Sony plunged $10 billion after its PS5 sales cut. Bigger issue is its near decade low games margin

Around $10 billion of value was wiped off Sony's stock this week after it cut its sales forecast for its flagship PlayStation 5 console for the fiscal year.

[purple101]

Could be time to buy some shares if you have any disposable monies

Did you see how well last of did on HBO.
They also did a twisted metal series on peacock
(I live in UK so downloaded it through other means)
That also did well and if the game also hits, you get my point

Sony has finger on the pulse no doubt, they are refusing to release mediocre games and this will benefit them long term! Hence share price will rise again I would guess

[I_am_Batman]

When your rising costs outpace your increase in profits you're on collision-course with an unsustainable business model in the future. Seeing the projected budgets in the Insomniac leak honestly makes my head spin. Finding additional revenue streams through TV series and movies may be an effective band-aid that buys them more time, but they still need to fix the trajectory of their core business.

Shawn Layden warned the industry of exactly this situation. He rightly identified the impossibility of perpetual growth and tried to refocus on efficiency instead, but for some reason Sony doubled down on this business model while shutting the door on smaller, less expensive inhouse productions with the closure of Japan Studio for example. In my opinion Sony gave up on them too early and frankly didn't even seem to know how to give them a fair chance at success in the modern era. Now the clock is ticking and they're left throwing hail marys to find the golden goose in the live-service market.

Don't get me wrong, the quality is certainly still there, but with the financial risk increasing, the willingness for creative risk is decreasing at the same time. Even if they find their super-successful live service game, I doubt investors will be happy to see them use that money to subsidize a AAA business model that may soon be on life support, financially speaking.

[Eonjay]

It sounds like the obvious solution to this is that we may get a far less steady stream of AAA games which is what we have been seeing. I think this will push companies to invest in smaller scale projects like Helldivers 2. And as we have seen with projects like HD2 and Palworlds, smaller teams and projects can create some incredible hits. We are at a moment where the industry needs to rebalance. Its not 'going away' or 'doomed'.
To grow as a publisher they will need:

Large AAA games (Wolverine)
Smaller Single Player (Stellar Blade)
Large AAA Live Service (Concord, Marathon)
Smaller Live Service (Helldivers 2)

And they are doing this right now it seems. I mean I for one am not at a loss for game to play on my PlayStation.

\

[darthv72]

^^well said jay. Balance is key.

[I_am_Batman]

@Eonjay: These 2nd party releases are a good start, but they'll need a lot more of these type of games. In the long run it probably would be better be less dependent on outside partners too, especially in the consolidative environment the gaming industry is currently in.

But I mostly agree with you, there are obvious ways to improve the current situation and I don't think Sony is going anywhere or that they are doomed. Also these large AAA titles are still gonna be important as system sellers so I'm certainly not suggesting for them to be completely replaced by smaller titles.

[blackblades]

Sounds like Nintendo is the one doing it right then.

[fr0sty]

There's a lot of factors at play here that people aren't considering. We're still seeing the effects of the COVID shutdown on game development, being that games take years to make, it took a couple years for those delays to manifest... and we're also seeing a contraction in the industry because of the chip shortages caused by shipping and production getting shut down during the pandemic as well. You couldn't buy a new console for the first 2 years of their existence... this all stems from those difficulties. The entire industry is still feeling it and reeling from it. This generation is going to be slowed down, both software and hardware, by it. People have less disposable income now than before as well, as people's pocketbooks still have not yet fully recovered. I work in the entertainment industry, and my business is still slower now than it was in 2019, my industry got shut down for a solid 2 years, even though the lockdown had lifted, nobody was willing to take risks throwing events because they were worried another one was going to come again. Same thing with games, I'm sure a lot of big projects didn't get the green light or were delayed because studios were nervous that they might have to shut production down due to lockdown again.

[InUrFoxHole]

Sounds like day and date on PC

[fr0sty]

@blackblades

Someone has to have the courage to actually push the industry forward, rather than staying stuck 3 generations back with their hardware and games that don't push the envelope from a technical and immersive perspective. Even if it isn't the most profitable path, it is profitable (Sony isn't losing money, losing stock isn't losing money... even their $300 million Spiderman 2 sold $700 million worth of games.) and I applaud Sony for having the courage to continue to push the envelope even if it costs them some profit along the way.

