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Sony Tallies $171M in Data Breach Losses... and Counting

Sony Tallies $171M in Data Breach Losses... and Counting

As much as Sony would like to close the great and awful hacker chapter in its company history, the $171 million the company has reported losing as a result of the April breach is likely just the tip of a growing iceberg. "Aside from the hard numbers, I think the impact on the Sony image has been severe," noted tech analyst Al Hilwa.

By Rob Spiegel E-Commerce Times ECT News Network
05/24/11 12:11 PM PT

The breach of Sony's PlayStation Network will cost the company at least US$171 million according to the company's preliminary financial forecast released on Monday -- the latest predictions for its fiscal year ending March 2012.

The total figure will likely grow. . . and grow. Sony has racked up expenses for the repair and resurrection of PSN, Qriocity and Sony Online Entertainment, all of which were compromised in the April 17 attack, when the personal information of more than 100 million customers may have been accessed by hackers.

Sony brought the PSN back online after weeks of downtime; the PlayStation store is expected to reopen within a week.

Japan-based Sony also suffered from the earthquake and tsunami that devastated its homeland earlier in the year.

Now that a bit of the dust has settled from the initial hacker attack, Sony has updated its earnings forecast to reflect a $3.2 billion loss. This amount does not include costs associated with any possible future lawsuits stemming from the fiasco.

Sony's announced expense figure of $171 million accounts for the costs of repair, enhanced security, identity theft protection for customers, and the "welcome back" program offering customers free digital content.

In the long term, there may be lawsuits and other security issues associated with the attack. Sony's Thailand website has been compromised by continuing phishing scams, and Sony Music has been the target of hack attacks in Greece and Indonesia, according to news accounts.

Sony did not respond to the E-Commerce Times' request for comments by press time.

Worst of Times

Sony has taken hits on a number of fronts -- from the security breach to the earthquake and accompanying tsunami that devastated Japan. It's hard to tell now whether Sony is on its way back up from its travails or still struggling along the bottom.

"Whether or not Sony's troubles are over is the 64-thousand-dollar question," said Charles King, principal analyst at Pund-IT.

"This is the third annual earnings loss in a row for Sony. For a company that was well ahead of the curve in driving new consumer technologies for decades, they seem to have fallen off in the last three or four years," he told the E-Commerce Times.

"They were doing well with the PlayStation 3, and they were very effective in using the console to drive users to the online gaming site," continued King, "but the exposure of customer data and turning off the lights on the site has been a complete disaster for them."

The weeks-long PSN outage is unprecedented. Sony wanted to be confident about its network security before it went back up, but the length of time in the dark is more than a lifetime by Internet standards.

"When the lights go out on a website for 24 hours, that's considered a pretty significant outage," said King. "This has been going on for weeks. This really hurts their consumer strategy."

The earthquake was the beginning of a series of misfortunes for Sony, and there's no end in sight. The company still has possible lawsuits and security concerns to deal with -- not to mention an image that needs to be repaired.

"They have had bad news coming from a variety of areas," said King. "They can attribute losses to the gaming site, but they also got whacked badly by the earthquake. Yet the problems are wider and deeper than the earthquake and the breach."

Crawling Back Up

Sony's PSN difficulties may simply be the inherent vulnerabilities that come with offering services on the Internet. While Sony took the hit, any company offering these services may be just as vulnerable.

"The Sony issues highlight the exposure that cloud services have to hacker proclivities," IDC analyst Al Hilwa, program director for applications development software, told the E-Commerce Times. "What is new about this compared to licensed software is that it is how the network outages can acutely affect the business."

The damage to Sony's public image may be devastating. When a new console generation starts, many gamers can have a tough time deciding which system to go with first. Sony's troubles may sway some customers to look elsewhere.

"It is not clear if the issues are over for PSN -- they may continue to be targeted by hackers," noted Hilwa.

"Aside from the hard numbers, I think the impact on the Sony image has been severe," he continued. "There are lessons here for more than one party. It shows that we have to up the ante in law enforcement, but it also shows that the strategy you might have for opening platforms matters. For Sony, a more software developer-friendly approach may help build back the image and reduce the tensions."


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