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[ArtHands]

Sony plunged $10 billion after its PS5 sales cut. But a bigger issue is its near decade low games margin

Around $10 billion of value was wiped off Sony's stock this week after it cut its sales forecast for its flagship PlayStation 5 console for the fiscal year.

www.cnbc.com

Sony this week announced it now expects to sell 21 million units of the PS5 in the fiscal year ending in March, compared with a previous forecast of 25 million units.The company’s shares fell after the announcement, with around $10 billion of value wiped off the stock since the forecast cut, according to a CNBC calculation using FactSet data.

But analysts were watching another key metric — the operating margin in the gaming business — which came in just under 6% for the December quarter, according to a CNBC calculation. By contrast, Sony’s operating margin was more than 9% in the December quarter of 2022.

He added that prior to the January-to-March quarter of 2022, margins at the gaming unit were around 12% to 13% in the previous four years.

The latest quarter’s single-digit margin for Sony is present “despite various tailwinds that should have driven up the margins towards 20%,” Goyal said, adding that the situation is “extremely disappointing.”

“Their rev (revenue) on digital sales, add-on-content, digital-downloads are at all time highs… And yet their margins are at decade-lows. This is just not acceptable,” Goyal said in an email to CNBC.

Toto said that part of the reason why margins are being squeezed more recently is that software production costs have been rising.

 

[Roufianos]

Paying the price of an unrealistic forecast. PS5 wasn't going to sell 25m during Sony's most barren period in a decade. It's not all about exclusives but let's not pretend they don't matter to a degree.

 

[GigaBowser]

times for me to buy

 

[tommyleelynn]

They’ve been launching a lot of hardware within the past two years with what seems like little marketing or fanfare for their software.

It would be optimistic to presume that this was a bold strategy they have for themselves. What’s more likely is that they placed some poor choices on R&D pre-pandemic that are finally coming to roost.

Time will tell with new leadership and the eventual launch of all their incubating projects if they made the right decisions.

They’re far from bulletproof, but if they stave off slaughtering a few of their cash cows for another season, maybe we’ll all have something to be grateful for next year.

Fingers crossed.

 

[Lord Malachite]

The market is fluctuating. Sales of the PS5 will naturally slow as it is now easy to find. With the PS5 Pro due out by the end of this year, this is a terrible time to buy a PS5 because even if you only want the vanilla model, it will doubtlessly drop in price when the Pro releases. Add onto this their biggest competitor has gobbled up a large swath of the industry, the budget for many games is getting out of control, and there is only so much they raise prices before people start voting with their wallets.

Long story short, reality is coming into play and this foolish notion that an industry as volatile as gaming can have constant growth is finally being outed as unsustainable. Sony is still turning a profit, but they don't have hundreds of billions of dollars to just throw at the larger problem. There is only so much money to be made in the market, even when you're the market leader. Even should Xbox go third party in the future, it's not as though suddenly PlayStation will gain all of those users. They need to get the spending under control. Conversely, Xbox...or more specifically Microsoft, doesn't. They have the money to burn. It'd be nice if they'd actually use it for better first party games instead of just acquiring other players in the industry. Sony needs to have some big internal talks about its games and budgets and bring back smaller, cheaper titles gamers hunger for.

 

[Cyberpunkd]

How is the multimedia side going? Because Nintendo is making bank on Universal theme park + Mario movie.

 

[Mister Wolf]

Day 1 PC releases should sort this out.

 

[fallingdove]

Day 1 PC releases should sort this out.

lol. no. We’ve seen how that sorted out Xbox.

 

[kazuyamishima]

Another Doomed and Gloomed article it seems.

 

[AV]

lol. no. We’ve seen how that sorted out Xbox.

Day 1 PC releases != Day 1 Game Pass releases on a $1 trial account.

 

[Lagspike_exe]

GaaS bets not working out is dragging down the margins for the entire software business. A really tricky situation for Sony.

 

[midnightAI]

You mean stock value goes up and down?

 

[daclynk]

meanwhile at Nintendo

 

[Hudo]

Don't worry, guys. PS5 Pro will fix everything.

 

[fallingdove]

Day 1 PC releases != Day 1 Game Pass releases on a $1 trial account.

GamePass isn’t the only thing that killed Xbox hardware. Day 1 1st Party PC Releases + multiple game entitlements negated any need to own an Xbox.

If Sony does the same thing, they will see fewer and fewer console sales and decreased margins from a lower volume of PSN sales. Day 1 PC releases for first party games only make sense for GAAS to increase the size of their communities.

 

[Raonak]

Day 1 PC releases should sort this out.

That's a surefire way to cannibalize purchases from the PS store and PS+.... Aka. where they make most of their revenue.

 

[Physiognomonics]

High revenues and comparatively low profits means they don't sell enough software, notably first party. Selling games on PC bring them peanuts ($60 price minus 30% steam tax == $42) and it also teach people to wait for the cheaper PC release. Plenty of traditionnal PS gamers are doing that now. Soon they won't bother buying a Playstation.

while at Nintendo

Exactly. They still are in their blue ocean with no GAAS, no multiplatform games, no PC ports. They just do what works for them since basically Game boy. A dedicated portable device to play (really) exclusive games.

