Sony PlayStation cross-platform game strategy

However, there's also a downside to that if the person that owns a PS5 and a gaming PC only ever buys the occasional PS5 exclusive because that's the only reason they own a PS5. That means that PS5 isn't contributing a lot to Sony's bottom line since it's not generating revenue from 3rd party game sales.
From Sony's perspective, they profit from the hardware sale, then they profit from some software sales. Both are better than not having those fuller profits. Profits are often about accumulated nickel-and-dimes.

This is not a downside, this is still an upside. If the situation were reversed and this was about Microsoft, given they clarified at the tail end of last year that there were still taking significant ($50-100) losses on Xbox console hardware, that would be a downside. I.e. it's costing you.
 
From Sony's perspective, they profit from the hardware sale, then they profit from some software sales. Both are better than not having those fuller profits. Profits are often about accumulated nickel-and-dimes.

This is not a downside, this is still an upside. If the situation were reversed and this was about Microsoft, given they clarified at the tail end of last year that there were still taking significant ($50-100) losses on Xbox console hardware, that would be a downside. I.e. it's costing you.

Sure, they are still getting a small bump in revenue with an even smaller bump in profit (although that bump in profit might be eaten by operational costs meaning it's a net loss WRT its contribution to operational profit) but it's a small drop in the bucket, WRT profit generation, if that console isn't generating 3rd party sales. And profit generation is far more important than just generating additional revenue.

Looking at Sony's latest FY report, I'm also doubtful that they are currently making a profit on each console sold. Operating profit took a nose dive coinciding with the increased production and sales of consoles. Revenue generated increased significantly, obviously, but operating profits went way down.

Regards,
SB
 
Sure, they are still getting a small bump in revenue with an even smaller bump in profit (although that bump in profit might be eaten by operational costs meaning it's a net loss WRT its contribution to operational profit) but it's a small drop in the bucket, WRT profit generation, if that console isn't generating 3rd party sales. And profit generation is far more important than just generating additional revenue.

Looking at Sony's latest FY report, I'm also doubtful that they are currently making a profit on each console sold. Operating profit took a nose dive coinciding with the increased production and sales of consoles. Revenue generated increased significantly, obviously, but operating profits went way down.

Regards,
SB

They said again to shareholder profit took a nosedive because they did not release first party game like the year before. The PS5 with BR disk is profitable since a long time.
 
Sure, they are still getting a small bump in revenue with an even smaller bump in profit (although that bump in profit might be eaten by operational costs meaning it's a net loss WRT its contribution to operational profit) but it's a small drop in the bucket, WRT profit generation, if that console isn't generating 3rd party sales. And profit generation is far more important than just generating additional revenue.
I don't follow. If PS5 hardware is sold at a profit (it is), then even if no software is sold then you have real hardware margin. Then every subsequent software sale is further profit. This different from Xbox who may still be selling hardware at a loss, then need to sell X games at £$Y margin to recoup loses, then make it into the black on a per-person basis.

What is the operational cost that negates hardware sales at a profit?

You can only have relative profit loss, i.e. had a console been sold to somebody who would have bought more games or invested more in the PlayStation ecosystem to drive greater profits, but you can't have loses. :???:
 
I don't follow. If PS5 hardware is sold at a profit (it is), then even if no software is sold then you have real hardware margin. Then every subsequent software sale is further profit. This different from Xbox who may still be selling hardware at a loss, then need to sell X games at £$Y margin to recoup loses, then make it into the black on a per-person basis.

What is the operational cost that negates hardware sales at a profit?

You can only have relative profit loss, i.e. had a console been sold to somebody who would have bought more games or invested more in the PlayStation ecosystem to drive greater profits, but you can't have loses. :???:

You still have operational costs that aren't associated with the hardware itself. So, for example, shipping can be accounted for on a per console basis but the cost of operations (like paying your employees, building maintenance, taxes, etc.) cannot. Obviously those things are accounted for separately from console sales, game sales, etc. However, it's still accounted for when you look at the profit's generated by say G&NS for Sony.

You can roughly get an idea if something is or isn't generating a profit after operating costs are accounted for by averaging out the operating costs across various product categories and comparing that to the profits generated by the various product categories. In that way companies can evaluate whether a product line continues or whether it ends up being cut (pretty standard in the TV market, for example).

