It’s fairly well-known in gaming circles that the video game consoles themselves are sold at a loss, with the publisher’s confidence that the sales of individual games and gaming subscription services over the console’s near-decade lifespan will eventually recoup the high costs of production and research and development (here’s a good article about the economics of gaming consoles for those interested in learning about more). For instance, according to Investopedia, “in 2006, at the time of PS3’s launch, each console was sold at a loss of around US $240 per console, while the Xbox 360 lost around US $125 per console when it launched in 2005.”
The song remains the same with Sony’s latest console, the Playstation 5, which launched in November 2020, and despite price points of $500 for the standard edition PS5 and $400 for the digital edition, have reportedly been selling for a loss. That could be changing very soon however — and even more quickly than previous generation consoles, according to Sony.
“Another area that we focused on is our console economics,” explained SIE president and CEO Jim Ryan in an investor relations presentation on Thursday. “I’m pleased to say that the PS5 standard edition will break even from next month’s production. And from then on, we project that it will gradually become increasingly profitable.”
Ryan added in a Q&A session after the presentation that, “Right now, the standard edition represents the very great majority of PlayStation 5 sales. We do not see that proportion changing greatly in FY21 but we anticipate that as time passes, as we move further into the cycle of PS5, that there will be some slight increase in the ratio of the digital edition, but not significant.”
Another note of interest in Ryan’s presentation touched upon the importance of video game consoles in Playstation’s business model actually diminishing in importance as peripherals, services and software now account for the majority of SIE’s sales. According to Ryan, consoles earned only 20 percent of the company’s revenue in FY20, a number which was over double in FY13, at 48%.
Does the news that the standard edition PS5 will become profitable next month surprise you? Do you think the declining importance of video game console sales in the overall Playstation business model was inevitable or a sign of the times? Let us know in the comments.