Sony’s PS5 price hike marks the end of an era

Hello and welcome to Protocol Entertainment, your business guide to the gaming and media industries. This Friday, we discuss the explosive news from Sony yesterday that it is raising the price of its PlayStation 5 in most markets to combat inflation and other economic pressures. Also: what to read, watch and play this weekend.

Sony is sounding the alarm

The PlayStation 5 has become, overnight, even harder to get in most places around the world. Not because of supply issues, although those still persist, and not because of resellers or bots or some other middleman keeping Sony’s game console away from the masses. Instead, it’s Sony’s own doing in the form of an unprecedented price increase of around 10% in most markets around the world, excluding the US.

It’s an alarming turn of events for the company’s games division which, until this year, had benefited from the success of the PlayStation 4, as well as an exclusive games strategy and lucrative growth of ecosystem through big hits like Epic. Fortnite and Call of Duty from Activision. The golden age of PlayStation may well be over.

Sony feels the pain. Like many of its peers in the gaming industry, Sony is experiencing a decline in sales after two years of meteoric growth in the age of the pandemic. The company hasn’t released a major exclusive hit since 2018’s God of War and Marvel’s Spider-Man, and supply issues have crippled PS5 growth. Consumer spending on games is now down across the board.

  • After analysts began forecasting a drop in gaming industry revenue at the start of the summer, Sony announced disastrous first-quarter financial results last month: a 26% drop in game software sales. ‘year-over-year, only 4% increase in PS5 shipments and double-digit growth. reduction in its annual profit forecast. Shares of Sony are also down more than 30% this year.
  • Sony attributes its struggles and rising prices to a variety of factors: inflation foremost, but also “adverse monetary trends” and macroeconomic pressures that have begun to affect video game spending and industry growth.
  • As to why the gaming industry is beginning to decline, Sony CFO Hiroki Totoki said earlier this month that “opportunities have increased for users to get out of their homes as infections to COVID-19 have declined in key markets”. Playtime on PlayStation was down 15% in the first quarter, the company added.
  • It’s also true that game lags have happened left and right, while last year’s Call of Duty, a big moneymaker for PlayStation, massively underperformed.
  • Research firm NPD reported this month that second-quarter revenue in the United States fell 13% year-over-year, citing high gasoline prices, the return of travel spending and live events and a “lighter release slate of new games” alongside “hardware supply constraints.

PlayStation’s bigger issues are more existential. Sony will undoubtedly weather the current storm, and the PS5 price increase is designed to help it do just that. But the company faces a bigger threat: industry shifts in game distribution in the form of cloud streaming and subscription services pushed by a much more formidable Microsoft.

  • Microsoft admitted in a regulatory filing this month that Sony’s PS4 sold more than twice as much as the Xbox One. But the Xbox business is radically different than it was a decade ago, and Microsoft’s games division is now at the forefront of subscriptions and cloud gaming with Xbox Game Pass, which in January had 25 million. subscribers.
  • Microsoft is also using the coffers of its biggest company to force its way into a more advantageous position. Xbox chief Phil Spencer said this week he feels “satisfied with the progress” his company is making in satisfying regulators to secure closure of its nearly $70 billion deal with Activision Blizzard.
  • The Xbox, thanks in part to weaker demand, has also been easier to find than the PS5, helping Microsoft lead three consecutive quarters of gaming hardware sales in the United States. In response to Sony’s price hike, Microsoft said yesterday that it has no plans to increase the price of its Xbox Series consoles.
  • Sony attempted to respond to Microsoft’s stronger position, with mixed results. It’s released a revamped version of its PlayStation Plus subscription platform to better compete with Game Pass, though we won’t know until next quarter whether that’s helped slow PS Plus’s growth, after subscriptions to the during the last two quarters.
  • Sony has also started investing heavily in live service games with its purchase of developer Destiny Bungie this year for $3.6 billion and a commitment to release 10 live service games by 2026.

Sony has room to bounce back. The company’s PS5 is still the main next-gen console platform, and Sony has plenty of reason to be hopeful for 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 in November, and Naughty Dog is launching a PS5 remake of The Last of Us next month. The company also pours money into film and television adaptations of its games to diversify its entertainment business.
  • Analysts don’t expect the PS5’s price hike to dampen console sales in the coming months. “Strong pent-up demand for Sony’s device means that this price increase of around 10% in most markets will have minimal impact on console sales,” wrote Piers Harding-Rolls of Ampere Analysis. “We expect Sony’s sales guidance for the PS5 to remain unchanged.”
  • “The PS5 Digital Edition has always been sold at a loss. The standard edition was sold at a profit, on a unit basis, earlier this year,” Explain Daniel Ahmad of Niko Partners. “In other words, Sony wants to keep hardware profitability stable, pass on rising costs to consumers, and expect strong demand for the console to help it meet fiscal year goals. ”
  • For now, Sony knows where its most heated battleground is: here in the United States, where competition with Microsoft’s Xbox is fiercest and where the strong dollar means prices can remain unchanged and maintain stable margins. But a PS5 price hike, amid ongoing supply issues, has given Microsoft another edge.
  • The PS5 is “still limited by supply, so it won’t see any potential impact on demand for some time.” wrote Mat Piscatella of the NDP. “But theoretically, at some point, the markets will not be constrained. Then things will get interesting.

-Nick Statt

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#TGIF: How to spend your weekend

“Lost Ollie” – Netflix. Lost or abandoned toys trying to find their owners is a story as old as time, and there have been what looks like a dozen “Toy Story” movies dealing with the same subject. Yet 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 kinds of adventures only kids and the young at heart can embark on. . A great four-parter to watch with your little ones this weekend.

The Joe Rogan Experience: Mark Zuckerberg — Spotify. Think Joe Rogan all you want, but when Zuckerberg sits down with the podcaster to share 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 Way Sooner Than I Thought”) and the future of visual computing and brain-computer interfaces, you have to kind of tune in. Be warned: the whole conversation lasts almost 3 hours!

Attention Netflix! – App Store, Google Play. The charades game “Heads Up!” has been a hit on iOS and Android for quite some time. Now, Netflix has licensed the title as part of its growing mobile games initiative. But instead of replacing the existing version, the video service just released a Netflix-specific version with tons of charade prompts related to shows like “Stranger Things,” “Bridgerton,” and “Squid Game,” along with 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. A Netflix subscription is required.

The Great Video Game Industry Consolidation – The Ringer. Microsoft wants to acquire Activision Blizzard for $68.7 billion. Take-Two spent $12.7 billion to acquire Zynga. Sony paid $3.6 billion for Bungie. In total, the video game industry recorded 651 transactions totaling $107 billion in the first half of this year alone. Will this trend continue, what is driving it, and what does it mean for game developers, gamers, and the industry in general? In this deep dive, The Ringer explores the age of mega game mergers, and it’s well worth reading.

—Janko Roettgers

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Thoughts, questions, advice? Send them to entertainment@protocol.com. Good day, see you Tuesday.


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