Analysis: Why the Sony PlayStation 5 Pro console costs $700

Why is Sony charging $700 for its new PlayStation 5 Pro console? We take a closer look at the internal and external business trends that have led up to the Pro's more extravagant MSRP.

Worldwide economic conditions have led to price increases across all markets, segments, and geographies. The cost of living is now higher practically everywhere in the world as inflation takes its toll, leading to wage increases and above-average costs. Specific markets like consumer electronics have been hit particularly hard as devices like video games consoles, which require a medley of expensive chips and components in order to run, now cost more to make.

Enter Sony and it's new $700 PlayStation 5 Pro console. The collective internet has some pretty strong sticker shock with the PS5 Pro's price tag, with many lambasting Sony for charging such a high premium for the mid-gen upgrade. The reality is that the Pro's $700 MSRP is a result of a kind of perfect storm of unfavorable conditions for Sony's games division, and it's these conditions we'll be discussing today.

In this article, I have surmised that the PS5 Pro's $700 asking price is due to four main things:

1. Rising production costs
2. Profit maximization to offset failures and losses
3. Experimenting with new pricing
4. Furthering digital trends

First, let's take a closer look at rising production costs.

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1. Rising Production Costs - PS5s are now more expensive to make, Pro uses new hardware

Sony has two simple goals with the PlayStation 5: To sell consoles at a profit, and to expand its installed base of hardware.

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PlayStation consoles act as conduits, or gateways, to Sony's most lucrative segments of gaming: Software and services. This is where the real money is made, especially for PlayStation. A quick look at Sony's gaming results shows that PS typically makes most of its revenues from Add-on Content, or microtransactions.

For the last two fiscal years, however, PlayStation 5 console sales have made enough money to conquer other segments.

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Hardware made 22% of earnings in FY21, or $5.252 billion, in the period from April 2021 - March 2022.

In FY22, hardware actually made more than any other segment, clocking in at 31% of earnings, or $8.2 billion, compared to $3.367 billion in the Add-on Content segment.

Then, in FY23, which ended in March 2024, hardware likewise beat all other segments with $8.390 billion in revenues, accounting for a mighty 28% of total PlayStation earnings for the year.

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So what does this tell us? Sony is consistently making billions of dollars in revenue from PlayStation 5 console sales. But this is not profit.

That being said, Sony is indeed selling PlayStation 5 consoles at a profit. Or they were, as of August 2021. This profitability hasn't remained the same, though; on the contrary. Profits on individual PS5 sales have fluctuated and lessened as time goes by.

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It's a fact that PlayStation 5 consoles are now more expensive to make than they were previously.

Sony has repeatedly said that PS5 console profit sales have "deteriorated" across multiple quarters (that is to say, lessened), leading to dips in operating profit during critical periods. These drops came at a bad time for Sony, right as the company was starting to pay towards the $3.7 billion acquisition of Bungie, which was actually approved earlier than Sony had originally expected.

See also:

• PS5 console profits to be reduced, Sony warns [Link]
• PlayStation CEO explains why PS5 profitability has 'deteriorated' [Link]

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The PlayStation 5 Pro isn't a PS5, though. It actually costs more to make.

Sure, it shares a similar 8-core Zen 2 CPU, but the Pro features a new high-end GPU with substantially more compute unit horsepower than its predecessor. Sony has confirmed that the PS5 Pro's raytracing leverages AMD's new RDNA 4 graphics RT tech. This new amped-up GPU has been customized and required a fair bit of R&D at Sony to create it.

As such, it is more costly to create than existing PS5 chips, which are already being produced at less of a profit than was previously possible.

2. Profit Maximization to Offset Losses - Sony makes a long-term strategy to sell PS5 at the highest profits possible

"Eclipsing PS4 sales will mark a significant milestone in what we expect to be our most successful and profitable console generation ever." -- Sony Interactive Entertainment VP Eric Lempel

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Sony has responded to these higher costs in a number of strategic ways.

The first was to make all PlayStation 5 consoles technically digital by default--something that is reflected with the PlayStation 5 Pro. Instead of having two separate console models, Sony has made a single PlayStation 5 Slim model that has an interchangeable disc drive. This can reduce costs in the long term and alleviate the need for dual SKU production.

The second major strategic innovation was the introduction of the PS5 Slim's new revised form factor, which emphasizes size and weight reductions.

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Sony has significantly reduced the weight of its new PS5 Slim models in an effort to reduce costs across manufacturing lines--lighter consoles were achieved through reductions in specific extraneous cooling solutions.

Lighter consoles also mean less weight to ship overseas, which lowers the cost of freight shipping. When Sony ships hundreds of thousands of pounds of consumer electronics to multiple regions worldwide, every ounce matters.

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There's also the new 6nm Oberon Plus N6 SoC that's found in the PS5 Slim. The N6 Node is actually part of the N7 family at TSMC, but it has better yields and can be produced more efficiently, thereby effectively reducing long-term costs through the reduction of wasted chips.

This is the main purpose of any console revision. The first line of systems are always meant to get the consoles out the door and fill out the installed base, and then the new models aim at maximizing profits through cost control. This is something that Sony has been doing for decades.

These production efficiencies are carried over to the PlayStation 5 Pro.

In a recent article, I discussed how the PS5 Pro is the culmination of all of the learnings that Sony has made about its Gen 9 lineup to date, namely with the slim-and-refined chassis design and interchangeable disc drive.

See also:

• PS5 Pro design indicative of Sony's hardware production efficiencies and profit maximization

Alongside console revisions, Sony has also increased the price of PS5 hardware in most worldwide markets...except for the United States. This, again, was a strategic decision--the U.S. represents the largest region for continued earnings potential for the games division.