Obviously, you aren't going to cut the manufacturing of the key piece of hardware that the division relies on, but it can be used for a variety of things. Like, for example, whether to raise the price of the hardware or in this case, would it be worth it to significantly increase the production of the hardware if it also increases the cost of the hardware.

If we look at Sony's FY report, I posted the relevant data from it earlier in the PS5 thread (https://forum.beyond3d.com/threads/playstation-5-ps5-release-november-12-2020.61644/post-2298367) looking at YoY changes to Q4 revenue/profit for Sony's FY 2022 (Year ending Mar. 2023).

In that, game revenue increased moderately, network services revenue was relatively flat while console revenue was up massively (+84.5% FY, +180.4% Q4). That massive bump in console hardware revenue lead to some large bumps in revenue for FY 2022 and Q4 (+32.3% and +60.1% respectively). That tracks with the increases in console hardware revenue. However, that also came with a significant reduction in operating profits (-27.8% and -55.5% respectively) which again tracks with the increased console hardware revenue.

It wouldn't surprise me if Sony expected increased games revenue and profits to cover the increased cost of console production (assuming it increased, which I am as it's my hypothesis :)) but as we can see game revenue did not spike at all similarly to the spike in console hardware production and sales.

Regards,
SB
 
However, there's also a downside to that if the person that owns a PS5 and a gaming PC only ever buys the occasional PS5 exclusive because that's the only reason they own a PS5. That means that PS5 isn't contributing a lot to Sony's bottom line since it's not generating revenue from 3rd party game sales. Granted this is far more impactful when the console is supply limited than when it is not, so going forwards it should have minimal impact. However, when the "next" generation arrives, Sony will be reducing their revenue a fair amount by not having their titles release day and date.

On the plus side however, it means they basically have more development time for the PC version and thus the PC versions of their games will always run better than if they were released day and date ... oh wait. Uh, at least in theory that should be the case. :p

Regards,
SB

Isn't Sony generating like $300-$450M quarterly in game sales, which is a mixture of 1st and 3rd party sales? If I'm not mistaken, 3rd party titles like Hogwarts, Elden Ring, COD, and so-on, have generated Sony a nice chunk of revenue from their 30% cut off digital game sales. Unless I'm missing something from your comment.

If you're talking strictly PC/PS5 ownership downsides to sales, what is your hard data on that? Being a owner of both platforms, and besides double dipping on 1st party titles, I often purchase third-party titles on PSN for my son, wife, or traveling needs. My family and friends that have multiple platforms do this as well. If you have data suggesting otherwise, I would like to see it.
 
You still have operational costs that aren't associated with the hardware itself. So, for example, shipping can be accounted for on a per console basis but the cost of operations (like paying your employees, building maintenance, taxes, etc.) cannot. Obviously those things are accounted for separately from console sales, game sales, etc. However, it's still accounted for when you look at the profit's generated by say G&NS for Sony.
Sony have provided clarity on the "sold at a profit" statement and it includes all costs of selling a console to a customer, i.e. it includes logistics. Logistics will be one of Sony's smallest costs because outside of Sony's professional devices (100k 4K/8K cameras etc) and specialist components (CCDs), Sony do not have product specific logistics. Sony have massive distribution warehouses that hold stock of everything they sell in the region. It's just of doing business as a tangible product company, like paying to water/waste, and having electricity in the building. A few million PlayStations a month distributed globally isn't a drop in the ocean

If we look at Sony's FY report, I posted the relevant data from it earlier in the PS5 thread (https://forum.beyond3d.com/threads/playstation-5-ps5-release-november-12-2020.61644/post-2298367) looking at YoY changes to Q4 revenue/profit for Sony's FY 2022 (Year ending Mar. 2023).

In that, game revenue increased moderately, network services revenue was relatively flat while console revenue was up massively (+84.5% FY, +180.4% Q4). That massive bump in console hardware revenue lead to some large bumps in revenue for FY 2022 and Q4 (+32.3% and +60.1% respectively). That tracks with the increases in console hardware revenue. However, that also came with a significant reduction in operating profits (-27.8% and -55.5% respectively) which again tracks with the increased console hardware revenue.
I think the piece of the pie that you're missing, which explains why hardware revenue was up but profits are not up proportionately relative to earlier quarters and previous years, and that is PSVR2. It has been speculated by almost everybody that Sony are selling this thing at a loss given the specifications and cost relative to comparable headsets in the PC space.
 
