Sony’s recent earnings report marked a setback for its censorship ladled PlayStation brand. Downgrading their fiscal year 2024 target for PS5 sales from 25 million to 21 million, Sony also acknowledged the absence of major AAA franchise releases in the upcoming fiscal year.
This news was met with mixed reactions, contributing to a substantial decline in Sony’s stock value, estimated to have reduced the company’s worth by approximately $10 billion.
The rationale becomes evident when considering the focus of financial analysts on another key metric from Sony’s recent earnings report, its operating profit margin.
The operating margin indicates the percentage of each dollar spent that translates into profit, and for the recent significant holiday quarter, Sony’s margin stood at a mere 6 percent. Contrasting with the 9 percent margin from the corresponding quarter a year earlier and approximately 12 to 13 percent prior to 2022, this figure underscores a concerning trend.
Serkan Toto, CEO of Tokyo-based games consultancy Kantan Games, attributes this reduced margin to the escalating costs of game development, which he states has a “significant impact” on potential profits, but we’ll discuss the costs shortly.
As I’ve mentioned on multiple occasions before, Sony’s PlayStation ecosystem is no longer financially sustainable.
In the past, console hardware was sold to end-users at a profit. However, the landscape has changed significantly, particularly with the introduction of the XBOX Series S and X home consoles.
Unlike the PlayStation 5, which utilizes an inferior and older RDNA 1 architecture for its graphics core with minor tweaks, the XBOX Series consoles are a custom AMD SoC that harnesses RDNA 2 graphics IP.
This disparity highlights a significant disadvantage for the PlayStation platform but that’s not really the discussion for today, because we’re talking about money. The modern home console is no longer a physical box that plays physical games, there’s a catch and caveat regardless of which corporation you’re buying into.
The production of consoles is a considerable financial burden for the company, encompassing not only development expenses but also production costs. Despite TSMC’s 7nm process technology being regarded as “outdated,” it’s far from being inexpensive.
In simple terms, the console is no longer generating significant profits for Sony when sold to consumers, despite the company’s ongoing efforts to update the hardware. Such efforts include reducing the raw materials used for cooling capacity and transitioning the SoC to a more refined and efficient 6nm process alongside retarded additions such as a $30 add-on console stand for the new “slim” line of consoles with attachable Blu-Ray disc drive (sold separately of course).
I have serious doubts that Sony is generating a substantial profit from the raw hardware sales of the PlayStation 5 system, especially considering it’s falling below the company’s expectations. Additionally, it’s lagging behind the PlayStation 4, which initially had a sluggish adoption rate upon its release.
Microsoft is in a similar boat in terms of margins for console hardware, they are now making efforts to expand its ecosystem by releasing some of its platform-exclusive titles on competing platforms, aiming to rejuvenate the struggling XBOX brand since the launch of the XBOX ONE in 2013.
The only console manufacturer guaranteed to profit from hardware sales is undoubtedly Nintendo, attributed to the decade-old NVIDIA Tegra SoC powering the $300 handheld unit.
Consoles have shifted from being profitable standalone devices to being sold at a loss or with minimal profit margins. Instead, profits are now primarily generated through the expansive user base, who are required to subscribe to monthly service plans to access online connectivity and other features.
Oh yeah, and games too I suppose.
However, Sony themselves have acknowledged in their recent financial report that they consider the PlayStation 5 to be in the latter half of its life cycle. This is despite its release at the end of 2020, during which it faced widespread supply shortages and heavy scalping. Even three years later, the number of exclusive titles for the system remains limited, with only a handful being released.
In a mere three years, there are only a few actual games available for the system. Astro’s Playroom, for instance, is essentially a free tech demo. Additionally, it’s highly likely that Square Enix’s Final Fantasy VII Rebirth will eventually come to PC, considering the previous “remake” installment was a limited-time “exclusive.” The same potential applies to Marvel’s Spider-Man 2 and possibly Stellar Blade as well.