There's actually been multiple PS5 price hikes since launch--Sony has increased the console's price tag 3 separate times in its home country of Japan, driven by higher costs and fluctuating yen currency values.

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One important thing to note about PlayStation's business is that it's not all about hardware. Sony produces a number of very expensive first-party games.

Sony also makes strategic acquisitions of video game developers.

And then there's the misses--the games that fail to gain traction. Combined this with game cancellations, which can indeed be written off but also represent wasted time and manpower potential, and there's a veritable powder keg of costs associated with the PlayStation brand.

A few of these major events have happened during the PlayStation 5's lifecycle:

• Sony purchased Bungie for a hefty $3.7 billion
• Major games like The Last of Us multiplayer were canceled
• Live service projects like Concord utterly failed, leading to delisting and mass refunds

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These events represent big spending and, unfortunately, losses. Sony has also greenlit other major first-party games like Marvel's Wolverine, which is in production by Insomniac Games, who made Spider-Man 2 (this game reportedly had a budget of $300 million).

Then there's the investments that Sony is making in its PlayStation Productions lineup, which sees Sony Interactive Entertainment teaming up with Sony Pictures to create a multitude of TV shows and movies based around iconic PlayStation franchises and IP.

These internal business trends--especially those related to gaming--have directly affected PlayStation's quarterly and yearly operating profit, which in turn can affect how Sony prices its consumer hardware.

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3. Experimenting With New Pricing - Sony pushes the bar

Apart from profit maximization through cost management, strategic investments, and product innovation, Sony also seeks to feel out the market and experiment with this new higher MSRP.

Sony wants to know how consumers will respond to a $700 PS5 Pro. The system is indeed made for enthusiasts, and is not entirely meant to be a mass market best-seller, however it's still an important inflection point for the company.

The PS5 Pro is, after all, the most expensive console that Sony has ever created (unless adjusted for inflation, which sees the PS3 clocking in at over $900...but that's assuming all of those chips cost as much to make now as they did then).

This will be an interesting test that could inform Sony on the proper pricing model for the PlayStation 6 generation and beyond. Make no mistake, though--the name of the game is profits, and we have to wonder if Sony would be charging as much as they are if certain conditions hadn't led to the year-after-year operating profit dips in its games business.

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4. Furthering Digital-Based Trends - PS5 Pro goes all-digital

Like Xbox, PlayStation also envisions a future where gaming is practically all digital. That's not to say Sony doesn't have a vested interest in keeping physical media alive--after all, Sony helps produce Blu-ray discs--but the real money from gaming is (and has been) from digital.

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The push towards digital is a convergence that comes from both ends. Platform-holders like Sony and Microsoft prefer digital because it reduces costs--digital does not require the production or shipping of game discs worldwide. Digital is more profitable as a result, and thus companies want to double down on it and release hardware that prioritizes digital gaming.

That's why the PlayStation 5 Pro is an all-digital system by default. It's also why Sony even introduced its all-digital PS5; both as a means to fill out the installed base, and to lock players into the digital-only ecosystem. But with the add-on disc attachments, gamers now have options...albeit they are still at the mercy of Sony's disc-drive-making production lines, which, of course, could become "constrained" at any time.

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The second point of the convergence comes from consumers.

Consumer habits have shifted over the last decade, moving towards digital access for the sake of convenience. Sony and Microsoft have both capitalized on this to further along these trends, which, of course, are more profitable and disc sales. Another point about digital is that Sony and Microsoft can sell games directly to consumers and completely circumvent brick-and-mortar retailers in the process, thereby reducing costs and alleviating another indirect link in the sales chain.

Consumers prefer digital out of convenience, which is something that has been taught and reinforced through the advent of content streaming.

Throughout the years, streaming services like Netflix have taken over the principal way that people consume and view media, reinforcing the digital-oriented subscription model and instant access convenience associated with the services.

So, how exactly does this digital-oriented trend affect the PlayStation 5 Pro's price?

It's more of a combined effect that leads into profit maximization. The PS5 Pro going digital-first is a result of internal trends (focus on profits) and external trends (consumers preferring digital), and is the price in juxtaposition to the lack of a disc drive is mostly justified with extras like a beefier 2TB hard drive in lieu of said drive.

The lack of a disc drive is a bit to further this digital-first trend and funnel more gamers into the more profitable digital ecosystem of game purchases, network services, and long-term microtransaction purchases across forever games like Fortnite.

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Wrap-Up

The PS5 Pro's $700 price tag is the result of a number of economic and market-specific conditions, some of which are caused directly by Sony themselves.

The nature of the games industry as a hit-driven business means that companies will often miss, as was the case with Concord. But the Concord failure in tandem with other strategic acquisitions, including the multi-billion buyout of Bungie, alongside game cancellations and further pipeline investments into new games, means that cost control must be enacted in such a way where profits can be maximized across as many vectors as possible.

One of these vectors is the pricing of new games hardware, and more specifically, enthusiast-grade hardware. We've already seen Sony roll out high-cost products like the $199 PlayStation Portal and the $199 DualSense Edge, both of which have been big contributors to PlayStation's accessories brand (Sony says PS5 accessories are highly profitable).

Then there's the very expensive Sony InZONE line of PlayStation-oriented monitors and gaming gear--the InZONE line has a $700 27-inch 4K monitor, for instance.

Combine these internal conditions at Sony with the external macro-level economic environment where costs have risen across production and labor, and there's a kind of recipe for high-cost products.

It will be interesting to see how well the PlayStation 5 Pro sells at the $700 price point, and analysts are predicting the console will move 1.3 million units at launch.