If only Playstation had a console that ran only their exclusive games on it. Well they did, it was called a PS2, PS3 and PS4.

 

[ChorizoPicozo]

what about releasing shitty movies, that doesn't affect the stock value?

 

[AV]

GamePass isn’t the only thing that killed Xbox hardware. Day 1 Xbox 1st Party Releases + multiple game entitlements negated any need to own an Xbox.

If Sony does the same thing, they will see fewer and fewer console sales and decreased margins from a lower volume of PSN sales. Day 1 PC releases for first party games only make sense for GAAS to increase the size of their communities.

Sony make more money on games than they do hardware, correct? If they did PC day 1 I'd happily take the £500 I was going to spend on hardware and just dump it into 8 big games. As it stands I'm buying physical copies and eBaying them for 70% of the price after I'm done. Never going full digital on a console.

There was once a time where the idea of big PS games coming to PC at all seemed insane. Day 1 is an inevitability, even if we don't see it this gen.

 

[kazuyamishima]

Also, since there are rumours of Switch 2 releasing in 2025, Nintendo stock dropped 6%, but that doesn’t matter.

 

[LiquidMetal14]

Welcome to the stock market game. I don't really see this as personally any gaming related in the same way as announcements. So it's great for the discussion and some people probably look at this as some bad news or others will know that this is the yin and yang of the market.

Isn't just one my best advice is to put all this stuff in a singular thread like the stock market thread.

 

[Ar¢tos]

Stop making dumb ultra expensive emotional movie games and focus on gameplay above story and things might change.
Like Insomniac said, bring back AA sp games, cheaper to make and better profit margin.

 

[Tiago Rodrigues]

Day 1 PC releases should sort this out.

undervaluing your brand has been working wonders for Xbox...oh wait.

 

[Puscifer]

I mean it doesn't help we're 3 years into the generation with zero price cut, a redesign that actually made the lower end offering less appealing (all digital, that 100 was a nice incentive but for 50 bucks you might as well get the full edition and have options) and a bunch of games that really just don't scream BUY A PLAYSTATION!

 

[Panajev2001a]

Sony plunged $10 billion after its PS5 sales cut. But a bigger issue is its near decade low games margin

Around $10 billion of value was wiped off Sony's stock this week after it cut its sales forecast for its flagship PlayStation 5 console for the fiscal year.

www.cnbc.com

They should raise prices and screw gamers more? Are you gloating or making that point ?

 

[drganon]

Right back to doing what got you banned last time. Never change, artie.

 

[daclynk]

High revenues and comparatively low profits means they don't sell enough software, notably first party. Selling games on PC bring them peanuts ($60 price minus 30% steam tax == $42) and it also teach people to wait for the cheaper PC release. Plenty of traditionnal PS gamers are doing that now. Soon they won't bother buying a Playstation.


Exactly. They still are in their blue ocean with no GAAS, no multiplatform games, no PC ports. They just do what works for them since basically Game boy. A dedicated portable device to play (really) exclusive games.

If only Playstation had a console that ran only their exclusive games on it. Well they did, it was called a PS2, PS3 and PS4.

well thats why they have been in the industry the longest. they know everything about making Video games, thats what i think other two forgot about.

 

[Bernardougf]

1 - Subscription services and Pc Launching changes buying habits (changed mine)
2 - Sony games are too expensive and take too long to make (high production values)
3 - AAA games are cheap - snes and sega genesis games were sold for 49 dollars in 1994 ( thats 105$ adjusted) it is 2024 and you are still paying 69 dollars for 40-100 hours games

Im sure that are many other reasons for the diminish returns but these 3 come to mind

 

[Krieger]

Oh no, how will Sony ever survive this. /s

 

[Ronin_7]

Record revenue
Record profits

Record decline

 

[Danwan224]

Analysts are the biggest scum out there

 

[Killjoy-NL]

GaaS bets not working out is dragging down the margins for the entire software business. A really tricky situation for Sony.

How did a GaaS bet not work out?

Factions got cannned, but Helldivers 2 is a massive hit.

The rest is still in development.

 

[Robb]

Unsurprising given they failed to reach their estimate by a wide margin.

Had they just said they expect 20M instead of 25M this would likely hit very different.

 

[Vick]

Day 1 PC releases should sort this out.

Just make sure you keep the premiere exclusives off Playstation.

I think releasing titles on Playstation will tank their consoles sales even further, which will in turn kill Gamepass.

Doesn't matter what they plan. If they start releasing their premiere exclusives on the Playstation, they will be as relevant in the console market as the Atari Jaguar, or the Panasonic 3DO.

People aren't going to buy it if their premier games are on other consoles. They will effectively be AMD in the GPU space maybe even Intel.