If anything, the big AAA games need to be fewer and farther between, and more smaller studios need to be allowed to take risks (Helldivers is a great example, low budget, sold for cheap, but it's blowing up the market right now so much they can barely keep their servers up to handle the player load) on AA games.

Nintendo is making more money because their hardware doesn't cost as much to develop games for, or to make, so more of it is profit. There are mid-range cell phones that can outperform Switch now...

[Extermin8or3_]

Omg Japan studio again, they were shut because they wasted loads of money abd rarely produced anything that could be released to the public. They still exist as a support studio. Long term its worth noting that sony's AAA exclusives have bot always made money. Sony used to deliberately fund them in order to sell consoles- most of them broke even but plenty did not sell all that well and made loses but they meant they had variety. They ultimately make their money off the vut they get on 3rd party sales and typically on hardware sales in the latter half of a consoles lifetime. Things are abit different this gen in that regard due to pressures around the globe increasing the prices of computer parts In a way we haven't seen before in past 30 years.

The cause of their razor thing margins is actually primarily hardware and likely knock on effects from the pandemic. Psn operating costs are higher due to raised energy bills, utility bills for devs are also higher etc. Games like spiderman easily made 150-200% ROI already based on their cost in the leaks and sales they have already made. That's perfectly respectable. So, actually games aren't the cause of decreased margins- hardware and titled that were cancelled and the costs written off last quarter- tlou online for example. Other issues would be bungies performance and I expect to see Sony take full control of it and push it under playatation studios umbrella sooner rather than later because they must be pissed off with how far off their projection bungie reportedly is even if it is still operating at a profit.

[BeHunted]

That’s risky. The stock may not increase, and the high price of £70 for games discourages many people from preordering them. This is not a viable model.

[coolfool]

How is a company able produce a quality product (with razor thin margins) where the probably do need to charge more for it but not increase the price of that product?

It sounds like you are saying that it would be better if they kept prices lower but also produce cheaper products and make up their margins that way.

[Extermin8or3_]

70 pounds isn't really that expensive fir a game though. Historically it's actually quite cheap and for the biggest and highest budget titles I'd say there is an argument that charging 80 or 90 would actually be reasonable. I wouldn't be shocked to see Sony split games like spiderman 3 in half and release them a year apart for 45 or 50 each. They have certainly thought about it.

[The3faces]

Take off the fanboy glasses and stop trying to damage control. Sony is heavily dependent on PlayStation to sustain the entire company and losing 10 billion in stock value is nothing to sneeze at.

[purple101]

this is kinda what I was meaning, they have said how much playstation is to Sony now, its everything, like 50% of their profits or something I forgot,

they will put even more focus on quality, this will benefit us in the long term.

[Redemption-64]

Should we expect an article Sony is back when they stocks go back up? This happens every time Sony stocks go down, yet I never hear anything when MS loses stocks. I recall similar articles the second MS bought Activision. Yet none of those who reported that, write an article when their stocks went up.

[anast]

Starting an argument with "fanboy glasses" means you probably know next to nothing what you are talking about.

The stocks biggest drop, in a 5 year span, was in 2022 (64.05) following the biggest rise in 2021 (126.40). The "plunge" this article is talking about is sitting at 88.84 at the moment. It's interesting. Actually if you have gotten in on Sony in 2019 at 46.64 and didn't sell at 126.40 you would have still doubled your money.

[Knightofelemia]

You realize that there are different branches to Sony besides just the Playstation branch right. Sony owns movie production companies, recording companies, electronics manufacturing, anime companies, the camera on your iphone is most likely made by Sony, who in turn also make cameras. Sony has a cellphone division, Sony is also into financing, Sony is also into robotics. Sony does not solely rely on Playstation to get by. The Playstation is just one avenue or revenue for Sony everything else is just more money for them. Do your homework on a company Sony is not just Playstation.

