Japanese gaming giants Nintendo and Sony are heading into this year’s crucial holiday season with little to offer mass-market consumers — one relying on sales of a seven-year-old console and the other appealing only to hardcore players with a new premium offering that critics say is overpriced.
As Sony released the $700 PlayStation 5 Pro last week to mixed reviews, Nintendo put a damper on the industry’s biggest quarter, lowering its guidance on sales of its ageing Switch console from 13.5mn to 12.5mn for its fiscal year ending in March. Traditionally, Nintendo roughly doubles its revenues in the December quarter compared with its September one.
“It’s fairly grim this year,” said Gareth Sutcliffe, head of gaming at Enders Analysis. “It would be difficult to imagine a holiday season that is less exciting than this one when it comes to gaming hardware.”
The picture is also stark for video game releases, with no new blockbusters expected this year and many developers holding fire for a next-generation console from Nintendo, with details expected to be announced in the new year.
“For a host of reasons, notably the PlayStation and Switch console cycles, the sector has been in a bit of a lull,” said Bernstein analyst Robin Zhu. “The new-game launch slate looks set to remain light into year-end. The holiday heavy hitters for PlayStation will mainly include games launched in the last six months, like Black Myth: Wukong.”
The typical life cycle for a console generation is five years, but the Switch is now in its eighth year and has sold an impressive 146mn units since its launch in March 2017. More than 65mn PS5 units have been shipped since it went on sale in November 2020, but both makers and game developers are looking to the future at this late stage in the cycle and trying to work out where demand will lie.
Bets are increasing that the future will be “post-hardware”, with the industry shifting to the cloud, games becoming platform-agnostic and the only mass-market dedicated gaming machines being those that have a portable component built in.
Microsoft is looking to sell more of its own games on rival consoles and promote its subscription service, Game Pass, which gives access to hundreds of games that can be played on its own Xbox, a PC or streamed over the internet to other devices for a monthly fee. Consoles such as a PlayStation 6 or new Xbox may come to occupy a niche as higher-margin, premium products that are not a core part of the business.
Nintendo appears to be in the hardware driving seat so far. The success of the Switch — in its standard form both a handheld device and one capable of docking at home — is forcing other gaming companies to rethink their attitude to portable machines, even if there is some concern that it is waiting too long to release a new console.
“Nintendo is in an awkward transitional period where it needs to still support the current console but needs to keep back the real blockbusters to successfully launch the next one,” said Serkan Toto, head of consultancy Kantan Games. “It seems they are content with a few very silent quarters before the next device comes out.”
The problem for console makers is that traditional gaming machines are becoming increasingly expensive to produce and the overall installed base has been flat for years.
“Consoles seem to have hit this very, very hard ceiling of demand and they cannot get past it,” said Sutcliffe at Enders Analysis. “The only model that has exceeded that is in the mobile space, and that is where Switch comes in.”
Sony’s latest results on Friday were buoyed by strong games software sales — including from third-party developers — but the PS5 hardware has never outperformed its PS4 predecessor in sales when the cycles are compared.
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The PlayStation 5 Pro is unlikely to change that dynamic, with Sony still targeting 18mn units to be sold this year, including the Pro.
The Pro “is hardware targeting high-end hardcore users, so we didn’t plan for it to have a large contribution to overall sales in the first place”, said Sony’s president Hiroki Totoki last week. “As of now, we don’t see the pricing for PS5 Pro having a negative impact on our plans.”
While no game-changer for earnings, the Pro could be a clear signal of where the industry is headed. It offers better graphics and performance and is $200 more than the vanilla PlayStation 5, putting it within striking distance of some gaming PCs, even before the extra cost of add-ons such as a disc drive or a stand are factored in.
Thus, Sony’s strategy appears to be to keep margins high for a niche product, knowing avid gamers will be willing to pay for a 67 per cent increase in compute capacity, which Sony says will provide 45 per cent faster rendering of gameplay action.
“The $700 price tag of the PS5 Pro strikes us as a similar sort of price discrimination strategy as the GTI version of a Volkswagen Golf — the ‘hot’ version of an otherwise mainstream product that’s aimed at enthusiasts,” said Zhu.
However, the Bernstein analyst added, a social media storm over the price at the recent Tokyo Game Show and reviewers questioning whether the upgrade was worth the money could open up an opportunity for Nintendo.
“Public sentiment-wise the internet outrage surrounding PS5 Pro pricing should provide air cover for Nintendo to sell the Switch 2 at $400 or even perhaps $450 without provoking a backlash,” he said.
Nintendo shares also received a boost last week when its president Shuntaro Furukawa said the new console, due to be unveiled before the end of March, would be backwards-compatible, making it capable of playing existing Switch games.
The hope in the industry is that if Nintendo gets its pricing and concept right for the Switch’s successor, it could provide a blueprint for the rest to follow, and next year’s holiday season could be a very different affair.
“What happens with the PS5 and other consoles depends on how people react,” said Miguel Angel, a 34-year-old developer at Lapsus Games, at the Tokyo Game Show. “Gaming is already expensive . . . and the truth is that people already only buy consoles every few years.”
