Why Sony Shouldn’t Rest on PS5 Sales Laurels

Why Sony Shouldn’t Rest on PS5
Yinchen Niu/Variety Intelligence Platform

Despite constrained supply and a global chip shortage, Sony in July confirmed that its PlayStation 5 video game console passed 10 million units sold.

Per Sony, it’s the fastest-selling console in the company’s history and puts PS5 ahead of Microsoft’s dual Xbox Series X and S consoles following each system’s release last November.

Still, this early milestone isn’t what it’s cracked up to be.

Xbox Series X/S is also a fastest-selling console for Microsoft.

Microsoft ceased disclosing sales numbers during Xbox One’s lifecycle, but research firm Niko Partners puts Series sales at 6.5 million as of June 30 and further estimates that sales for the One and 360 in the same timeframe were 5.7 and 5 million, respectively.

CEO Satya Nadella confirmed during Microsoft’s recent earnings call that the Series consoles were indeed the fastest-selling ever for Xbox.

If Sony wants to take a victory lap, doing so would ignore the fickle nature of year-one sales, especially since Xbox One ultimately failed to match the 360 in lifetime sales.

Microsoft might also be patting itself on the back too early, but the company is smart not to disclose exact sales numbers the way Sony does, as it has a key advantage: money.

Microsoft isn’t just bigger than Sony — it's pandemic-proof and less reliant on games.

To say Microsoft is a larger company than Sony is stating the obvious, but this matters heavily when examining financials in the light of COVID-19.

Xbox experienced the boon to video games instigated by the pandemic, but Microsoft’s cloud business has been exponentially more important amid the ongoing crisis.

Meanwhile, Sony’s gaming unit has had to steer the company as music and film have suffered. Such a situation continues to provide Microsoft a tremendous amount of freedom to tinker with Xbox in ways Sony can’t with PlayStation, as Microsoft has the money to burn.

Xbox Game Pass was last reported to have 23 million subscribers, well ahead of PlayStation Now’s 3.2 million. However, this strategy for Xbox appears counterproductive to turning a profit.

While overall gaming was up 11% from the equivalent 2020 quarter, Microsoft’s latest earnings say that console-driven growth was offset by Xbox content and services, the unit housing Game Pass.

Furthermore, while touting the success of Game Pass, those earnings also blamed the content and services unit’s 4% decrease in revenue on diminished third-party sales — as if the value offered to players by Game Pass, which enables them to play a tremendous amount of games for a set monthly price, isn’t a direct contributor to the lower growth in game sales.

Not to mention licensing third-party titles for Game Pass means paying publishers upfront. Still, Microsoft shelled out $7.5 billion for ZeniMax Media to nab publisher Bethesda, which some see as a vast overpayment nearly matching the combined total spent by Disney for Lucasfilm and Marvel.

That’s the point, though — Microsoft isn’t just investing in players getting their money’s worth.  

If $7.5 billion was too much, then the difference from the value added by the boost in titles to both Game Pass and future console exclusives is what the acquisition means to studios making single-player, AAA-quality games: funding.

Console games are getting more expensive to make but aren’t driving overall gaming growth.

While confirming the milestone in PS5 sales, Sony also boasted sales of 6.5 million copies for PS5 launch exclusive “Spider-Man: Miles Morales” and 1.1 million for June’s “Ratchet & Clank: Rift Apart,” following similar disclosures in 2020 of positive sales for hits like “The Last of Us Part II” and “Ghost of Tsushima.” 

But a ghost from Sony’s past doesn’t feel so positive about the future of console games.

In a recent interview, former Sony Interactive Entertainment head and chairman of worldwide studios Shawn Layden decried consolidation in the games industry, jumping off points he had made about the growing cost of console games a year prior.

Per Layden, the actual audience for games hasn’t grown much; rather, players are simply spending more money, with most growth coming from the rise of mobile games.

As growth from consoles stagnates, microtransactions supporting live service games are now a priority for top publishers that have otherwise supported original AAA console games alongside PlayStation and Xbox, which both need exclusives to maintain value in their systems.

But per Layden, last-gen development costs for these games ranged between $80 million and $150 million and are expected to double over the new generation, as such games require more resources and time to finish. Just last week, Bloomberg reported that PlayStation exclusive “Horizon Forbidden West” was delayed from its targeted holiday 2021 release and will bow in 2022 instead.

Similarly, growing development costs are likely a contributing reason for Sony’s games division dropping in profit this past quarter despite revenue growth.

Xbox has already beaten PlayStation when it comes to subscriptions and is making its biggest push ever to match and exceed its competitor’s exclusives.

What happens when PlayStation needs to arrange further second-party partnerships and timed exclusives with developers to supplement delays in its first-party pipeline?

If any given deal has the specter of Bethesda hanging over it now, nothing is going to stop third parties from seeing what they can get with Xbox instead, meaning PlayStation will have to drive internal costs up further or lose out on competitive partnerships — all at a time when gaming stability is more important than ever for Sony.