10th Straight Month of Declines for U.S. Games Industry in August 2022 NPD Report Features Wins for Madden NFL & PlayStation 5

Apparently, because we can’t stop time, Summer’s close to its end here in the Northern Hemisphere. I hope you’ll take a brief moment to embrace the cool air that hits this time of year while watching your favorite football squad and reading through this latest blog of sales updates!

As it does every month, The NPD Group shared its report on consumer spending across the games industry earlier in the week. This time, it’s for August, which proved to be another down month fitting with a recent trend. Still, compared to the all-time record high of last year and considering various headwinds, it’s actually a really good result.

Spending across the three major categories of Video Game Content, Video Game Hardware and Video Game Accessories declined for the tenth consecutive month in a row, albeit a modest 5% dip to $4.1 billion. Compare that to over $4.3 billion in August 2021, and I believe this was the second best August result in tracked history. Not bad, right? Essentially, domestic sales are still in the midst of reversion towards pre-pandemic levels, and last month was slightly above this same time in 2020.

The Content segment’s contribution was down, which had an outsized impact because software and the like make up such a large portion of the domestic total. Even a hard-hitter like Madden NFL 23, which was predictably August’s best-selling premium title, and a Saints Row reboot couldn’t offset losses elsewhere, most notably in mobile.

Hardware was the standout in August, proving to be the brightest spot and yet another indication that availability is slowly improving. Especially for the latest generation of consoles. PlayStation 5 was August’s best-seller by both dollars and units. Importantly, both PlayStation 5 and the Xbox Series X|S family experienced double-digit gains compared to prior year, just as they did during July.

Now, one data point doesn’t make a trend. Neither does two. It’s still quite reassuring to see retail inventories going up for both Sony and Microsoft when all we’ve been hearing the past couple years is about supply issues.

Making sure to keep everything in perspective, gaming sales for 2022 are down 9%, with two of its categories in Content and Accessories showing double-digit drops. Again, we’re comparing against strong numbers this time last year. Plus, the industry is still facing pressure from inflation and spending on other entertainment verticals. This sort of stagnation was generally expected this year, and there’s still huge commercial success stories like Elden Ring even during a downturn.

“This is a huge positive shift in the previous market trend,” said The NPD Group’s Mat Piscatella to GameDaily. “Of course, this has been helped by the improved supply of new console hardware. And that’s really the key question going into the holiday.”

Now I’ll take a closer look at August’s numbers, starting first with the overall figures then diving into each category. Also see below for a complete list of the month’s best-selling games.

United States Games Industry Sales (July 31st, 2022 – August 26th, 2022)

During the month of August, consumers spent upwards of $4.1 billion across the games industry, down 5% versus the same time last year. This was mainly attributed to a slowing in software, mobile and related sales, since hardware was the sole area of gains.

Spanning 2022 to date, total sales are currently $34.6 billion. This is tracking 9% lower than the same eight months in 2021, when it was over $38 billion.

Content represented the largest portion, earning $3.59 billion in August or 87.5% of overall spending. This number was down 6% year-on-year and occurred despite a major release in the Madden NFL franchise, a perennial top-seller here in the States.

That’s because mobile continued as the biggest factor, facing its second consecutive month of double-digit declines. Mobile sales dipped 10% in August, highlighting how people aren’t spending as much time or money on mobile platforms right now. This spending dip was felt by both major stores as Google Play sales dropped 22% while Apple’s App Store experienced a more modest 1% decline. The NPD Group didn’t share the top-earning mobile titles.

The big story for premium games was yet another great start for football. And no, I’m not talking about the New York Football Giants being undefeated early in the season. It’s how Madden NFL 23 debuted as August’s number one. That marks a staggering 23 straight years that Electronic Arts’ pigskin series has kicked off its debut month with a win. Talk about a long run! This hot start makes it immediately the 5th best-selling game of 2022 so far.

Below that was an under-the-radar Saints Row reboot, ranking second in August. Intriguingly, this open world crime series from Volition is used to being the bridesmaid: August 2013’s Saints Row IV began in second during its first month, also behind that year’s Madden NFL title. Before that, Saints Row: The Third achieved 8th place in November 2011. This year’s game wasn’t well-received from a critical standpoint and had a lot of technical issues, though clearly benefited from its release window for a solid start.

