Who would have imagined that Sony’s overly ambitious forecast of selling 25 million PlayStation 5 consoles for the fiscal year would go up in smoke just one quarter later?
Sony has unveiled its financial report for the third quarter of FY23, ending on December 31, 2023. While the gaming business shows growth, the company’s leadership believes that the PlayStation business unit requires a deeper understanding of how to generate sustainable profits.
Even after significant investment in promoting PS5 hardware during the holiday quarter, Hideki Yasuda from Toyo Securities expressed disappointment, stating, “Sales came as a big disappointment” for Sony. PS5 hardware sales from October to December fell short of the media conglomerate’s target of 25 million units.
This target has now been revised to a less optimistic figure of 21 million consoles sold.
In regards to the upcoming fiscal year (between April 2024 and March 2025), Hiroki Totoki noted that the PS5 is entering the latter half of its life cycle, sparking rumors once again about the potential existence of a “PlayStation 5 Pro”. Consequently, the company anticipates a gradual decline in unit sales moving forward.
Sony reported selling 8.2 million PlayStation 5 units in the third quarter, which significantly exceeded expectations and trounced the 4.9 million figure compared to the previous quarter.
Game sales reached ¥733 billion ($4.87 billion), marking an 18% increase compared to the same period last year. Digital sales amounted to ¥282.8 billion ($1.8 billion), while add-on content sales were ¥349 billion ($2.32 billion).
In the third quarter, full game sales on PS4 and PS5 totaled 89.7 million units, with 16.2 million being first-party titles. Digital sales accounted for 66% of the total. Operating profit at the games business declined by approximately a quarter, primarily due to increased losses from hardware promotions and lower sales of first-party titles.
Sony also announced that it has sold 10 million copies of Marvel’s Spider-Man 2, which launched on October 20th, despite its astronomically large developmental budget of over 300 million dollars, as was revealed during the Insomniac Games leak.
The trend of escalating budgets is becoming increasingly unsustainable for Sony Interactive Entertainment. They appear to be forced into selling millions of copies just to break even. Even with 10 million copies sold, it’s doubtful that the game would yield an astronomically high profit, likely not exceeding 30-60 million dollars.
That’s why Sony has decided not to release any major first-party “exclusive” titles for the PlayStation 5 throughout the next fiscal year, spanning from April 2024 to March 31, 2025.
Hiroki Totoki, Sony Group president, chief operating officer, and chief financial officer, stated:
“Regarding first-party software, we aim to continue focusing on producing high-quality works and developing live service games. However, while major projects are currently under development, we do not plan to release any new major existing franchise titles next fiscal year like God of War Ragnarok and Marvel’s Spider-Man 2.”
Though of course, “exclusive” titles such as Concord, Until Dawn and Stellar Blade are excluded from this announcement, as they are not established existing franchises.
While the PS4 was able to gain momentum in its later years through significant price reductions, Sony has stated that the PS5 will not see similar price cuts. This decision is being attributed to the “limited room for reducing the production cost” of the PS5 compared to the PS4, which I find to be doubtful considering as to how Sony have revised the PlayStation 5 console at least four times already.
As each new revision arrives with inferior cooling capabilities, Sony faces greater profit overheads as they continue to increase revenue generated from hardware sales. Sony’s increased revenue is also helped by recent price increases for both the main PS5 system and PlayStation Plus.
Totoki elaborated, “Although the burden of acquisition-related costs will ease next fiscal year, we anticipate a slight decrease in profit from first-party software due to the impact of reduced sales.”
Totoki then noted that in the past, first-party games were primarily used to boost console sales. However, in today’s landscape, strong first-party content can also contribute to profitability through multiplatform releases, such as Sony’s initiatives on PC. Consequently, he expressed a desire to be proactive in enhancing Sony’s margin performance.
Honestly, consoles have reached a stage where they seem like a superficial and costly bubble. The ninth generation appears to have fewer genuine “console exclusive” titles from either manufacturer compared to the previous generation, and even those few exclusives are now being ported onto the PC.
Exclusives used to drive sales for systems that were sold at a profit, but that was such a long time ago, the dawn of the modern age, the digital era so to speak, these consoles are now being sold for a loss or very well close to that figure because the money is now being made specifically from (digital) software sales and of course the monthly subscription service that is required for online connectivity.
These modern consoles are excessively expensive, lacking genuine exclusive offerings to attract buyers. They function more as costly multiplatform systems that require a monthly fee for access. Considering the significant performance and age gap between the Xbox Series and PlayStation 5 consoles, it’s likely that Nintendo is the only manufacturer truly profiting from hardware sales.
Their use of the ancient NVIDIA Tegra SoC, originally introduced in 2014, would have been considered unwanted inventory used only in NVIDIA’s Shield TV media device, repurposed as a handheld console and sold to the consumer for $300.
Microsoft currently lacks any exclusives for its XBOX Series X/S consoles, while Sony has only a handful, which are increasingly being ported to PC. With few incentives to purchase a 9th generation console, especially at a price exceeding $400 USD, the prospect is further dampened by the gradual phase-out in anticipation of a rumored “Pro” side-grade set to arrive in the next year or two.
