The PlayStation 5 price hike is the most unpopular decision Sony has made since the PS3 era. As history repeats itself, Sony is faced with the very thing that held it back during the Gen 7 console cycle.
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Sony has announced a price increase for PlayStation 5 in all territories and countries outside the United States. The reasons are grim and obvious: Foreign currencies are falling against the dollar – the euro recently dipped below the dollar and is currently at break even; the yen is low, causing PlayStation operating income to fall by -50%–and inflation is forcing consumers to rethink their spending.
The pandemic profit increase is long gone and production costs have risen, even as components are more readily available. Everything is getting more expensive, and to stay profitable, Sony is passing those costs on to consumers in every market except the most important: the United States.
I’ve covered gaming for about 11 years now and I’ve seen industry trends come and go. Many of them do not remain alone, but repeat themselves. Market leaders usually swing a pendulum; Microsoft conquers one generation, Sony conquers the next. However, this shift in power has changed and history is repeating itself at Sony in an interesting way right now. PlayStation is currently experiencing a unique nightmarish mix of the expensive PS3 era mixed with the disastrous PR that ultimately stunted the Xbox One at the start of Gen 8.
12The new suggested retail price of the PlayStation 5.
Sony has accidentally unleashed the worst kind of console war at a time when the industry is moving away from the self-contained walled garden platforms. Raising the PS5’s price tag shook the hornet’s nest of bad press and user sentiment on social media so strongly that I completely recalled the Xbox One’s doomed launch.
However, the PS5 is not doomed. Far from. The console does relatively well with 21.7 million total shipments, and Sony is gearing up to ship another 18 million consoles this fiscal year. However, we have to ask ourselves how the price hike will affect overall resale and hardware revenues for the company.
12Sony has increased the price in key global regions such as Japan, China, Europe, UK, Mexico and Canada due to a high inflation market.
What’s most interesting about this development is that Sony is no longer willing to absorb losses from PlayStation hardware sales, and Sony doesn’t really have a big safety net if the bad press slowly erodes PS5 sales like the Xbox One. .
Microsoft took a significant hit during the Xbox One generation with the console’s original retail price of $499 — so much so that its new CEO, Satya Nadella, had wondered why Microsoft was in the gaming business at all.
12Xbox is now an ecosystem of services, digital games and products that extend beyond the console market.
Also read: Why Xbox LIVE is the center of Xbox, not consoles
It turns out that Microsoft had a plan for the Xbox One. The all-in-one system would eventually become an extension of Windows that connects to a large service framework.
12Game Pass has accelerated Xbox revenue with consistent year-over-year growth.
Also read: Game Pass defines the entire Xbox generation, drives annual revenue
They went ahead with their plan, turning Xbox from a console into a platform. Microsoft joined Xbox One consoles with PC using Windows 10 and created a cross-platform ecosystem. In 2017, they rolled out Game Pass, one of the most transformative value-oriented subscription services that ultimately “save” the Xbox brand as a whole.
Microsoft no longer had to worry about selling hardware. Xbox revenues increased thanks to the sale of services and games on a combination of platforms. Game Pass fueled earnings growth, eventually bringing Microsoft a record $16 billion in FY21.
Sony will invest more in risky markets such as live services and mobile in a bid to capture the multi-billion dollar market that has supported the PlayStation brand for years.
The big difference is that Sony doesn’t have such an integrated plan, at least not in the same way that unites console and PC in such a tight-knit manner.
Make no mistake: Sony is doing have a plan, but it is a risky strategy that relies on expansion in mobile games and live services. These segments are the biggest breadwinners in the games industry and can provide the most return, but there is no guarantee of success.
Mobile and live services are the most competitive spaces on the market and are extremely volatile; Sony is investing heavily in these segments and aims to have 12 live games on the market by 2025, accompanied by several mobile games.
Sony’s new push in live services and free-to-play motivated its acquisition of Bungie for $3.7 billion. As part of Sony Interactive Entertainment, Bungie will play an important role in the creation and maintenance of live service games.
12Sony’s PlayStation 4 platform remains a strong earner with a few more years to earn money, but Sony is boosting sales of PS5 consoles as the industry advances.
The main fallback that Sony has is the PS4 era. With 117 million consoles shipped to date, the PS4 platform is a mega-earning, robust platform capable of generating tens of billions of dollars a year. However, the PS4 is long in the tooth and some games skip the aging platform altogether.
Example: Final Fantasy XVI, exclusive to the PlayStation 5 console, will not be on the old platform. Gamers are faced with two choices when they want to play: buy a PS5 at higher prices, or buy a PC. This problem will persist as the industry moves to Gen 9.
Sony’s network services earn billions each year, accounting for more than 15% of total revenues (left); PlayStation Plus subscribers versus monthly active users (right).
Services are another great safety net for Sony’s PlayStation division. Sony earns billions each year from its network services segment, including its subscriptions; services, for example, raised $3,644 billion in FY21.
Sony recently merged PlayStation Now with PlayStation Plus in an effort to add more value. The company offers three pricing tiers (some of which are quite high and, compared to Game Pass, don’t offer the same day release guarantee that has made Microsoft’s service so popular).
It’s worth noting that most PlayStation users don’t subscribe to PS Plus, and Sony hasn’t released official adoption figures for the new three-tier PS Plus rollout yet.
12Also read: PlayStation PC ports will generate $300 million this year
Sony also has a PC to fall back on. But this is not enough. It’s true that Sony wants to make $300 million from PC this fiscal year, but that’s only a drop in the ocean compared to PlayStation Network’s total revenue. Sony makes $7.59 billion in add-on content alone, which is by far the biggest driver of its annual revenue.
Also read: After PS5 price hike, Sony goes all-in for game shows and movies
Sony is also investing heavily in making TV shows and movies on PlayStation properties. The focus has broadened beyond games in such a substantial way; Sony has 11 projects in the works based on its IPs, and nine of them are known.
TV Shows and Movie Adaptations from PlayStation Productions
- Days Gone – Movie
- Gravity Rush – Movie
- The Last Of Us – HBO Max TV Show
- Ghost of Tsushima – Movie
- Twisted Metal – Peacock TV Show
- Horizon Zero Dawn – Netflix
- God of War – Prime Video
- Gran Turismo – Movie
- Ghost of Tsushima – Movie
While Sony is doing well right now and showing no signs of significant losses in the near or even medium term (Sony can literally run on third-party game revenue for many years in a row and doesn’t have to) release first-party heavy-hitters to make billions a year), we have to wonder how this will affect Sony in the long run. Will the company be able to juggle all these spinning plates while taking the big risks of live and mobile games?
Time will tell. But for now, Sony remains at the top of the gaming platform market with a mighty multi-billion dollar digital empire. The only problem is that to expand that realm, they’ll have to ship more PlayStation 5s, the only guaranteed platform for revenue over time.
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