With $70 games & rising PS5 costs, Sony's pro-gamer words sound hollow

Sony Interactive Entertainment CEO Jim Ryan has pledged to do what is best for PlayStation gamers, but the company's current consumer-facing trends are more favorable for the company as a whole.

Sony management has publicly opposed Microsoft's buyout of Activision-Blizzard. PlayStation boss Jim Ryan has outright said that "giving Microsoft control of Activision games like Call of Duty" would have "major negative implications for gamers." This has sparked interesting discussions from gamers, namely PlayStation fans who are being aversely affected by Sony's recent business decisions.

"By giving Microsoft control of Activision games like Call of Duty, this deal would have major negative implications for gamers and the future of the gaming industry.

"We want to guarantee PlayStation gamers continue to have the highest quality gaming experience, and we appreciate the CMA's focus on protecting gamers."

PlayStation segment revenues made $24 billion in FY21 on the strength of hardware sales, software, and microtransactions.

Sony's assertions of doing what's best for gamers is currently a tough sell. The company, who made over $24 billion from PlayStation last year, has officially raised the price of the PlayStation 5 consoles in nearly all global worldwide markets outside of the United States.

This price hike comes at an interesting point. Sony is set to magnify its hardware earnings because this cost increase is timed simultaneously with two major breakthroughs.

One breakthrough is a series of record-breaking PlayStation console shipments. Sony is about to ship more PS5s than it ever has before, and it's implied the console's scarcity will ensure all units are all sold through to consumers.

The new PS5 disc model is 1.3 lbs lighter than the 2020 launch edition, which will significantly reduce bulk freight shipping costs.

The other major breakthrough is that Sony has released a brand new PlayStation 5 model that's 1.3lbs lighter (disc version) than the original 2020 launch model. This might not sound like a big deal on its own, but this lighter weight means Sony will pay a lot less to ship its new PS5s overseas.

Sony plans to ship 18 million PlayStation 5 consoles by March 2023. The new revised PS5 model will reduce a portion of these shipments by at least many millions of pounds.

The new PlayStation 5 model also reduces manufacturing costs by using a more streamlined, optimized, and lighter cooling system. Sony is saving money on the key spending points for any consumer hardware--manufacturing, production, and shipment costs.

We've guessed that this new PS5 will be built on 6nm to not only improve better yields and allow Sony to manufacture more PlayStation 5's, but also increase power efficiency to allow Sony to shave off cooling solutions like the heat sink. In short, the move to 6nm should be the key for producing more PS5s and reducing weight; 6nm is more power efficient than 7nm, so it may not require such a large cooling solution, thereby also reducing weight.

Sony helped introduce the new $69.99 price tag for PlayStation 5 games during a year that it made record PlayStation revenues.

It's not just hardware that's getting more expensive.

Another key part of the modern PlayStation business is the new $69.99 price tag that's set for all new first-party PlayStation 5 games.

Sony was one of the first companies to introduce the new more expensive $69.99 MSRP alongside the PlayStation 5 and Xbox Series X/S console generation. Other publishers like Activision-Blizzard and Take-Two Interactive followed suit. This trend continued as EA jumped on board, and then publishers like Square Enix started charging the new MSRP.

Ubisoft is also about to charge $69.99 for Skull and Bones, and has said that all future AAA current-gen games would be priced accordingly. Microsoft, SEGA, and Capcom remain as the $59.99 price.

Sony has sparked criticism and push-back from fans with its controversial $69.99 Ghost of Tsushima re-release.

PlayStation hardware revenues have dropped as Sony struggles to meet demand, but that will change this holiday season as it readies the largest PlayStation console shipment in the history of the brand.

Sony has introduced two price hikes across both hardware and software.

The motivations are clear, though; Sony is an overseas company and relies on foreign exchange rates to perceive company value and earnings. The inflation-heavy market had dropped the value of the Japanese yen, which caused PlayStation operating income to crash by almost 50% in the Q1 period.

PlayStation Q1 FY22 operating income has dropped significantly when converted from yen to USD.

Gamers aren't convinced that Sony's assertions of doing what's best for PlayStation fans rings true. Following Sony's comments on Call of Duty and the ongoing price adjustments to PlayStation gaming hardware and software, gamers have described the issues in four words: "Arrogant Sony is back."

Sony has been resistant to embrace many of the forward-thinking gaming trends over the past few years, including cross-platform play, which is now enabled on PlayStation hardware, and bringing games to PC, which it also now does as well.

One of the biggest things that Sony is struggling with is innovating on its services lineup. The company recently merged PlayStation Plus with PlayStation Now, creating a new three-tiered subscription model with varying benefits. The most expensive tier, PlayStation Plus Premium, costs $119 a year and includes access to classic games, streamable titles, online play/PS Plus benefits, and free monthly PS Plus games.

