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When Sony launched the PlayStation 4 in November 2013, some countries made orderly slots and formal lotteries. Others made huge meandering queues. In some, there were stampeding crowds and chaos that toppled the shelves.
The scenes, which were followed a few days later by similar riots for Microsoft Xbox One, had all the makings of classic adrenaline-pumping console releases. There was an over-demand, a limited supply, the toughest fans, and the great promise of a new era for a global gaming industry now worth an estimated $ 145 billion a year.
Seven years later, as Microsoft prepares to launch its Xbox Series X and Sony its PlayStation 5 on November 10 and November 12 respectively, both companies hope they can match the hype for products that simultaneously offer the kinds of opportunities that only exist. They present rare, and some complex risks.
“This is the biggest console launch the industry has ever had,” said David Gibson, an analyst at Astris Advisory in Tokyo. He believes that, for Sony in particular, the combination of the coronavirus pandemic and the new console gives it a unique opportunity to power its games, music and movies businesses on a single platform. “The big factor here. . . is that there is also an absence of other entertainment such as live music, sports and cinema, while games are interactive and readily available. “
These two high-value hardware releases are coming against a backdrop of rapid industry change that some see as an existential threat to Xbox and PlayStation. As cloud technology and Internet connections have improved, more and more people download or stream games on their phones to play in real time.
Reflecting that change, Hiroki Totoki, Sony’s chief financial officer, told investors this week that the real battlefield is not hardware. “I think the essence of competition is not annual earnings [from PS5] but how much can we expand the universe of games in the long term. ”
Microsoft’s head of games, Phil Spencer, said the two metrics he analyzes “every morning” are not console sales, but the number of gamers and how much time they spend playing. “We know that over time, income and expenses and the other pillars of the business come.”
Between Sony and Microsoft, Ampere Analysis estimates, a little less than 9 million consoles should be sold worldwide by the end of 2020, but this will be during the extraordinary conditions brought on by the pandemic.
“We [Sony and Microsoft] both will be limited by supply rather than demand, “Spencer told the Financial Times. “The battle over the demand for consoles will take place next vacation and beyond. At first, I hope the shelves are pretty empty. “
Some analysts estimate that, given the challenges of building and distributing its new machine in the current crisis, Sony could lose up to $ 170 for every PS5 it sells, and may not break even in hardware for three years.
Microsoft also warned investors that the Xbox launch will be a drag on overall gross margins this quarter, something Spencer insists he’s relaxed about. “It is totally fine for us to subsidize console sales to win a customer who, during the life of the console, [means] We can have a profitable business, which is what we are doing, ”he said.
However, in the battle to get these sophisticated products to market in time for Christmas, supply chains have been reorganized, key game launches have been postponed, online pre-order systems have been chaotic, and in the market Sony’s premises in Japan, where previous releases were queued were the biggest, major electronics retailers have said such scenes won’t be possible this time.
“The optics of a large crowd trying to get a product, and the way the public would view that brand as unsafe for Covid, is not a good image,” said Piers Harding-Rolls, games analyst at Ampere Analysis. While there will undoubtedly be efforts to build buzz online, “it won’t have the same launch buzz,” he said.
Sony’s new machine will cost $ 499. This is $ 100 more than the PS4, which has a global user base of more than 110 million, although a discless version will be available for $ 399. The new Xbox will cost the same, but with a digital-only version for $ 299.
Sony has downplayed the price hike, pointing to what it claims is its strongest line of games for the PS5 launch, such as Demon souls Y Marvel Spider-Man: Miles Morales.
Jim Ryan, Sony’s head of PlayStation, recently told the Financial Times that the company expects to sell more PS5s in the year through March than in the equivalent period seven years ago, when the PS4 was released.
But the pandemic has also changed the way games are made, with productivity dropping because developers have had to work from home.
As a result, Microsoft has had to reject the latest version of Xbox’s best-known game series, Infinite Halo, until next year.
Relying on third-party developers also seems riskier than it was. Square Enix, the group behind the success Final Fantasy and the French developer Ubisoft, creator of the Rainbow six franchise, both have warned in recent weeks that Covid-19 restrictions have affected their portfolio of new games.
Sony acknowledges the delays in some parts of the industry, but downplayed the impact at launch. Nonetheless, it is moving Chinese-made PS5 consoles to the US by air rather than by sea to make sure there are enough to sell at launch. “We often use air travel for peak times of the year,” said Sony’s Ryan.
Spencer argued that “the biggest impact on profitability is the hardware that is in the box,” but admits that the logistics of a much larger international launch: In 2013, the Xbox One launched in just 12 markets, compared to around 40 this time. – is added to the initial costs.
Air travel prices have risen during the pandemic, but the cost will be particularly high for the PS5 due to its sheer size, according to Hideki Yasuda, a gaming analyst at the Ace Research Institute. Weighing 4.5kg, 39cm high, 26cm deep, and 10.4cm wide, the PS5 is one of the largest consoles ever.
Transportation costs, as well as high marketing fees for the launch, mean that Sony anticipates operating profit at its gaming division to drop from 229 billion yen ($ 2.2 billion) in the first half of the financial year. March to 71 billion yen in the second half.
Balancing those risks, said Hirokazu Hamamura, a gaming expert and senior adviser to the board of Kadokawa publishing house, is the large increase in gaming during the pandemic in the absence of other forms of entertainment.
Ryan noted “massive increases” in player participation, which “have surpassed anything we’ve seen before.” . . in significant two-digit percentage points ”.
The pandemic has also changed the way people play, with more users downloading games and using subscription services while stores were closed.
“Covid-19 has accelerated a shift for the gaming industry towards subscription and download services that took the music industry a decade from CDs,” Hamamura said.
Additional information from Patrick McGee in San Francisco
