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The PlayStation 5 will enter a head-to-head battle with Microsoft’s new Xbox, released two days earlier, and both hope to capture the market in the run-up to Christmas.
TOKYO – Sony launches its PlayStation 5 console next week in search of a big hit, and with the Japanese firm increasingly reliant on the lucrative gaming industry, there’s little room for error.
The PlayStation 5 will enter a head-to-head battle with Microsoft’s new Xbox, released two days earlier, and both hope to capture the market in the run-up to Christmas.
But the showdown has a lot at stake for Sony.
Since the launch of the PS1 in 1994, games have become the largest segment of Sony’s business, generating most of the profits and about a third of the sales, more than electronics or music.
By comparison, games accounted for less than 10 percent of Microsoft’s sales for the year ending June 2020.
Sony sold twice as many PS4s as Microsoft sold Xbox Ones, and analysts say it has learned lessons from the disappointing launch of the PS3.
“We’ve seen in previous generations that there are two main factors at launch that will impact a generation’s success: the first to launch and the cheapest,” said Morris Garrard, analyst at Futuresource Consulting.
He cited the “relative failure” of the PS3, which went on sale a year after the Xbox 360 and at a higher price.
The PS5 is priced at $ 500, like the Xbox Series X, while a version without a disc drive costs $ 400.
That’s more than the $ 300 price tag of Microsoft’s less powerful Xbox Series S, which also doesn’t have a disc drive.
Sony’s margin on consoles will be narrow, possibly even at a loss, analysts say, and the company is counting on online game sales, services and subscriptions to turn a profit.
‘MAKE OR BREAK’ GAMES FOR PS5
So far, demand seems strong, and Sony has reportedly raised production targets.
But meeting them will be up to the vendors, particularly TSMC, the Taiwanese company that makes the PS5’s processor and graphics processing unit.
It is already under pressure as a key producer of 5G-compatible smartphone chips.
“Whatever Sony makes, it will sell,” said Yasuo Imanaka, an analyst at Rakuten Securities, who believes the PS5 could surpass the PS2’s record of 157 million units sold since the 2000 launch.
But “it all depends on what TSMC can supply,” he told AFP.
To stand out against the Xbox, Sony will feature its lineup of games, including exclusive titles that Sony Interactive Entertainment president Jim Ryan says will “make or break” the PS5.
Among his trump cards is “Spider-Man: Miles Morales,” which will be released with the new console. Its predecessor is among the best-selling PS4 titles.
The game was developed by the American studio Insomniac Games, which Sony bought last year for $ 229 million.
The purchase brought the number of studios Sony owns to 14 and represents a popular strategy to bring increasingly expensive game development in-house.
Microsoft has made its own inroads, buying ZeniMax in September for a record $ 7.5 billion.
‘FOCUSED ON THE SHORT TERM’
Despite the costs, Amir Anvarzadeh, a strategist at Asymmetric Advisors, said the trend makes sense given the risk of diminishing returns for console makers in games produced by third-party developers.
Platform makers charge game publishers a share for each game sold for use on their device, and nearly 70% of the games sold for PlayStation come from third-party developers.
But Sony and others are under pressure from publishers to cut that fee.
“If royalty rates go down, they have a lot of problems because then they would have to sell twice as much hardware” to avoid an impact on their bottom line, Anvarzadeh said.
There is also less incentive now for studios to develop exclusive games, especially given the growing popularity of “crossover play,” where players play a game together on different devices.
In addition to running game development in-house, Microsoft has a subscription service that is broader than Sony’s and gives users access to hundreds of Xbox and PC games.
Garrard said Sony continues to have several strong cards up its sleeve when it comes to the PS5, and its “portfolio of content, the strength of consumer social media and the development of immersive technology … will help encourage adoption of the hardware. by consumers “.
But he cautioned that his focus on consoles runs the risk of being too fixated on short-term goals.
In addition to its subscription model, Microsoft is investing heavily in streaming, also known as cloud gaming, a strategy that Garrard said “appears to be aimed at long-term dominance.”
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