The PlayStation 4 is still going strong, but as hardware sales begin to decline, Sony is focusing more on the online services and subscriptions that are tied to the platform, the company said today during its annual Investor Relations Day.
Three years ago, Andrew House, then-CEO of the PlayStation division, said that 2015 was “the beginning of a harvest period” for the PS4. (In a business sense, the “harvest period” refers to the phase of a product’s life cycle when a company reduces investment to reap maximum profits, although House noted that Sony still planned to invest for the future during that year.) Today, PlayStation CEO John Kodera said the PS4 is entering the final phase of its life cycle, according to Wall Street Journal reporter Takashi Mochizuki.
The PlayStation business has done very well for Sony since the PS4’s debut in November 2013, delivering steady increases in operating income and generating a cumulative cash flow of more than 700 billion yen ($6.31 billion) for the 2013-2017 fiscal years. Sony is projecting another improvement in PlayStation operating income for its 2018 fiscal year, which ends March 31, 2019, although the company expects the jump to be smaller than in recent years: an increase of just 7 percent to 190 billion yen.
Much of the negative impact dragging down that forecast comes from an expectation of lower hardware sales and higher costs associated with those sales. Sony projects it will sell 16 million consoles during the current fiscal year, down from 19 million in the previous year. And Kodera said today that although PlayStation VR is growing, the virtual reality market’s growth hasn’t fulfilled the industry’s expectations.
However, Sony believes those negative trends will be buoyed by sales of software and add-on content, as well as “network services growth mainly with PS Plus paid subscribers.” Kodera said first-party titles are a major component of Sony’s software strategy going forward, with plans that include “franchising successful IPs and refreshing existing IPs” in addition to creating original games, reports Mochizuki. PlayStation Plus has been another major success for the company in the PS4 era, going from 20.8 million subscribers by April 2016 to 34.2 million customers by April 2018.
All of this is part of a plan to “strengthen user engagement” across the PlayStation portfolio of hardware, software and services, according to Kodera’s presentation. He acknowledged challenges in the mobile games space — where Sony is “still in [the] investment phase” with its ForwardWorks studio because of delays in development — and with the streaming television service PlayStation Vue, for which the “market & future business model remains uncertain,” according to a slide from Kodera’s presentation.
Sony is currently projecting lower profits for its 2020 fiscal year: The company expects operating income to fall within a range of 130-170 billion yen. Kodera said that during the next three years — the period from now through the 2020 fiscal year, which ends March 31, 2021 — the PlayStation division will “crouch down once” to grow afterward, reports the Wall Street Journal’s Mochizuki. Perhaps that means we won’t see a new hardware generation until around that time.
Kodera said in his IR Day presentation that the PlayStation division’s aim is to “mitigate the impact of platform lifecycle compared to the past cycle and stabilize profit structure.” In other words, Sony hopes that it has built up PlayStation software and services to the point that they can outweigh the negative impact of declining hardware sales. That’s in contrast to the PlayStation 3 era, where profits were more closely tied to unit sales. In fact, Kodera’s final slide pointed to something that has become a trend across the video game industry as more of it moves online: focusing on user growth instead of hardware sales.
Sony had sold 79.8 million PS4 consoles by March 31, 2018, about four and one-third years after launching the system. (For comparison’s sake, it took Sony seven years to reach 80 million PlayStation 3 sales.) And Kodera reported today that there are now 80 million monthly active users on the PlayStation Network, up from 70 million a year ago. Kodera’s final slide pointed out the change in the PlayStation division’s business strategy: When the company launched the original PlayStation in 1994, it was hoping to sell 1 million consoles; now, it’s aiming for 100 million monthly active PSN users.
As for PS4 sales, they may have peaked, but that doesn’t mean the system is dead in the water. The life cycle for gaming consoles has been growing over time, with the longest period between PlayStation launches being the seven-year gap between the PS3 (November 2006) and PS4 (November 2013). Sony Interactive Entertainment America CEO Shawn Layden said earlier this month that the company won’t be making any hardware announcements at E3 2018, which makes sense: Especially considering the launch of the PlayStation 4 Pro in November 2016, there’s still plenty of life left in the PS4 and the network-based services around it.
Update (May 23): In an interview with members of the media today, PlayStation CEO John Kodera said that the PlayStation 5 — or whatever Sony’s next platform ends up being — is at least three years away. So don’t unplug your PS4 just yet.