Sony is making a killing from digital games

Sony's digital presence is immensely lucrative, and its games and services made up a substantial portion of its gaming segment earnings last year.

The PS4 might've just hit 98.6 million shipments worldwide, but the real money is on the PlayStation Network. The PS4's wide install base is undoubtedly contributing to game sales--the wider the net, the more fish you catch--and thanks to a bustling digital market with tons of games, a web of services like PS Now and PS Plus, and first-party exclusives, Sony's digital gaming ecosystem is thriving.

Most games companies focus on digital over everything else, and for good reason. It lets them keep 100% of revenues for first-party content, reduces friction for consumers, and generates revenue from third-party games sold on their storefronts--all while eliminating the cost of manufacturing physical games. This trend continues in Sony's latest FY2018 financials. The company saw a massive spike in digital game sales, driven by strong exclusives like God of War, Spider-Man, and Detroit: Become Human alongside third-party titles and monetization.

In the fiscal year ended March 31, 2019, Sony raked in a substantial $9.9 billion in digital game sales, add-ons, and microtransactions, up a mighty 44.6% year-over-year. Let's put these numbers into perspective: Sony's digital game sales alone almost made as much as the entire Xbox platform did in 2018 (Sony's $9.9 billion digital game sales vs Xbox's total $10.35 billion).

Total game earnings topped $11.66 billion in FY2018, and digital reigns with an an 85% portion of that revenue pie.

Sony FY2018 Gaming Earnings

Total Games and Network Services segment revenues

• Games & Network Services revenue: 2.31 trillion yen ($20.8 billion), up 18.8% YoY
• G&NS Operating income: 311.1 billion yen ($2.8 billion), up 75% YoY

Revenues by segment type

• Total game sales: $11.66 billion, up 40.6% YoY
• Physical game sales: $1.72 billion, up 21.28% YoY
• Digital game sales, add-ons, microtransactions: $9.9 billion up 44.6% YoY
• Network Services: $2.9 billion, up 20.5% YoY

In fact, digital PlayStation Network game revenues made up roughly 56% of Sony's total Games and Network Services segment's $20.8 billion earnings. Further expanding on this sees digital games revenues representing over 16% of Sony's entire yearly revenue.

Gaming broke records in FY2018, but Sony expects the segment to moderate throughout FY2019.

Gaming operating income is forecast to drop by 10% as Sony invests more R&D cash into its next-generation PlayStation 5, and PS4 sales should dip to 16 million across next fiscal year as the console slows down.

Meanwhile, consistent game sales and services earnings should offset these dips, despite Sony not releasing many first-party exclusives during the period. Guidance sees Games and Network Services revenue relatively flat year-over-year.

Sony has confirmed its next-gen PS5, which is outfitted with expanded AMD-powered hardware like a Zen 2 CPU and Navi graphics architecture integration, won't release before April 2020.