Sony is reportedly limiting production on its forthcoming PlayStation 5 console because of the impact of the coronavirus pandemic. Bloomberg notes the issue is not in the electronics company’s supply chain; its executives are concerned about COVID-19 hampering consumer demand. The firm is also concerned the systems price will harm its desirability, but it still plans to release its ninth-generation video game console this holiday season.
COVID-19’s Impact on the PlayStation 5 Launch
According to Bloomberg, Sony intends to produce 5 to 6 million PS5s through March 2021. When the firm launched the PlayStation 4 in 2013, it sold 7.5 million consoles within its first two quarters of release. As such, early adopters might not be able to get their hands on the highly anticipated system right away.
Furthermore, PlayStation CEO Jim Ryan intends for the system to launch worldwide on the same day, which could constrain availability.
The coronavirus pandemic prompted Sony to scale back on its video game system promotional efforts. The firm introduced the world to the PS5’s DualSense controller via a blog post rather than a press conference. The corporation also revealed the video game console’s technical specification and backward compatibility features in a YouTube video.
PS5 Cost Concerns
Sony is also reportedly limiting initial production on the PS5 because of manufacturing costs and pricing concerns.
In February, Bloomberg reported the Japanese electronics company spends $450 to make each of its next-generation consoles, so they would have to retail at $470 to be profitable. By comparison, the corporation produced the PlayStation 4 for $381 and sold them for $399 at launch. The problem is the PS5’s components are considerably more expensive than those of its predecessor.
Sony spent less than $150 on the PS4’s memory and storage modules, but its successor’s custom AMD processor and 825GB SSD cost $250 per unit. The firm has also increased its expenditure on the console’s cooling system to ensure optimal function of its chipset.
Macquarie Capital analyst Damian Thong said consumers expect Sony to price the PS5 in line with its current generation offerings. “If Sony prices above that, it would likely be to balance a need to offset higher materials cost, against risk to demand,” noted Thong. The console’s pricing is reportedly dependent on that of Microsoft’s Xbox Series X, which is also launching in the fourth quarter.
Thong predicts both firms could launch their eighth-generation systems at $450, despite losing money on each unit.
Online Revenue Could be Sony’s Saving Grace
Even if the PS5 launches at a loss, Sony’s gaming segment could absorb the hit thanks to its online revenue. Chief Executive Officer Kenichiro Yoshida said his firm is interested in growing its recurring revenue as opposed to depending on hardware sales. As such, the firm could slash prices on its PS4 and PS4 Pro to drive up PlayStation Now subscriptions.
The coronavirus pandemic has prompted a surge in online gameplay. As workers and students have been rendered homebound due to widespread shelter in place orders, gaming has emerged as a go-to stress reliever. In March, both Sony and Microsoft announced the experienced “record levels of engagement” near the end of the month.
As such, the Japanese electronics company could end 2020 on a strong note even if with the PS5’s downscaled launch.