David Gibson, CFA, is chief investment adviser at Astris Advisory Japan. He specializes in the games and internet sectors.
One of Japan's best-known brands is on the cusp of a make-or-break product launch that will influence the company's trajectory over the next few years. Sony's PlayStation 5 game console hits the market soon and the signs are looking good.
It has the potential to outstrip the resounding success of its predecessor, the PS4, which has an installed base of over 112 million units. The current robust games sector, combined with a much-anticipated launch title, is likely to produce a hit.
Full details on the PS5 are not yet available except for some of the specifications. There will be two varieties and from Sony's guidance, it is a reasonable assumption that retail prices will be $399 for digital only and $449 with Ultra HD Blu-ray. Those figures would mean a loss of more than $200 per unit, but the economics of PS Plus subscriptions, online play, and games should offset those costs during the next-gen cycle.
The PS5 is going head-to-head against Microsoft's latest Xbox Series X with both set for a holiday season launch. But the Xbox is coming from well behind. It is pushing its Game Pass subscription along with its new xCloud streaming service for $10-$15 per month. Sony is likely to revise its PS Now service to make it more competitive and is differentiated by its stronger titles.
For now, game streaming remains limited by download speeds, download limits, and specific hardware. A Netflix-style model is every gamer's dream, but it remains elusive under current industry practices that require an upfront $60 purchase for each title that provides a 20-plus hour interactive experience. It is possible that PS6 might even be a cloud experience add-on to existing PS4 and PS5 consoles.
For this generation, it is still the power of the games that drive consumer adoption. This is where Sony will forge ahead with Marvel's Spider-Man: Miles Morales as the launch title for PS5 while Halo Infinite for Xbox is delayed to next year. Game publishers in Japan have traditionally waited until a new console has an installed base of more than 20 million before releasing a new AAA title. That's not the case for the upcoming cycle. Capcom, Square Enix Holdings, and others will release major titles on PS5, also for PS4, within the first six months of launch. While blockbuster titles already cost $100 million or more to make, an incremental 20% for PS5 versions will be worth it.
It is the power of the games that drive consumer adoption. (A screenshot of Marvel's Spider-Man) Sony has tricks up its sleeve. It has already highlighted the PS5's superfast load times but few gameplay videos have been released so far. The benefits of what it calls its 3D audio are untested by the market, and the controller has some new features. My forecast is for Sony to sell 5 million PS5 units in fiscal 2020 that ends in March of following year, below the 6.5 million that PS4 in the equivalent period of its launch year. The key reason for that differential is limited parts supply.
The CPU and GPU architecture of the PS5 and the Xbox Series X is similar and based around PC gaming specifications. This was also the case with the PS4 and Xbox One, both launched in 2013, so what we are seeing is an evolution rather than revolution. Game engines like Unreal Engine 4 are being upgraded to Unreal Engine 5 to enable easy migration to PS5 and Xbox Series X development. This will mean more PS5 titles available in the early years than we have seen during previous console launch periods, despite increased complexity and resolution of the new games. More choice means more consumption.
The new games cycle is likely to be stronger than before with PS5 driving sustained consumption to record levels. Google Trends data indicates that during June this year, United States consumer interest in PS5 was 15% higher than for PS4 in Jun 2013 ahead of its launch.
The digital purchase of secondhand games and items represents a unique opportunity for PlayStation. Sony would benefit from its own digital marketplace where verified users could sell, swap, or gift items at market-driven prices. Sony would earn significant platform fees from an expanded digital game ecosystem and it would drive increased loyalty and usage.
As it stands, during the last quarter, online spending on PlayStation rocketed from 20% of transactions to 74% in a shift driven by stay-at-home demand. Over time, 40% of PS4 users have taken up PS Plus subscriptions to play online and try out one to two free games per month. That user base has transformed the economics of Sony's games and network services profits and represents between 50%-100% of quarterly operating profit. The 45 million PS Plus users are also a crucial beachhead for the PS5 launch.
Driven by its huge PS4 installed base, and strong first party game titles, Sony is on a winner with PS5. Incremental services like cloud streaming can ensure PlayStation is competitive and grows its subscription revenue. The console's evolution means more game choices for consumers. Increased demand fueled by the stay-at-home COVID-19 environment is likely to kick-start the console cycle to new heights of home entertainment consumption.
The Link LonkSeptember 01, 2020 at 03:00AM
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Sony plays for keeps with PlayStation 5 - Nikkei Asian Review
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