2018’s Marvel’s Spider-Man jumped up the chart as the month’s biggest mover, leaping to third place from its prior rank of #84. Why? Well, because Sony is finally, slowly, opening its exclusive portfolio to PC players. The game’s remastered version hit PC storefronts last month. It was the top-selling game on Steam among those tracked by The NPD Group. Even Horizon Zero Dawn went from 28th up to #12, proving that the more platforms, the better for buyers.

In terms of new releases for August, the remaining best-seller was Soul Hackers 2 slotting in at #15. Which is a solid position for Atlus’ stylish role-playing game, appealing to a broader audience in the West. When a port for its predecessor hit Nintendo 3DS back in 2013, it understandably didn’t chart.

Taking a look at the 2022 rankings thus far, the only updates were caused by Madden NFL 23 kicking certain titles down the list. The Top 4 remain untouched: Elden Ring, Lego Star Wars: The Skywalker Saga, Pokémon Legends: Arceus and Horizon Forbidden West. At present, there are two franchises both with two titles among the Top 20: Call of Duty and Madden NFL. Familiar faces, indeed.

Check below for the full lists then further down for console performance and peripheral sales in August.

Top-Selling Games of August 2022, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Madden NFL 23
  2. Saints Row 2022
  3. Marvel’s Spider-Man
  4. Elden Ring
  5. MultiVersus #
  6. Mario Kart 8*
  7. Minecraft
  8. LEGO Star Wars: The Skywalker Saga
  9. MLB The Show 22^
  10. Xenoblade Chronicles 3*
  11. Digimon Survive
  12. Horizon Forbidden West
  13. Call of Duty: Vanguard
  14. Far Cry 6
  15. Soul Hackers 2
  16. Super Smash Bros. Ultimate*
  17. Gran Turismo 7
  18. Kirby and the Forgotten Land*
  19. The Elder Scrolls V: Skyrim
  20. Pokémon Legends: Arceus*

Top-Selling Games of 2022 So Far, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Elden Ring
  2. Lego Star Wars: The Skywalker Saga
  3. Pokémon Legends: Arceus*
  4. Horizon Forbidden West
  5. Madden NFL 23
  6. MLB The Show 22^
  7. Call of Duty: Vanguard
  8. Gran Turismo 7
  9. Kirby and the Forgotten Land*
  10. Mario Kart 8*
  11. Minecraft
  12. Madden NFL 22
  13. Nintendo Switch Sports*
  14. FIFA 22
  15. Marvel’s Spider-Man: Miles Morales
  16. Super Smash Bros. Ultimate*
  17. Monster Hunter Rise
  18. Animal Crossing: New Horizons*
  19. Call of Duty: Black Ops Cold War
  20. Mario Party Superstars*

I’m happy to report prospects for Hardware are looking up. Which is especially hopeful for those in the market for a shiny new console trying to beat the holiday rush.

Hardware was the only main category that grew during August, generating $375 million in sales or 14% higher than a year ago. Which tends to happen when people can actually buy consoles. Signs point to better inventories and the demand being there to meet it.

“Supply for PlayStation 5 and Xbox Series consoles has been improving in recent weeks,” said Piscatella. “However, we still aren’t seeing full distribution, so there is still some latent demand to be met. It’s very difficult for me to say whether or not we’re seeing the end of supply constraints or a temporary respite before we move into the holiday period and seasonal demand starts to play a role.”

That’s the question, right. Are these temporary upticks that will fade once higher input costs impact manufacturers? Have suppliers shored up the supply chain enough to keep retail stock consistent? Will we see enough PlayStations and Xboxes for Americans to buy in the fourth quarter?

For now, we use the data available and try to project. PlayStation 5 took home the top spot in August by both dollar sales and units. As a reminder, while PlayStation 5 topped July by revenue, Nintendo Switch led by units. This indicates that the latest monthly win for Sony wasn’t just a result of higher average selling price; it’s a byproduct of better general availability.

Going further, that stat of how both PlayStation 5 and Xbox Series X|S displayed double-digit year-on-year growth in August is key. It’s happened now for the second month in a row. When it’s occurring not just for one manufacturer, and not just for one month, we can maybe start to project out an improved supply scenario.