Marvel’s Wolverine is still years away from release, while Team Ninja’s Rise of the Ronin is set to launch on PS5 on March 22nd. This leaves us with a lone VR game, a pedestrian vehicular combat title named Destruction AllStars, as well as Horizon: Call of the Mountain and Quantum Error.
And let’s not forget about Demon Souls, if you’ve heard of it. It’s also one of the few PlayStation 5 exclusive titles, but it’s essentially a subpar remake of FromSoftware’s 2009 original, which was originally released exclusively for the PlayStation 3.
A remake, a tech demo, a VR game, a couple unreleased games and a couple more that are almost certainly bound for PC. It’s a recurring meme that gains traction with each passing year: the PlayStation 5 has no games.
Even for the first-party titles it did have, including The Last of Us Part 2, Horizon Forbidden West, God of War Ragnarök, and Marvel’s Spider-Man 2, many of them have either just broken even with their production costs or have ended up losing money in the long term.
Sony’s own poorly redacted court documents have confirmed that their first-party titles, such as The Last of Us Part 2 for instance cost around $220 million dollars, whereas Horizon Forbidden West cost $212 million dollars throughout its development.
According to leaks from Insomniac Games, it’s speculated that Marvel’s Spider-Man 2 incurred a development cost of over $300 million, while the Miles Morales expansion cost approximately $156 million. Future installments such as Wolverine are projected to cost another $300 million, and Spider-Man 3, which plans to be released in multiple parts, is estimated to cost nearly $400 million.
Escalating development costs are hardly sustainable. Investing hundreds of millions of dollars into generic single-player cinematic experiences, while they may sell in the millions, isn’t financially viable when production costs are so high.
Spending $200 million on a first-party video game project could result in either financial losses or minimal profits, despite selling around 10 million copies. It doesn’t take a genius to figure out why all of a sudden over the past few years they’ve started embracing the thought of releasing their once exclusive titles onto the PC, just as Microsoft have been doing for the past decade.
Games are pivotal in driving console sales, yet Microsoft has hindered its own progress by lacking any exclusive titles for the XBOX Series consoles. When a game is available on PC, the notion of “exclusivity” becomes obsolete. Moreover, the 9th generation consoles are overpriced and yet likely sold at a loss.
The sales and adoption of the PlayStation 5 continually disappoint as Sony redirects its focus to prioritize revenue by allowing not only third-party titles but also first-party Sony “exclusives” onto the PC platform, because console owners alone aren’t enough to facilitate and justify their astronomical production costs.
Have you noticed that video games are still being released on the PlayStation 4? Titles like Shantae Advance: Risky Revolution, Yuuna and the Haunted Hot Springs: The Thrilling Steamy Maze Kiwami, KONOSUBA – God’s Blessing on this Wonderful World! Love For These Clothes Of Desire!, and the upcoming Mushoku Tensei: Jobless Reincarnation – Quest of Memories are just a few examples of niche releases keeping the PS4 alive, despite its age of over a decade.
This is largely due to its large user base and the lackluster adoption of the PlayStation 5.
I take pleasure in the idea of corporate giants like Sony facing financial losses, especially considering their behavior during the previous console generation.
Sony, once a Japanese force, imposed stringent censorship guidelines on its native homeland developers, forcing them to alter their content to comply with global standards deemed suitable for “modern audiences.” This heavy-handed approach, driven by Sony’s global ambitions, has been met with disdain from many in the gaming community.
Though it’s not as if Sony themselves gave a damn, considering how they themselves relocated Sony Interactive Entertainment to the cancerous confinement known as California, the cesspit of all things degeneracy (and ESG).
For years, Sony has been creating its own problems by imposing restrictive censorship on Japanese developers, pricing the PS5 console exorbitantly high, and failing to provide an adequate library of games.
Additionally, many of the games available for the system have production costs surpassing those of big-budget Hollywood films, which seems quite fitting due to the fact that those games often offer little more than interactive movie experiences, it’s not viable.
Financial analysts are beginning to wake up and take notice, the Sony PlayStation 5 is ultimately a failure of a console, Sony made their bed and now they get to sleep in it.