Game Pass is the nexus that connects the Xbox ecosystem by means of content value, discovery, and access. Game Pass has steadily contributed to Xbox revenues which totaled a record-breaking $16.2 billion last fiscal year.

There's just one area that Sony isn't ready to embrace: The Game Pass method.

Sony still has no plans to release its first-party PS4 and PS5 games day and date on PlayStation Plus. Game Pass is hailed as the best value in gaming and for good reason; it offers access to over 400 games across PC, consoles, and even mobile devices, and all first-party Xbox games are released on the service.

PlayStation boss Jim Ryan says that this kind of business model would interrupt Sony's "virtuous cycle," which essentially sees Sony compounding its success and growth by re-investing in top-quality content.

In short, Sony doesn't think it can make nearly as much money as it does now through the Game Pass model, and lower profits equals lower investment which in turn equals lower quality.

In terms of our assessment in what gamers want, it's quite simple: Gamers want great games. That is the first and overwhelming perspective that they have.

"How they are delivered is a secondary concern. I would say whether it's in absolute terms, or in relative terms compared to our own history or compared to anything that competitors are managing, that we have never been in a stronger place with PlayStation Studios than we are now. We anticipate that position of strength and excellence will only continue and will only grow.

"We are in a virtuous cycle where success has allowed investment, which has generated more success, which is allowing us to invest more and will hopefully generate yet more success.

"That virtuous cycle, we feel that if we were to move to a different model, which involved putting our AAA games into a subscription service on day one, we feel that there is significant risk that the virtuous cycle that we've established so successfully would be compromised and potentially broken.

"We definitely feel that is not in the best interest of the PlayStation gamer. That is our view on that particular issue."

Sony's plan is working well and has delivered record earnings during a transition period--it also helped that the PS5 is directly backward compatible with the PS4, which is the second best-selling PlayStation hardware of all time.

The logic here is that what is best for Sony is also what's best for gamers.

When Sony gets more money, it can re-invest into higher-quality hardware, games, products, and services. As PlayStation grows the quality of its content grows, too. So far this trend seems to be technically true; PlayStation 5 games do deliver higher quality graphics and other in-game upgrades...but the core of the logic is still built on profits and growth instead of goodwill to gamers.

Also remember that Sony is spreading its investments across multiple segments outside of games. There are 11 different films and TV shows currently in development based on PlayStation IPs.

This transmedia content does often spark game sales and engagement (Cyberpunk 2077's playerbase is up considerably after Edgerunners, for example) however it's never a guaranteed bet.

Known PlayStation Productions adaptations

• Days Gone - Film
• Gravity Rush - Film
• The Last Of Us - HBO Max TV show
• Ghost of Tsushima - Film
• Twisted Metal - Peacock TV Show
• Horizon Zero Dawn - Netflix
• God of War - Prime Video
• Gran Turismo - Film
• Ghost of Tsushima - Film

Sony is accelerating investment into live games, and wants to have 12 live games on the market by 2025.

Finally, Sony is also focusing on multiple different kinds of game types including free-to-play titles and live games.

While billed as AAA titles, this particular segment is typically a far cry from premium mega-hits like God of War, Spider-Man, and The Last of Us. Sony's emphasis on delivering great quality may fall short with these titles simply by virtue of their delivery mechanisms and business models; live games are predicated on monetization and microtransactions, not premium full game sales, and gameplay mechanics, lore, story, and other features are all typically dictated by these models.

Most games sold on PlayStation are third-party titles, not first-party marquee games like God of War.

What is most interesting about the PlayStation business is how Sony makes disproportionately more money from third-party games vs third-party titles. Sony sells more copies of third-party games than it does its own first-party mega-hits, and also makes far and away more revenue from third-party games like Fortnite, Warzone, and Apex Legends than it does from its own games.

Add-on content includes microtransactions and DLC, and it generates the most PlayStation revenues.

PlayStation generates most of its revenues from what it calls add-on content, which includes microtransactions, DLC, and expansions. Since add-content makes the most out of any other segment, it's not hard to imagine that F2P hits like the aforementioned games are generating the bulk of PS cash.

That's why Sony is re-investing money from its virtuous cycle into live games. Sony saw that Activision-Blizzard is making $1.3 billion from its platform in 2021 and wants its own slice of the pie.

Sony isn't content with watching other developers and publishers make billions while it keeps a 30% cut--Sony wants to make its own live games that generate billions and keep 100% of the revenues.

That's also a big reason why Sony purchased Bungie for $3.7 billion.

All of these things--PlayStation revenues, the ongoing efforts to reduce manufacturing costs/weight and maximize hardware profits, and an emphasis on driving up costs for consumers while steadily trying to invest in growth markets--add important clarity to specific promises and phrases from executive leadership.

It will be interesting to see what affect the ongoing inflation market will have on the world of video games, especially as consumers now have to weigh every dollar carefully against a rising cost of living.