Sony is sounding the alarm
The PlayStation 5 has become, overnight, even harder to get hold of in most places around the world. Not because of supply issues, although those still exist, and not because of resellers or bots or any other middleman keeping Sony’s game console from the masses. Instead, it’s something Sony is doing in the form of an unprecedented price hike of around 10% in most markets around the world, except the US It’s a troubling turn of events for the company’s gaming division which, until this year, was riding on the success of the PlayStation 4, as well as a strategy of exclusive games and a lucrative ecosystem development on the back of blockbusters like Epic. Activision’s Fortnite and Call of Duty. The golden age of the PlayStation may well be over. Sony feels the pain. Like many of its peers in the gaming industry, Sony is experiencing a drop in sales after two years of booming pandemic-era growth. The company hasn’t released any major exclusive hits since God of War and Marvel’s Spider-Man in 2018, and supply issues have hampered PS5 development. Consumer spending on games is now down across the board.
After analysts began predicting a decline in game industry revenue earlier this summer, Sony reported dismal first-quarter earnings last month: a 26% year-over-year drop in software sales, only a 4% increase in PS5 shipments and double-digit reduction in its annual earnings forecasts. Sony stock is down more than 30% this year. Sony attributes its struggles and price hikes to several factors: inflation first and foremost, but also “adverse currency trends” and macroeconomic pressures that have begun to affect video game spending and industry growth. As for why the gaming industry is beginning to decline, Sony CFO Hiroki Totoki said earlier this month that “opportunities for users to leave the home have increased as COVID-19 infections have subsided to key markets”. Playtime on PlayStation fell in Q1 by 15%, the company added. It’s also true that game lag has been happening left and right, with last year’s Call of Duty, a big financial hit for the PlayStation, underperforming massively. Research firm NPD reported this month that second-quarter U.S. revenue fell 13% year-over-year, citing high gas prices, the return of spending on travel and live events and a “lighter slate of new game launches ” alongside “hardware”. supply constraints’.
PlayStation’s biggest issues are more existential. Sony will undoubtedly ride out the current storm, and the PS5 price hike is designed to help. But the company faces a bigger threat: industry changes in game distribution in the form of cloud streaming and subscription services promoted by a much more formidable Microsoft.
Microsoft admitted this month in a regulatory filing that Sony’s PS4 outsold the Xbox One by more than two to one. But the Xbox business is radically different than it was a decade ago, and Microsoft’s gaming division is now at the forefront of subscriptions and cloud gaming with Xbox Game Pass, which in January reported 25 million subscribers. Microsoft is also using its larger company’s coffers to buy its way into a more advantageous position. Xbox chief Phil Spencer said this week that he feels “good about the progress” his company is making in satisfying regulators to close its nearly $70 billion deal with Activision Blizzard. The Xbox, thanks in part to lighter demand, has also been easier to find than the PS5, helping Microsoft lead for three straight quarters of US gaming hardware sales. In response to Sony’s price hike, Microsoft said yesterday that it has no plans to raise the price of its Xbox series of consoles. Sony tried to match Microsoft’s stronger position, with mixed results. It launched a revamped version of its PlayStation Plus subscription platform to better compete with Game Pass, though we won’t know until next quarter if it helped signal PS Plus growth after subscriptions have declined over the past two quarters. Sony has also started investing heavily in live service gaming with its purchase of Destiny developer Bungie this year for $3.6 billion and its commitment to release 10 live service games by 2026.
Sony has room to recover. The company’s PS5 is still the flagship console platform of the new generation, and Sony has plenty of reasons to be optimistic about the future of its gaming business.
In a year of lackluster AAA game releases, Sony’s Santa Monica Studio is releasing the highly anticipated God of War Ragnarök this November, and Naughty Dog is launching a PS5 remake of The Last of Us next month. The company is also pouring money into film and television adaptations of its games to diversify its entertainment business. Analysts do not expect the PS5 price increase to reduce sales of the console in the coming months. “High pent-up demand for Sony’s device means that this 10% price increase in most markets will have little impact on console sales,” wrote Piers Harding-Rolls of Ampere Analysis. “We expect Sony’s PS5 sales forecast to remain unchanged.” “The PS5 Digital Edition has always sold at a loss. The Standard Edition was selling at a profit, on a per-unit basis, earlier this year,” explained Daniel Ahmad of Niko Partners. “In other words, Sony wants to keep hardware profitability stable, pass on increased costs to consumers, and expects strong demand for the console to allow it to meet its FY targets.” For now, Sony knows where its hottest battleground is: here in the US, where competition from Microsoft’s Xbox is stiffer and the strong dollar means prices can remain flat and margins steady. But a PS5 price hike amid ongoing supply issues has given Microsoft another advantage. The PS5 “is still supply-constrained, so we won’t see a potential impact on demand for a while,” wrote NPD’s Mat Piscatella. “But in theory at some point markets will not be limited. Then things will get interesting.”
— On the contrary, Nick
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#TGIF: How to spend your weekend
“Lost Ollie” – Netflix. Lost or discarded toys trying to find their way back to their owners is a story as old as time, and there have been what seems like a dozen “Toy Story” movies dealing with the same theme. However, Netflix’s new limited series “Lost Ollie” stands out from the crowd with its own take on growing up, the fleeting nature of childhood memories and the types of adventures only children and the young at heart can undertake. A great four-parter to watch with your little ones this weekend. The Joe Rogan Experience: Mark Zuckerberg — Spotify. Think what you will of Joe Rogan, but when Zuckerberg sits down with the podcaster to share some exclusive news (Project Cambria is coming in October) as well as his thoughts on Meta’s hardware strategy, the emergence of VR fitness (“It happened much earlier than I thought”) and the future of visual computing and brain-computer interfaces, you should kind of tune in. Just be warned: The whole talk is almost 3 hours long! Netflix Heads Up! — App Store, Google Play. The parody game “Heads Up!” has been a hit on iOS and Android for quite some time now. Now Netflix has licensed the title as part of its growing mobile gaming initiative. But instead of replacing the existing version, the video service just released a Netflix-specific version with tons of parody prompts related to shows like “Stranger Things,” “Bridgerton” and “Squid Game,” as well as categories like “Strong Black Lead”. ‘, ‘Netflix Family’ and ‘True Crime’. It’s a fun game to play with all the TV and streaming nerds in your life. Netflix subscription required. The Great Consolidation of the Video Game Industry — The Ringer. Microsoft wants to buy Activision Blizzard for $68.7 billion. Take-Two spent $12.7 billion to acquire Zynga. Sony has paid $3.6 billion for Bungie. Overall, the video game industry has seen 651 deals totaling $107 billion in the first half of this year alone. Will this trend continue, what is causing it and what does it mean for game developers, gamers and the industry at large? In this deep dive, The Ringer explores the era of big gaming mergers and is well worth a read. — Janko Roettgers
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