It is quarterly earnings time and in the video game industry, Sony has become the leading company to watch. Hardware shortages of the PlayStation 5 have been a major industry drag. Unfortunately, the latest earnings release indicates shortages are still an issue.
PlayStation 5 Sales Below Expectations
On the surface, the Sony results look pretty good. In Sony’s Games & Network Services revenue was up 12% over the previous year quarter. However, Sony reports revenue in Japanese yen. In 2002 the dollar has soared in relation to the yen. When the year started 1 U.S. dollar was worth about 110 Japanese yen, where it has comfortably been for several years. As of the end of October, one U.S. dollar could buy nearly 150 yen.
Indeed, Sony lists the main reason for the revenue increase as favorable exchange rates. Unfortunately, a deeper dive raises concerns. The number of PlayStation 5 units shipped in the quarter ended 9/30/2022 was 3.3 million. This was exactly the same as the previous year quarter ending 9/30/2021.
Obviously, the PlayStation 5 remains in short supply. Sony has said they plan to ship 18 million units by the end of the fiscal year ending 3/31/2023. However, after the first six months PlayStation 5 is right on track with the previous year’s sales which were 11.5 million units. If Sony is to reach its goals the shortage needs to clear up in the second half.
PlayStation Software Sales Are Also Lagging
In its latest forecasts, DFC Intelligence estimated that PlayStation 5 shipments for 2022 would fall slightly below Sony’s goal. However, now it appears, unless the last three months of 2022 are very strong, there could be a larger miss. Unfortunately, going into November channel checks show PlayStation 5 units difficult to find.
PlayStation 5 shipments are critical because many companies rely on an active installed base to sell their third-party products. Unfortunately, once again the news was not good. In the second quarter ended 9/30/2022 full-game software unit sales were down 18% over the previous year’s quarter. For the first half of the fiscal year ended 3/31/2023, full game software unit sales were down 22% over the previous year.
It should be noted that Sony reports digital sales in its full game software unit report (digital accounted for 63% of units last quarter). In other words, the decrease cannot be blamed on the decline in brick-and-mortar retail and physical software.
Digital add-on software and network services did hold steady in terms of revenue. However, this is somewhat misleading because of the previously mentioned yen-to-dollar ratio. With major currency fluctuations, it is difficult to do year-to-year analysis, but any adjustment for exchange rates will show a decline in PlayStation add-on content and network services.
Good News = Demand is at a Record High
The good news is Sony’s disappointing results can be blamed almost entirely on supply shortages, not lack of consumer demand. The question is not whether consumers have lost interest in video games but instead when will these shortages end?
On the PC side, at the end of October, Valve’s Steam service reached another record with 30 million peak concurrent users. The demand is there. The hope going into 2022 was that product manufacturing would be able to take advantage of that record demand. Unfortunately, those expectations have been pushed forward into 2023.
So going into 2023, DFC is addressing many questions including:
What is Sony doing to resolve supply shortages?
Is the continued console shortage going to cause people to consider Xbox given the Game Pass content ramp-up?
What impact is this having on customers and brand loyalty? This is a topic addressed in DFC’s regular console game surveys as fickle consumer loyalty can quickly cause major industry shifts that are otherwise hard to detect.
Is the Xbox having similar issues or are trends working in Microsoft’s favor?
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