Sony may not have made an appearance at Gamescom this year, but the company still managed to dominate the show’s headlines – although it might have preferred not to.
The announcement that the price of the PS5 will rise in most global markets was published as a post on the PlayStation blog earlier this week; Sony may have hoped news from Gamescom would soften the impact a bit, compared to dropping this kind of news in one of the more empty weeks of the summer. I’m not sure if it worked; there isn’t much anyone wants to talk about this week other than price hikes.
So let’s talk about price hikes – not just Sony’s price hike, but the broader issue of the upward pressure on the industry’s pricing, which Sony’s decision has brought into sharp focus. There’s a lot of unease in consumer circles about the PS5’s price hike, along with some gallows humor about how it barely makes a difference to those consumers who can’t find a PS5 to buy in the first place – but this isn’t the first price hike we’ve seen. have seen in recent months, and it is highly unlikely that it will be the last.
In fact, the magnitude of the PS5’s price hike is significantly lower than the 25% price hike of Meta’s Quest 2 headset last month. That 25% bump on the price tag of an already expensive piece of hardware is likely to remain an outlier, thankfully, but the general trend of price increases is just getting started, and more modest increases are likely to be seen across the board.
While consumers decry corporate greed, the reality is that it is driven by inflation that has dramatically increased supply chain costs; there are certainly some companies within those supply chains that are taking advantage of the broader inflationary environment to sneak in some profit margins, but it generally isn’t the game companies on the consumer-facing side of the chain that are doing that.
Internet-wagging comments that the PS5’s price hike is irrelevant to consumers who can’t find a console anyway are largely in jest, but there’s a serious undercurrent to them too.
Inflation is not the only factor either. The fact that the United States is not seeing a price increase for the PS5 despite inflationary pressures also shows how much the troubled currency markets are to blame. The strong dollar effectively cushions inflationary pressures for US consumers, while the relative weakness of currencies such as the euro and the yen is costing consumers in those regions additional costs.
Some of those hardest hit consumers are in more fringe markets with currently weak currencies, such as Australia and New Zealand, where gaming hardware and software have almost always been more expensive than in more central markets like the US.
There is no single factor to blame for the cost increases now being passed on to consumers, and almost everything has to do with macroeconomics, well above the minds of decision makers in gaming hardware and software companies. Inflationary pressures are high in many areas, both directly and indirectly related to the gaming industry, and those pressures are unlikely to ease in the coming months.
The internet-wagging comments that the PS5’s price hike is irrelevant to consumers who can’t find a console anyway are largely in jest, but there’s a serious undercurrent to them too. The fact that scalpers can still command a price premium for scarce console inventory means that Sony’s price increase will likely be absorbed by the market without any significant impact on the sales curve for the device, at least initially.
If Sony is lucky, by the time supply starts to consistently meet demand, inflation will be under control and a price cut will be possible, bringing the console back to its original MSRP or even lower, avoiding a situation where the PS5 ends up being notably overpriced compared to its closest rival, the Xbox Series X.
Hardware price increases are a big problem for consumers looking for new consoles or other devices, but they also have knock-on effects across the industry
However, it’s equally likely that the PS5’s price increase by then will have been more or less lost to a host of similar cost increases across this industry and adjacent industries ultimately resulting in higher consumer prices across the board.
Not all price increases will necessarily be in the form of direct price increases for existing products. Many consumer electronics companies are taking a slightly more subtle approach, keeping the price of existing products stable while launching new devices or updated versions at higher prices — taking their overall pricing structure to the next level without having to take the unpopular step of actually increase the price of an existing product.
That option isn’t realistic for Sony, which will likely have PS5 hardware on the market for at least another year or two. Likewise, it may not be realistic for Microsoft, whose initial plans to regularly update Xbox Series hardware with minor revisions and speed bumps seem to have largely been shelved.
Nintendo, on the other hand, may well have a new Switch overhaul close enough in the pipeline to stave off the inflationary price hikes on that new hardware launch, rather than raising the price of existing models – albeit from the three console platform holders, Nintendo has historically been one of the least resistant to maintaining its margins by raising local prices in response to currency movements.
Hardware price increases are a big problem for consumers looking for new consoles or other devices, but they also have a knock-on effect across the industry. In theory, at least, they narrow the addressable market for the wider industry, especially when they come at a time when household incomes are under pressure on many other fronts as well.
A more expensive device, be it a console, a smart device or a graphics card, is accordingly more likely to fall to the bottom of a budget list for a household recalculating what it can afford. However, a bigger impact on the wider industry would likely come from a price hike for software – and there are many signs pointing to price hikes for software likely to happen soon.
This shouldn’t come as a shock, although it will undoubtedly come as an unpleasant surprise to many consumers. Software is subject to many of the same inflationary pressures as hardware, along with a steady and continuous rise in development costs as games become more complex and technically demanding.
On the other side of that equation, most gaming software is sold in real terms at a historically low price — occasional $10 price hikes at the launch of new console generations haven’t even kept up with inflation in recent decades.
If companies feel they can’t raise prices to cover inflation, they will instead turn to more aggressive post-sales monetization strategies
To some extent, the upward pressure on software pricing over those decades was met by increasing complexity in the pricing structure rather than by price increases in general; games are now sold at a much wider variety of price points, with season passes and digital special editions becoming standard for higher-end releases, and bolt-on business models such as microtransactions helping to bridge some of the revenue gap. In the fast pace of abrupt inflationary pressures, that strategy may not be enough — top-line price increases are likely, and it wouldn’t be surprising to see them happen, even for this Christmas’s big releases.
Consumers will no doubt be outraged at software price increases, more so than hardware price increases (after all, hardware price increases mean little to consumers who already own consoles and high-end graphics cards), especially given the pressure on their own budgets right now.
This anger will be doubled in hard-hit markets such as Australia and Europe, where price increases are greater than other parts of the world. However, the alternative may be even less appetizing; if companies feel they can’t raise prices to cover inflation, they will instead turn to more aggressive post-sales monetization strategies, likely signaling a return to unpopular approaches such as DLC content on the market. first day.
There is no good solution here that will make everyone happy – costs are rising, even when consumer incomes are under pressure. The money has to come from somewhere, meaning the best hope is that whatever unpopular solution companies choose, it’s one that minimizes the pain and protects the industry’s future growth prospects as much as possible.
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