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PlayStation Network Outage: How Much Will Sony Lose?

sjohnson
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Posted April 28, 2011 - By Stephen Johnson

PlayStation Network PSN

As we pass more than a week without a PlayStation Network, we're taking a look at how the outage is likely to affect the bottom line of Sony. The short answer: It's going to be bad. According to some estimates, Sony could hemorrhage from $1.5 to $24 billion before the dust settles. A lot of the ultimate cost seems to depend on whether the PSN hacker/hackers have gotten away with credit card information and can unencrypt it.

One of the early indicators of the effect the fiasco will have on Sony is the company's stock price. The price of Sony's stock has fallen eight percent this week, tanking nearly five percent yesterday alone. This was on a day when the average stock rose 1.6 percent. Bad news. Although it's mitigated a bit by the fact that Sony's stock was already in the proverbial crapper due to natural disaster.

"Shares of Sony have already reached the low since the earthquake so I think further downside is limited. Investors who buy Sony are buying on its growth in PlayStation," Prudential Financial's Michael Wang told Reuters.

The $24 Billion figure cited above was generated by The Ponemon Institute, a data-security research firm, by considering the cost of previous security breaches involving a malicious or criminal act. According to their figures, the estimated cost of leaks was $318 per compromised record in 2010. That figure takes into account the cost of detection, escalation, notification, and after the fact response, as well as measuring the impact of lost or diminished customer trust and confidence. After a security breach some are calling the worst seen in years, will Sony be able to hold on to its customer base?

"Gamers usually will not stop playing just because a single incident," Prudential's Michael Wang said, but others, including some commenters on this website, are less ready to forgive Sony.

According to security expert Christopher Burgess, senior security advisor to the chief security officer at Cisco, at least Sony's response to the hacking has been positive, which might help maintain customer loyalty. "They are doing their triage and informing their customers while they triage," Burgess said. "The fact that Sony discovered the breach, took their own network down (a defensive move) and self-disclosed are all pluses."

Another potential price-tag for Sony over the incident is the expected legal fallout.Yesterday, a class-action lawsuit was filed in the United States, and attorney generals in Iowa, Connecticut, Florida and Massachusetts have begun investigating the matter in their respective states, and that's just in the United States. In other countries, the potential for legal losses may be even larger.

"European countries are going to go crazy and be all over this," Dan Burk, a professor at the University of California, Irvine School of Law, told Reuters. "They are absolutely obsessed about companies holding personal information."

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