[COS]

Spoken like someone who has no clue how business works. One TV Series, not counting twisted metal, and gaming are not Sony's only problem. Sony is the market leader and I don't see that changing anytime soon. They are downgrading sales numbers for PS5. Even though it is heads above the competition, gaming is moving more and more mobile, revenues don't lie. Sony is a lot more than just gaming, they are involved in so many more industries.

One Hit HBO show and the best games in the industry don't help if the market itself is constricting. Until Sony shows some signs pointing to a more positive outlook, I would hold off investing your money. Microsoft recently passed Apple in global value. That had very little to do with Xbox Gaming Brand. MS is so focused on the future (play anywhere and mobile gaming) they are forgetting about the Xbox Console and pissing a lot of gamers off. That being said, if you ask me who has a better future position in gaming (Not Console Gaming) MS looks to be thinking ahead.

[Kiryu1992]

The reason Phil even said there will be less and less platform exclusives is because the development costs have risen so much. Proper AAA high quality game costs $200-300 million. Requiring to sell 10-15 million is a hard reality. That’s why we will see more games from Sony made available on PC and some live service games may even release on Xbox

Keeping a game exclusive helps who exactly? Keeping the potential of an IP helps who exactly? It helps few platform fanboys feel good inside while the reality of doing business is to have a wider reach

There is a day within the next 5 years where we will have halo and gears of war on PlayStation and where some of Sonys live service games will be on Xbox

[Lightning77]

"Keeping a game exclusive helps who exactly? Keeping the potential of an IP helps who exactly? "

Compelling Unique platform exclusives differentiates your platform. Therefore sell because said game isn't on the competitions system. Phil is on to something, Gen Z are way more platform agnostic than Any other gen I notice they don't console war like millennial or X gen. Games like GoW, Halo, Gears, SM, GT7 etc will always sell well but never break through outside of that fanbase and console. They're reaching the same types of fans and ppl each time. And hardly any growth even starting to show in console sales. I'm a younger millennial and I still believe in unique AAA console games. Maybe Sony and MS need yo do a new IP that just as big as, Halo, TLOUS, Gears, Spider-Man etc. Those games for their time captured a new audience and they can do it again imo I know it's easier said than done but they have the studios to pull it off and yes it risky and yeah, theyll be spending 300m$ but think about the possible pay off? They have a exclusive hit again and they captured a new audience once again.

[Outside_ofthe_Box]

"Keeping a game exclusive helps who exactly? Keeping the potential of an IP helps who exactly? It helps few platform fanboys feel good inside while the reality of doing business is to have a wider reach"

Crazy how you would NEVER EVER see a post like this from ANYONE prior to Phil's business update. 3 weeks back you wasn't saying this Kiryu. Phil is a master manipulator, I'll give him that.

[Retroman]

Sooooooo. Do this mean Sony will Stop making Crappy open world games and Start making Great games for everyone again??
I have not bought a ps game since 2005 Mostwanted

[anast]

Yeah, it seems that most people don't want to play games that you like. I don't think this is a Sony problem.

[Jin_Sakai]

Gaming in general isn’t doing well. AAA game development is out the roof, Spider-Man 2 cost a whopping 300 million to make, Naughty Dog can’t get a new game out the door, Alan Wake 2 hasn’t recouped development cost, and the market is overstated with all these attempts at live service games. PlayStation doesn’t even have any first party games releasing this year that I’m aware of.

[Vengeance1138]

Yes, they do, Concord releases this year.

[seanpitt23]

Sony tried to chase the money with all the GOAS with Jim Ryan and all it's done as cost them money..

Last of us online was a joke why scap it 3 to 4 years of work down the drain!

[Vengeance1138]

@seanpitt23

Helldivers 2 says hello, thats a GaaS. Don't exactly see that one "costing them money". If anything, it's proved GaaS is a win and the way to go. Try again.

[darthv72]

^^its proven that releasing on PC at same time is the win.

[Eonjay]

@darthv72

'^^its proven that releasing on PC at same time is the win.'

