Sony reaffirmed that the PlayStation 5 video game console is on track to ship during the holiday season this year. The Japanese company made the announcement in a quarterly earnings report today in which it said its quarterly and annual profit slipped for games.
Game developers and other companies in the ecosystem who are counting on the launch will likely breathe a sigh of relief that the pandemic isn’t making things too difficult for Sony to pull off the launch, which doesn’t have a precise date yet.
“Regarding the launch of PlayStation 5, although factors such as employees working from home and restrictions on international travel have presented some challenges in regards to the part of the testing process and the qualification of production lines, development is progressing with the launch of the console scheduled for the 2020 holiday season,” Sony said in the report for the quarter and fiscal year ended March 31. “At this point in time, major problems have not arisen in the game software development pipeline for Sony’s own first-party studios or its partners’ studios.”
Sony said that PlayStation 4 console sales have hit 110 million, up only slightly from the previous quarter.
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As for the quarter, Sony didn’t really have the right game ready for the pandemic. It delayed its major title, The Last of Us Part II, not once but twice, pushing it from February to June 19. Meanwhile, Nintendo did well with Animal Crossing, and Activision Blizzard performed well with Call of Duty: Warzone.
Shelter-in-place was only in effect during the last two weeks of the March 31 quarter, so the impact wasn’t big during the final quarter of Sony’s fiscal year. But during the first fiscal quarter ended June 30, Sony will likely get some benefit from shelter-in-place conditions that favor games over other forms of entertainment.
Sony’s big games — The Last of Us Part II and Ghost of Tsushima (July 17) — will likely help lift sales at a time when console hardware will probably fall off a cliff as gamers wait for the PS5 launch. Console sales typically move in a cycle, with the final year of a console generation usually being strong in software sales but weak in hardware revenues. Sony hasn’t made a precise forecast about that.
During the quarter, Sony said that four of its factories shut down from January 24 to February 9 because of the pandemic. But since February 10, all of the factories have reopened, though there was some disruption in the supply chain. The PlayStation 4 hardware saw a slight impact on supplies, but Sony said it was addressed with inventory and sales are trending well.
Meanwhile, sales of games downloaded from the network and PS Plus and PlayStation Now subscriber numbers have “significantly increased.”
What the numbers mean
Unreal Engine 5 demo shows what a PS5 game can look like in 2021 or later. For the quarter ended March 31, the game and network services division saw revenue of $4.0 billion, down from $4.6 billion a year earlier. Operating profit for the quarter was $431.5 million, down from $597.8 million a year earlier.
That’s not great, but it is pretty good for a quarter with no major game launches and only two weeks of benefit from shelter-in-home conditions. I would expect that the performance for the quarter ending June 30 would be better, especially with growth from PlayStation Plus or PlayStation Now subscriptions.
Sony closed the March 31 fiscal year with $14.1 billion in cash, up slightly from $13.7 billion a year earlier. It has $7.57 billion in short-term debt. That’s not a bad position to have in terms of launching the console. It means Sony won’t be going through a period of financial weakness as it enters into the higher marketing costs for the new generation of consoles.
By the end of the year, sales should start picking up again as the console launches and new games get launched. One of the risks of this generation is that Sony’s manufacturing costs for its machine will be high, or at least higher than Microsoft’s costs. Microsoft also has a lot more cash and could afford to price its Xbox Series X below Sony’s PS5. If Sony were going into this cycle without much cash or without much financial strength, then it would be quite vulnerable to a Microsoft low-price strategy.
But I don’t see that problem right now, and that’s a good thing for Sony, the PS5, and the general game ecosystem.