PS5 looks to be costing Sony more than it’s costing consumers

A snippet from a recent transcription related to Sony’s Q2 results suggests that at present the PS5 is costing Sony more than consumers are paying for it. 

Hiroki Totoki, Sony’s CFO, was asked about the impact of the PS5 on Sony’s bottom line for the rest of the year and replied: “PS5 hardware, it’s not the earnings contribution that we expect, but I think it will be a negative contribution for the time being.”

Now, consoles being subsidised by their manufacturers is nothing new of course, but the industry has been gradually weaning itself off such practices over the years. The PS5 (as with the Xbox Series X) is a complex machine with an expensive storage system, so it’s not surprising that Sony isn’t making a dime on each unit. 

However, that fact does make any kind of competition over price in the next 12 months less likely. And with many games still coming to last-gen machines, a lack of price drops combined with a high launch price (historically speaking) may mean this generation has a slower uptake than many before it. 

Totoki was confident that PS5 would grow revenues though overall. “But having said that, I would like to state that penetration, the increase of PS5 in the market would urge customers to buy the software. So overall, as a business, the PS5 ecosystem will be activated, and in consequence, would grow earnings.”

And he notes that the cost of bringing PS5 to market is not simply the manufacturing cost of each hardware unit. For example updating network services and the UI for instance, which are large upfront costs. 

Despite our concerns about the high price of the new console (once we move past teh early adopter phase), Totoki reiterated that the company was planning to exceed the figures of the PS4. 

“This fiscal year, we are aiming to exceed the 7.6 million units we sold in the fiscal year of the launch of the PlayStation 4 which achieved a substantial market share and was a major success.

“Our strategy is to grow sales and profit through increased user engagement driven by great gaming experiences on the PS5, and we aim to accelerate the growth of recurring sales and profit by expanding the reach.”