Sony is a huge staple in the U.S. entertainment industry, but is not immune to financial scandal. Not only does the company face fierce competition in rivals like Nintendo and Microsoft, Sony also found itself a target of multiple class action law suits during 2011. It is fairly easy for large companies, like Sony, to brush law suits and scandals under the rug.
In other words, billion dollar companies can afford the occasional scandal (in most cases). The editors at Mashable.com, with the help of independent financial research conducted by the Ponemon Institute, helped us break down the actual impact of the infamous PlayStation Network servers scandal that happened earlier this year.
On April 19, 2011, it was brought to Sony's attention that several of their servers had been behaving strangely. The servers were unexpectedly rebooting themselves, among other unplanned activity. The next day, April 20th, Sony decided to shut down the online gaming network after more investigation revealed that their customer's credit card information had been compromised. Shutting down the online servers meant disconnecting more than 77 million accounts. Users were understandably concerned and upset, but Sony assured them that the servers should be back up within two weeks.
The first lawsuit was filed against Sony on April 27th at the U.S. District Court for the Northern District of California. The suit was filed on behalf of Kristopher Johns, age 38, from Birmingham, Alabama. Sony is accused of failing to take reasonable care to protect, encrypt, and secure the private and sensitive data of its users. On May 2nd, Sony announced that its Sony Online Entertainment (SOE) servers had also been compromised, affecting an additional 25 million accounts. They also announced that their servers would not be back up for another month. A second lawsuit was filed against Sony a few days later, on May 4th, which claimed damages of more than $1 billion.
Sony's Senior Vice President of Publisher Relations, Rob Dyer addresses its publishing and development partners in a letter, stating that the company deeply regrets that their servers were hacked. The company extended an olive branch to their loyal customers in the form of a Welcome Back Package on May 12th. Once the networks became active, customers were given free downloads and 30 days of free service. Surprisingly, amidst multiple lawsuits involving consumer privacy, Sony announced that sales had increased. During the month of April, sales of Sony Computer Entertainment America products had risen 13 percent from April 2010 sales. Additionally, PS3 software sales in the U.S. were up 40 percent year-on-year.
According to the Ponemon Institute, the total potential cost of the data breach comes in at about $24 billion, averaging about $318 per customer. The total is estimated around 48 percent more expensive than a similar data breach that occurred at Sony during 2010. When compared with the $77.5 billion revenue reported for last year, and considering the $289 million profit during the month of April, the cost is significant but hardly a crisis for Sony.