Say hello to Alan Wake 2. Released on everything at launch and was meet with rave reviews and a GOTY nod and still failed. Releasing a game on PC does not make or break a game. Becoming Xbox and releasing all your game on PC will not make them sell. Nor does it deal with the issue or rising AAA development costs.

[Vengeance1138]

@darth

It proves releasing GaaS on PC at the same time is the win. Which they have already always done. Not much will change regarding this.

[Sephiroushin]

@jay
Alan wake is a different story; it didnt sell well because on pc its locked to epic shitty store that not even Timmy mom likes, and on consoles its only digital, they shoot themselves on the foot

[Eonjay]

@Sephiroushin

Okay fair enough. Don't get me wrong, there are definitely benefits to launching on PC as we have seen. But simply putting a game on PC wont solve all of the problems of AAA development.

[StormSnooper]

Helldivers 2 is how you do it.

[BeHunted]

From the recent leaks. Sony pays Marvel between 19% and 29% for every Spiderman game they sell. That is a large amount, so they raised their development cost to break even.

[Minute Man 721]

Makes no sense

[DOMination-]

Well.. I'm glad you're not in charge

[LucasRuinedChildhood]

Doesn't change your point but a small correction.

Alan Wake 2 did recoup more than the development costs ($50m) already. But the additional marketing costs (further $25m) haven't been covered yet.

I don't think it's all doom and gloom for that game. Control sold much slower and went on to sell 4 million. But obviously, you'd hope it would sell much more. It deserves better sales.

It's interesting that marketing costs for movies are usually around the same as the cost of making the movie, but for games marketing is proportionally much less.

[senorfartcushion]

Companies are simply spending too much with their marketing teams basically guessing the output before it can happen. Their margins move because they spend on stuff they don't even need.

Also, with Alan Wake, they changed the genre of a sequel, which makes very little sense to me.

[jznrpg]

The entire stock market is in a sell off. Whenever it hits record highs expect a sell off and then a slow creep back to record highs over the next however many years. This is how the stock market works. Sometimes there are major things that happen like Covid or housing bubble that mixes things up but overall it is the same old cycle

[kayoss]

Yeah, making AAA games is expensive and its really difficult to recoup that money.

[ChasterMies]

20 years ago we paid $60 for a game that had a 10 hour campaign and tacked on multiplayer. Well, I didn’t pay $60. I borrowed most of my games from my friends. And now I get most of my games from PS+. The way I see, people will only spend so much on games. This is the market.

[-Foxtrot]

I don't know the currency exchange rate but 20 years ago in the UK we were paying £39.99 for a new game, I remember the first one I saw being £44.99 was Final Fantasy X, then all games went up to £49.99 and now it's £69.99.

It's pretty insane

[anast]

A ton of that 300 mil. goes to advertisement. It still takes a long time to make games.

[Felix_Argyle_Catbro]

This is one reason why day 1 PC releases will happen.

[ocelot07]

Day one gaas games sure. Don't bungie have another coming out this year that is also releasing on Xbox?

[darthv72]

Marathon

[remixx116]

Next year actually, it got delayed

[franwex]

If they don’t outright cancel it as it seems it’s having problems too.

[XiNatsuDragnel]

Unfortunate hopefully everything goes okay.

[Hedstrom]

To be honest, a drop of 10B worth of the stock is nothing alarming. MS dropped 4,45% of its value of 300 Billion. Nintendo dropped 6,5% of its 10B value. But all of the companies above are in a long uptrend. I do however believe we are eventually going to crash in the gaming market, because it isnt sustainable. But i dont think we are there yet.

[Redemption-64]

Well, you have to pretend it's only Sony

[COS]

5 Year Market History MS: up ~ 285-290 points
- MS Market Cap 3 Trillion not 300 Billion
5 Year Market History Sony: up ~ 41 points
- Sony Market Cap 113 Billion

Point being made, MS will have bigger swings, but it is significantly less impacted by gaming than Sony. This is not an argument who the console leader is, that is obvious, but if I were investing, it would not be in in Sony Right now.

[Minute Man 721]

It's too massive to crash

[franwex]

I don’t believe the gaming market will collapse, but it will simply evolve.

