus on security, those sorts of things are less comforting than hearing hard numbers and comparisons.
Committing to spend a certain amount to increasing security or partnering with a company that has a spotless record in this area would likely go further.
For potential customers, this would be an ideal time for Sony to announce a price cut for the PlayStation 3. It's something the industry is expecting in the coming months anyway—and with the almost exclusively negative focus on the company right now, a little positive press surely wouldn't hurt.
It could, in fact, deflect people's attention away from the data breach — an essential first step in rebuilding Sony's reputation.
Price cuts impact margins, though, which is one reason Sony is holding back on that. (Also, momentum for the PS3 doesn't seem to be waning in any notable fashion.) However, one of the tenants of crisis management is a company spends whatever it costs to repair the damage. Sony's doing that, of course, but the bill is likely going to be high.
The good news? Investors aren't flinching too much, despite the string of bad news. Shares are down 6 percent from the day Sony shut down the PlayStation Network servers. That's one area, at least, where the company doesn't have to do damage control.