PS5 Is Being Sold At A Loss, Sony Confirms--And That's Not Unusual Or Cause For Alarm
Sony's next-generation console isn't making any money right now, but the company has covered its losses with game and subscription revenue.
As part of Sony's latest earnings report, the company announced that it is losing money on every PlayStation 5 that it sells--but this is not unusual for Sony or the wider gaming industry.
In its statement, Sony said it is incurring a loss of every PS5 due to its decision to set a "strategic" price point for the next-generation system. The consumer price of the disc version of the console, $500 USD in the US, is less than what it costs to manufacture it, thus leading to an overall loss.
Sony did not provide a specific dollar amount for how much money it's losing on every PS5, but the company said its results during the October-December period were also negatively impacted due to higher general and administrative costs associated with launching the PS5.
The report does not provide a breakdown between the disc version of the PS5 and the digital-only edition, which costs $400 USD, but presumably the losses apply to both.
Although Sony sustained losses on PS5 hardware, the gains in revenue that the company posted for software and network services--which were booming--were enough to offset the losses, according to industry analyst Daniel Ahmad.
Ahmad also reminded people that the PS4, too, was sold at a loss when it originally launched back in 2013. It took "a few months" before Sony was able to make it a profit-driving machine.
The PS4 now makes money, and Sony said in the report that PlayStation division's revenue was positively impacted by "higher profit margins" on PS4 hardware. Sony sold 1.4 million PS4 consoles in the October-December period, and each of them made money.
Consoles are often sold as loss-leaders, and Ahmad pointed out that the next-generation Xbox consoles are no different.
Selling a lot of consoles is good, of course, for bragging rights and revenue, but the real money in games comes from software and services. Phil Spencer laid this out in a 2019 interview with The Verge:
"The business isn't how many consoles you sell. The business is how many players are playing the games that they buy, how they play. I think it's easy from the outside to judge the health of our business around how many consoles any company sells. In the end, how many subscribers you have to something like Game Pass, how many games people are buying, those are much better metrics on the health of the business."
Nintendo, however, has bucked the trend in recent years. In 2016, prior to the release of the Nintendo Switch, Nintendo said it would make money on every Switch it sold right away, according to VentureBeat.
Sony sold 4.5. million PS5 consoles in the October-December period, and it could have moved even more were it not for the supply constraints.