Unfortunately not to something people on this site will like much.

[gold_drake]

yea, nintendos stock also fell alot after the rumours of the switch 2 not coming this year.

[ApocalypseShadow]

The reality is that there's highs and lows when it comes to business. We've seen Sony on many highs with their consoles like PS1, PS2 and PS4. Even PS5 is breaking records high. There's also lows like selling PS3 at a loss and PS Vita.

Same with Nintendo. Highs with consoles and portables. And there were lows like Virtual Boy and WiiU. They've always bounced back. You don't see Sony or Nintendo backing out the game market. Or scrambling in desperation. They didn't flounder during the pandemic either.

To worry about this instance when they've projected lower than expected sales many times before is being ridiculous. They lost billions before like with PS3 and made that back. Especially when Sony has multiple big guns in the oven to make up for it. Single and multiplayer. It costs more to make these huge games. Sony just may make 1 or two fewer ones and invest in a third party or indie that has a high quality game that needs supporting.

Get back to me when the sky is falling.

[isarai]

They're leaving out the part where just about every publisher and especially console manufacturer is seeing market drops atm

[fxa5209]

Jim Rayan is incompetent... I said that he must be fired many years ago.... I can't believe that no exclusives until May 2025..... this never happend previously..... his focus on live service games just destroyed many studios known for single player games like naughty dogs 🐕

[anast]

Good time to buy Sony stock, it will be soaring by the end of the year.

[jznrpg]

The market as whole is selling off. This happens in cycles since forever. Small investors freak out and sell too. Then the big guys buy back in at lower prices and rinse and repeat.

[Charlieboy333]

And in a few weeks it will normalise again once the pearl clutchers have finished wetting their panties and realised it's still business as usual.

The 25 million target was always waaaay too optimistic in the first place and despite that, sales records are still being broken and the new 'conservative' estimate of 21 million for the year us still pretty much what series x and s have sold for the WHOLE GEN so far COMBINED.

I don't understand how these people panic over nothing....idiots.

[outsider1624]

I mean yeah 25 million was a bit shy off their target. But how is 21 million even bad? I dnt get it.

[MetalGearsofWar]

I always thought Sony and MS dont profit much from selling consoles. Its all about software and subscriptions nowadays.

[Crows90]

Sony is doing just fine

[Obscure_Observer]

They lost a Bethesda and Bungie combined in market value but they´re "fine". Smh.

The moment I saw that 300 Million figures for a game like Spider-Man 2 I knew something was off.

Going forward Sony will start and take and less and less risks with AAA development and going multiplatform might be one of their only alternatives among invest and release more AA games and GaaS to make money to sustain AAA development.

Welcome to modern days gaming.

[Battlestar23]

More evidence that Sony needs to go full multi-platform asap. I would love to play the next God of War/Spider-man Day 1 on gamepass.

[purple101]

Would you love that?

I tell you what, why not trade the Xbox for ps5 & with the money you saved on not paying game pass, you could buy four, true AAA games instead of the ones Microsoft keep promising but always turn out to be 6.5/10’s

[DOMination-]

We know Rebirth is going to be killer but RotR and SB look like they'll be top tier too.

[DOMination-]

Over the last two generations, AAA game development has not only become incredibly expensive but also very time consuming. Where once development was hindered by the technology available to us (think back to 8-bit.. the graphics weren't bad because artists couldn't draw, they were just limited to a select number of pixels and colours). Nowadays tech has advanced beyond our capabilities to use it and developers get too ambitious trying to harness it.

Remember the days when Black Box could churn out a half decent Need for Speed game EVERY year? Or when Rockstar North released GTA 3 (2001), GTA:VC (2002) and GTA:SA (2004) all within 3 years? We'll be lucky to get out of pre-production in that timeframe now.

Skyrim was made with less than 80 people. Starfield had a team of 300.

Hopefully, a turning point is on the horizon. The tools being made available in UE5 plus advances in AI should slowly start to bring both costs and development time back down again. I don't think we'll ever get back to those days of getting a game every year but Sony are about as well equipped as anyone to ensure they are at the forefront of whatever comes next.

