Sony has shipped out more than 4.5 million PS5 units since November, and the first quarterly investor report is now here. As it turns out, Polygon highlights that the company was selling the console at a “loss.” But given its hefty $499 retail price, is this true? Let’s take a look.
Why is it being sold at a loss?
Between its backward compatibility and ray tracing technology, it’s no secret that the PS5 uses some pretty advanced hardware to deliver on its next-gen gaming experience.
However, because of the pandemic, there has been a huge shortage of many of its components, like the microprocessor and heat sinks. This has led to an increase in supplier prices, which did not bode well for the creation of the PS5. In fact, a product design tool overview on Altium points out that components make up to 70% of an electronics’ total cost. And there’s no getting around that, so tech companies are always looking to reduce costs in other aspects. But even with all the reductions in operating costs, the PS5 still takes some $450 per unit to produce. This doesn’t include taxes, shipping, and other miscellaneous fees.
The decision to sell the PS5 at $499 was only because their main competitor, the Xbox Series X, had already revealed their console’s price to be at $499. By selling it at the same price, Sony breaks even with every PS5 purchase… but only for the standard edition. The PS5 has a digital-only edition that retails at $399, and its only difference in hardware is that it lacks a disc drive. Sony is definitely losing money with every purchase of this model.
How is Sony profiting?
While the company struggles to make ends meet with the PS5, they’re still making significant revenue with PS4 sales. According to the investor report, PS4 game sales “more than made up any shortfall” in Sony’s operating costs. There’s also the PS Plus subscription, which currently has more than 47.4 million paying users. At $9.99 per month excluding tax, Sony has more than enough capital to produce PS5 units until more gamers are able to get their hands on the console.
In fact, they’re banking on the fact that developers will create exclusives for the PS5 to make a profit. They’ve already begun with PS5-only DLCs like the Final Fantasy VII Remake Intergrade and exclusive games like Demon Souls.
And they would profit from that — after all, a recent post from Video Games Chronicle notes that the demand for the PS5 is extremely high. The only problem is the shortage of components, which has also led to a shortage in units. PS5 bots are taking advantage of the situation, too, and are hoarding units to resell them for double the price. But most of us are not desperate enough to fall for that, so sadly, not a lot of actual gamers own a PS5. This is hurting game sales, further driving Sony into a loss (at least for the console).
The only way Sony is going to profit from the PS5 is if they produce more units to outsell the bots. But, again, this will not happen soon because of component shortage. Hopefully, manufacturers and other members of the supply chain can find solutions this year.
Written by Zachary Harrison