I think the piece of the pie that you're missing, which explains why hardware revenue was up but profits are not up proportionately relative to earlier quarters and previous years, and that is PSVR2. It has been speculated by almost everybody that Sony are selling this thing at a loss given the specifications and cost relative to comparable headsets in the PC space.
A teardown (Estimate? Analysis? Guess??) priced BOM well under retail price.

 
A teardown (Estimate? Analysis? Guess??) priced BOM well under retail price.
I wasn't able to find any kind of breakdown, could you? Their estimate incredibly low given PSVR2 uses pretty damn good screens and eye-tracking tech. They also make it clear that this is an estimate of components only and does not include costs attributed to software licensing.
 
As I mentioned, wasn't sure if it was a breakdown or guess ;). However, assuming a BOM investigation, the error interval between their value and PSVR being loss-leading is so huge that it's quite hard to conclude PSVR2 is sold at a (significant) loss. Additional costs like R&D would be mitigated in operating costs, not per-unit production and sales. Basically, you'd need this estimate to be out by a factor of maybe 3x for there to be a large impact on Sony's profitability from PSVR2 sales, a $250 report being wrong on a real $700 cost.

Well, we can be more particular on this. How down are Sony's profits? How many PSVR2s have been sold? Estimates seem to be 300,000. So divide the lower profit amount by 300,000, what would the necessary loss per unit need to be for PSVR to account for the difference? We can wrangle numbers for different estimates on PSVR2's impact, best and worst case scenarios.
 
As I mentioned, wasn't sure if it was a breakdown or guess ;). However, assuming a BOM investigation, the error interval between their value and PSVR being loss-leading is so huge that it's quite hard to conclude PSVR2 is sold at a (significant) loss.
Even if PSVR is't sold at a significant loss, or even a marginal loss, if it's margin is smaller than PS5 console hardware that would still result in the same result that SB is citing, an increase in revenue but not net profit.

Additional costs like R&D would be mitigated in operating costs, not per-unit production and sales. Basically, you'd need this estimate to be out by a factor of maybe 3x for there to be a large impact on Sony's profitability from PSVR2 sales, a $250 report being wrong on a real $700 cost.
I've conjectured about the accountancy of R&D before. I've never seen specific costs it referenced in any Sony financial report so it's unclear if Sony consider R&D of future products an ongoing cost every quarter, or if they cost sunk R&D spend one a product is launched, then that entire sunk R&D cost is re-costed to form part of the 'sold at a profit' calculation based on the number of units that anticipate selling.

I've seen it done in business both ways.
 
According to the company, Marvel’s Spider-Man Remastered has sold 1.5 million copies by the end of its FY2022 Forecast. As such, the game generated $52 million in revenue. Sony has also previously stated that Marvel’s Spider-Man Remastered was its fastest selling game on PC.

On the other hand, The Last of Us Part I sold 368K units in its first month, generating $15.5 million in revenue.


On other news, Sony is expanding their releases on PC, by 2025, 40% of their games will be on PC.

Sony appears to be heavily interested in expanding its first-party portfolio on PC. According to its Game & Network Services Segment, by 2025, 40% of Sony’s first-party releases will be on PC.

Sony-PC-1.jpg


 
According to the company, Marvel’s Spider-Man Remastered has sold 1.5 million copies by the end of its FY2022 Forecast. As such, the game generated $52 million in revenue. Sony has also previously stated that Marvel’s Spider-Man Remastered was its fastest selling game on PC.

On the other hand, The Last of Us Part I sold 368K units in its first month, generating $15.5 million in revenue.


On other news, Sony is expanding their releases on PC, by 2025, 40% of their games will be on PC.



Sony-PC-1.jpg



The wording seems a little confused in that article. Looking at the chart it seems as though the actual number of Sony first party releases will be rougly the same between PS5/PS4 and PC.

But many if those will likely not be the SAME games due to the lag on the PC side.
 
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