It's over for them if they release any of their once thought premium exclusives on Playstation. Someone would have to be a fool to think otherwise. Would be like Sega releasing Sonic on the Super Nintendo while telling Genesis owners that they are still in the fight. The next "Xbox" will get the same reception the Sega CD and 32X got. It basically amounts to this to potential and loyal customers:

Well


Yeah it's over for Microsoft as a console maker if they go through with it.

Microsoft has enough money to make it exclusive so they should do so.

I mean I get "PC" isn't a console, but such an extreme and firm stance should still apply in this case to some extent since we're talking about platforms relying on exclusives to thrive. Should't be a total 180 like this.

Still, I think D1 are coming. Sony apparently loves following Microsoft's every step (sometimes competition isn't really a good thing), and porting to PC costs them virtually nothing in the short run.

 

[David Ricardo]

Day 1 PC releases != Day 1 Game Pass releases on a $1 trial account.

Day 1 PC releases = 1 less reason to own a PS5 = less revenue from subscriptions/third party games/DLC/etc...

 

[Tiago Rodrigues]

Oh no, how will Sony ever survive this. /s

Jesus...their recovery post 2013 should be studied.

 

[TheDreadLord]

All that organic growth wasn’t that organic then

 

[Hudo]

Now that Sony are done, who could fill the void? Apple? Tencent?

 

[AV]

Day 1 PC releases = 1 less reason to own a PS5 = less revenue from subscriptions/third party games/DLC/etc...

The section of the market I'm talking about (me) doesn't buy into any of that on their Playstation anyway - our PCs are better, that's the whole point. I have an exclusives machine gathering dust under my TV. I buy the hot new game on disc and then sell it after a binge weekend to somebody else who's not paying Sony a dime for the game.

They'll always sell consoles, but day 1 PC is a matter of when, not if. Maybe not for many years, but it will happen. That market's only getting harder to ignore for them.

 

[Ghostage]

Oh no, how will Sony ever survive this. /s

I dont think its a question of survival but more about the decisions this could lead to. It might be lower development budgets or less money for marketing. Unfortunately i think this will lead to an even faster adaption of AI to lower the devlopment time and costs.

 

[Thick Thighs Save Lives]

Jesus...their recovery post 2013 should be studied.

That's mostly due to Kaz Hirai excellent leadership as Sony Group CEO. Someone more versed than me like Mibu no ookami or thicc_girls_are_teh_best can probably provide way deeper insight into this topic.

 

[Salty Pickle]

Dev costs have ballooned while the price on games have risen less equals lower margins? I’m in shock, in shock I tell you.

Way forward is more AI driven development or raising the price on games.

 

[KungFucius]

That's a surefire way to cannibalize purchases from the PS store and PS+.... Aka. where they make most of their revenue.

But it is not pure cannibalization and it could be done smarter. It only directly trades PS Day one sales from PC gamers who own a PS just for the day 1 titles. How big of a market is this? Compare that to the increase in sales of Sony games on PC if they drop day 1 when the PS marketing is in full swing. What if Sony had a PS Store on PC? What if they let you play the games on PC or PS or even let you use the Portal with the PC store? There is a possible way that day 1 PC increases revenue from where it is today. Heck there could be a path to make PSVR more successful by making it PC compatible.

The console market is not growing. PS is killing Xbox but the PS5 is tracking below PS4. Something needs to change. If not an enhanced PC strategy then what?

 

[Matt_Fox]

I'd be very interested to see the figures around the PSVR2 beyond its launch, it seems to have been quietly shelved.

I suspect they took a big $$$ hit on that, and have decided not to throw good money after bad.

 

[Vick]

the PS5 is tracking below PS4. Something needs to change.

And what changed between PS4 and PS5?

an enhanced PC strategy

 

[TheDreadLord]

Dev costs have ballooned while the price on games have risen less equals lower margins? I’m in shock, in shock I tell you.

Way forward is more AI driven development or raising the price on games.

Or/and more GaaS to sustain cash flow

 

[tusharngf]

Sony needs a true quality next gen Naughty dog title. Helldivers2 is doing numbers but thats just one game.

 

[GHG]

meanwhile at Nintendo

Yeh... About that:

Nintendo shares plunge on Switch 2 delay reports

Shares in Nintendo Co crumpled almost 9% as shares traded for the first time after weekend reports that the new version of its Switch console will be...

www.proactiveinvestors.co.uk

I trust ArtHands also be starting a thread about this shortly.

 

[drganon]

Yeh... About that:

Nintendo shares plunge on Switch 2 delay reports

Shares in Nintendo Co crumpled almost 9% as shares traded for the first time after weekend reports that the new version of its Switch console will be...

www.proactiveinvestors.co.uk

I trust ArtHands also be starting a thread about this shortly.

I don't know, that might require him not to be so transparently disingenuous.

 

[GHG]

I don't know, that might require him not to be so transparently disingenuous.

Sometimes I believe all of this isn't coincidental.