[Yui_Suzumiya]

Rika Supremacy!

[Deeeeznuuuts]

I think Sony should still release big budget games but have them more spread out and fill in the gaps with games the size of Helldivers 2, lost legacy, last light and stuff like that, make the price £35-£40 and just make fun games, bring back the output of the PS2 and PS3 era! 😂

[mastershredder]

Yawns.

[Tedakin]

Day 1 PC releases are coming. It's an inevitable reality. Helldivers did too well.

[TwoPicklesGood]

Sony will be fine.

[DarXyde]

Ultimately, Sony is likely to make some kind of compromise. Frankly, that's not a bad thing. Development costs are insane and they will need to make something work. Personally, I would much rather games be cheaper with smaller budgets. I get that people want the AAA experience, but if things keep going as they are, you'll get no AAA games or games at all instead of a few.

You're now seeing the consequences of the nonsense system we have in place in the world's largest gaming market (and largest economy): increases to cost as the federal minimum wage hasn't budged since three war criminals ago.

We're now at a point where a minimum wage does not get you a 1br apartment ANYWHERE in the US. What kind of extra income do you think people have? People aren't doing much luxury spending, and ultimately that's what gaming is. And instead of giving people higher wages, companies lobby against it and would rather give you subs where you own nothing and make you pay more over time.

Many things falling apart at the same time.

[VariantAEC]

Higher minimum wages are why everything is so expensive. That kind of inflation also never goes away unless people somehow agree to lose wages across the nation. It is permanent inflation.

[Firebird360]

Development costs need to be reigned in.
Game companies following flash in the pan trends that work on mobile but don't translate to console and pc and have no business being implemented.
Gaas.
A collapse is eminent.
Something has to change.

The market is completely oversaturated.
Releases need to be spread out throughout the year.

The gaming community is completely toxic.
"Influencers" trashing games and effecting sales of good games for any given reason.

[DiRtY]

Yeah, gaming isn’t doing so well these days.

One of the main issues is the ridiculously long development time for one single game. Look at Naughty Dog (Sony) or the Coalition (MS):

Both studios were able to release a whole trilogy of a (new) gaming franchise on the PS3 / Xbox360 back in the days with Uncharted and Gears of War. Both are undeniable AAA games.

On the PS5 / Xbox Series X|S on the other hand both studios haven’t released one single main game of their franchises, except remasters (ND) or helping other studios with spinoffs (TC).

Of course Sony and Microsoft are trying to maximize the profits with the outputs of their studios. That is why Sony will release their games on PC now as well and I am pretty sure this will happen simultaneously on day one sooner than later. They even said that during the financial Q&A.

Microsoft is trying to broaden their user base with cloud and mobile plus PC and Xbox. These four older games on PS5 will also do just that.

Especially service based games need a huge audience and not just one single platform. And if you like it or not, the most successful games of the past decade are all service based (Fortnite, Roblox, CoD, Minecraf, etc.)

Exclusive games are indeed going away.

[Demetrius]

Sheesh 😬 with then selling plenty of ps4&ps5 consoles you would think it has benefit them up to now its sad to hear that Sony still loses money, I want all 3 companies around with consoles but the situation tricky af, most devs not trying to release good quality games only bs that requires internet connection, half finished, high priced dlc that should of been in the game etc all type of stuff smh Microsoft claiming they bout to be done with Xbox, Sony losing $$$ bad, I woulda never been able to picture such things back like in 2007-09

[Tzuno]

With a competitor like gamepass, they need to revamp the ps plus formula
Also, they sleep on many good games of the past that need to make a comeback
Is like they scared to take the risks

[Battlestar23]

Sony needs to go multi-platform as they can't survive going the way they are now.

[blacktiger]

Well Sony didn't release enough games for 2024

[anast]

They blame the games when the development budget was around 100 mil. That's 200 mil. for marketing and other costs. I would cut marketing costs and fire some executives.

[jimbo676]

The only thing Sony has is playstation. Once its done. Sony is a gonner.