Economy & Politics

Sony is playing really big with the PlayStation 5

The Japanese giant is preparing to launch its new console on November 12, two days after Microsoft’s last Xbox. But the group, whose financial results depend heavily on its video games division, has no room for error.

The Japanese giant is preparing to launch its new console on November 12, two days after Microsoft’s last Xbox. But the group, whose financial results depend heavily on its video games division, has no room for error.

(AFP) – Sony, which entered the video game market late in 1994 with its first PlayStation, has since linked its fate closely to this lucrative sector, which is expected to account for nearly a third of its sales in 2020-2021. By comparison, this segment represented less than 10% of Microsoft’s sales for the year ended June 2020. In order to be able to sell games and subscription services, Sony will first have to equip as many players as possible with its new console, learning from the past.

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“At launch, two main factors influence the success of a generation of consoles: being the first launched and the cheapest,” notes Morris Garrard, analyst at Futuresource, recalling the “relative failure” of the PS3, released a year after its launch. rival and at a higher price. The PlayStation 4, on the other hand, sold twice as much as the Xbox One. This time, Sony has aligned its prices with those of Microsoft, even if it means selling its console with a small margin, even at a loss according to analysts: it will be 500 dollars (422 euros) for the PS5, like the Xbox Series X.

The disc drive-less version of the PS5 will cost $ 400 (€ 337), more than the $ 300 (€ 253) of the Xbox Series S, which also lacks a disc drive but is less powerful. To avoid stockouts, Sony has boosted its production, the pace of which will however be dictated by the capacities of its subcontractors, in particular TSMC, the Taiwanese supplier of the processor and graphics chip for the console, already in great demand for 5G smartphones. “What Sony can produce, it will sell,” said Yasuo Imanaka, analyst at Rakuten Securities. But “it will all depend on what TSMC can deliver,” he says.

Mr. Imanaka thinks that in time the sales of PS5 could clearly exceed the absolute record set by the PS2, released in 2000, with its more than 157 million copies sold. But to stand out from the Xbox, with generally equivalent performance, Sony will rely mainly on its catalog of games, including exclusives that “will or will break” the PS5, according to the president of Sony Interactive Entertainment Jim Ryan. One of its assets will be the new exclusive Sony game “Spider-Man: Miles Morales”, the previous opus of which was among the best sellers on PS4. Its developer, the American Insomniac Games, last year became the fourteenth video game studio owned by the Japanese group.

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This trend to internalize increasingly expensive developments, also observed at Microsoft with the announcement in September of its acquisition of ZeniMax for 7.5 billion dollars (6.3 billion euros), should continue, according to Amir Anvarzadeh, strategist at Asymmetric Advisors. “Almost 70% of the games” PlayStation come from third-party publishers, he notes. Sony deducts access rights (royalties) to its console from each sale, which are however set to decrease in the future under pressure from game publishers. When this drop materializes, Sony “will suffer because it will need to sell twice as many” consoles for the same result.

“This point will be crucial for its long-term profits.” There is also “less and less incentive for developers to work exclusively on a platform,” Mr. Anvarzadeh still observes, while the market is moving towards “cross-play” uses, allowing for compete on the same game via different consoles or on a computer. Microsoft, more at the forefront of this niche, also offers a subscription formula allowing you to play a hundred games on both Xbox and PC, and even buy your console in monthly installments.

This strategy of openness of the American, who also invests more than his rival to develop the game in streaming (‘cloud gaming’), “seems to aim for the long-term domination” of the gaming market, notes Morris Garrard. “The richness of Sony’s content and its technologies” will “encourage consumers to adopt” the PS5, however thinks the analyst. But while some are announcing the imminent death of physical consoles, “Sony’s strategy seems to me to be focused on the short term”.


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