Sony’s PlayStation 4 has absolutely dominated the console wars hands down against Microsoft’s Xbox One and Nintendo’s Switch console. The company will be aiming to do the same with its PS5. Sony has reportedly moved 94 million units of the PS4 over the console’s lifetime. The Xbox One is nowhere near those levels, with overall sales of 42 million units since it hit the market.
So it is quite easy to say that Sony is carrying a massive advantage into the next console generation. The PlayStation 5 is expected to hit the market next year, and the Japanese giant will hope to retain its supremacy. But that might not happen if Sony prices the PS5 at the amount suggested by Wedbush Securities analyst Michael Pachter – $800.
In an interview with video game journalist Geoff Keighley at E3 2019, Pachter said that Sony is likely to price PS5 at $800. The analyst justifies this crazy price tag, stating that the PS5 will have really powerful specifications and arguing pricing it at a lower point would be difficult for Sony. Pachter said:
“I don’t know how you expect that thing out at $300 or $400 bucks. I just don’t know.”
Well, Pachter is probably being blown away by the impressive specs that PS5 is expected to pack. Rumors suggest that PS5 will be able to display up to 8K graphics and will also come equipped with ray-tracing technology that will bring games to life. But despite all these goodies, Sony won’t be able to charge the massive premium that Pachter suggests because of a few simple reasons.
The current generation PS4 Pro 1TB gaming console sells for less than $400, a price that Sony has maintained ever since the console hit the market nearly six years ago. So doubling that level will give gamers a massive price shock and keep them from upgrading to the new device.
This, however, isn’t the only reason why Sony needs to keep a check on pricing. Microsoft is reportedly lining up two versions of its next-gen Xbox Two console to target both budget and premium markets. So if Sony prices out gamers with a big price tag, Microsoft could win the next console war as it plans to give gamers access to hundreds of titles at a monthly subscription of just $9.99.
So how will Sony make money on the PS5 if it decides to keep prices accessible even while packing in terrific specs in the device? The simple answer – game sales.
In the fiscal year that ended on March 31, Sony reported a 19% jump in game revenue to $20.7 billion. This impressive increase was driven by higher gaming software sales and burgeoning PlayStation Plus subscriptions. PS4 hardware sales, meanwhile, dropped to 17.8 million units in the latest fiscal year compared to 19 million in the prior year.
This makes it clear that Sony makes the bulk of its revenue from selling gaming titles and subscriptions rather than the hardware itself. Otherwise, lower PS4 sales would have definitely dented the company’s gaming segment revenue last year.
So Sony investors should just chill and not pay heed to Pachter’s crazy price tag for the PS5. Sales of exclusive gaming titles and subscriptions will be the bigger catalyst. After all, a gamer buys a console just once but buys games again and again.