Sony seen facing long battle to regain trust after data breach

Last Updated: Monday, May 2, 2011 - 13:04

Tokyo: Sony Corp will need time to restore trust in its online security systems as it prepares to restart its PlayStation video games network following the leak of personal details on 78 million user accounts.

Many PlayStation users around the world were angry and frustrated that the first warning of one of the largest Internet security break-ins ever came a week after Sony detected a problem with the network on April 19.

Some were dissatisfied with the limited free services offered as incentives after Sony on Sunday apologized and said it would gradually restart the PlayStation Network with increased security.

Analysts warned restoring customers` faith would take time -- a blow to the consumer electronics giant that has touted online services as a way of leveraging its strengths in both hardware and content, including films and music as well as games.

"Damage has been done to Sony whatever the scale of the content giveaway at this point, and Sony is facing a prolonged effort to regain customer trust," said Jay Defibaugh, director of equities research at MF Global in Tokyo.

"Anything that undermines consumer willingness to divulge credit card details to Sony is a problem for the network strategy," he added.

Sony said on Sunday it would offer some free content, including 30 days of free membership to a premium service to existing users and in some regions pay credit card-renewal fees, but added compensation would only be paid if users suffered damage.

The news sparked thousands of comments on the PlayStation blog and Facebook page, many of them supportive, but some expressing dissatisfaction.

"The point is you took our money and didn`t secure our credit card and personal data. I`m not even sure how you can possibly make up for that," said a post by a user under the name rawstory. Others said they planned to pay for services using prepaid cards in future.

Shares in Sony were up 2.5 percent to 2,316 yen, outperforming the broader Nikkei index, but falling short of rival Nintendo Co Ltd, which was up 4 percent. Sony shares fell as much as 5 percent on Thursday as concerns mounted about the impact of the breach.

Analysts said the leak would weigh on investor sentiment.

"At minimum, having to suspend the service, fix its problems and deal with the aftermath, looks set to cost (Sony) tens of billions of yen," said analyst Nobuo Kurahashi of Mizuho Investors Securities.

"I don`t think anyone knows where they will be able to absorb this loss, nor how much it will be, and that`ll weigh on share prices going ahead," he added.

Goldman Sachs estimated the total earnings impact would be less than 50 billion yen. Many users open multiple accounts and the total number of valid credit cards registered on the network is 10 million, with other gamers using prepaid cards.

The incident has sparked legal action and investigations by authorities in North America and Europe, home to almost 90 percent of the users of the network, which enables gamers to download software and compete with other members.

Sony is the latest Japanese company to come under fire for how it has disclosed bad news.

Tokyo Electric Power Co was criticized for how it handled the nuclear crisis after the March 11 earthquake. Last year, Toyota Motor Corp was slammed for being less than forthright about problems over a massive vehicle recall.

Bureau Report



First Published: Monday, May 2, 2011 - 13:04

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