Between this, rumors of Sony potentially updating the PlayStation 5 hardware soon, Valve continuing to produce its Steam Deck handheld at a more rapid pace than expected and Microsoft’s CEO Satya Nadella talking about how Xbox Series X|S is outpacing every prior Xbox generation, there’s evidence mounting that manufacturers and their suppliers are finally ramping up output.

However, it’s nowhere near the end of supply-side concerns. Hardware as a category is still down in spending for 2022 right now, off 4% to $2.87 billion as of August. PlayStation 5 keeps its lead as the year’s top-selling platform by dollars, while Nintendo Switch is still on top when measured by units. There’s plenty to look forward to here, while also acknowledging the risks still in the market, especially when it comes to inflationary pressure and semiconductor shortages.

Rounding out the big segments is Accessories, which experienced the largest spending drop of the bunch in August. Purchasing on peripherals and related products declined 18% last month, to $138 million.

The NPD Group report attributed these losses to slowdowns for both game pad and headset sales. Sony’s PlayStation 5 DualSense Controller in Midnight Black was the top-selling accessory, same as July.

In aggregate for 2022, spending on Accessories is down 14% to $1.38 billion. Microsoft’s Xbox Elite Series 2 Wireless Controller tops the year’s list to date, which the premium game pad has done for quite some time now.

Really, it’s been somewhat of a lull for new product launches within this segment. That will change here in the near future, as both Sony and Microsoft announced upcoming controllers. Sony debuted its PlayStation DualSense Edge around a month ago as a premium offering to go along with its base DualSense model. No word yet on release date.

Then, in early September, Microsoft revealed a couple new products in its Elite series: The “Core” model in white, which is a lower-priced entry in the premium space. Not only that, Microsoft shared that it will open up its Design Lab controller customization options to its Elite series of premium game pads starting later this year.

Both of these product lines should provide a noticeable boon for Accessories in the coming months, and I’m extremely upbeat on the DualSense Edge in particular.

Even with the multiple months of declines lately for U.S. games industry spend, there’s a lot to like about The NPD Group’s most recent report. August 2021 was a historic time for the domestic industry, recording an all-time sales high. This time around, it was only the second best August ever.

Content, notably mobile, is still stacked up against high comparables. I was more upbeat on mobile than I probably should have been, and recent results prove that it’s not immune to slowdowns. Especially as people see other places to spend on entertainment.

What’s most reassuring is the continued evidence of an upturn in console supply. Plus, there are still plenty of folks who haven’t upgraded to the newest generation, either because they couldn’t find one or didn’t want to do so. The fact that there’s better availability is a promising sign going into the back stretch of 2022.

Speaking of, why not close out with some September predictions?

Within premium software, there’s a good amount of potential best-sellers from the list of new launches: The Last of Us Part 1, Splatoon 3, NBA 2K23 and FIFA 23 chief among them.

If Take-Two Interactive was still sharing digital split, I’d bet the house on NBA 2K23 scoring September’s win. Nintendo also doesn’t share downloads, so I’m shaky on Splatoon 3 even considering its tremendous start in Japan of 3.45 million units in three days.

Then there’s FIFA 23, representing the secondary form of football around these parts. Last year, FIFA 22 outranked NBA 2K22 during their first month on sale. Could there be a repeat?

Well, I’m actually thinking Madden NFL 23 goes back-to-back and scores September’s top slot. Then, Splatoon 3 will be right behind it followed by a combination of FIFA 23 and NBA 2K23. PlayStation’s The Last of Us Part 1 will be in the Top 7, I’m just hesitant on its upside.

What this all really means is September will be a fun one for software sales nerds!

Within consoles, I’m guessing PlayStation 5 earns top marks on revenue and Nintendo Switch sells the most units. Primarily because Splatoon 3 is the closest thing the Switch has had to a “system seller” in years.

That brings an end to August’s recap and September’s predictions. I’d point you to Piscatella’s Twitter thread for more information about the report.

I’ll be on vacation soon, though happy to reply to any questions or comments here or on social media in the meantime. Thanks all for hanging out, and be well!

*Digital Sales Not Included, ^Xbox & Nintendo Switch Digital Sales Not Included, #Founder’s Pack Edition Sales Only

Note: Comparisons are year-over-year unless otherwise mentioned.

Sources: GameDaily, Nikkei Asia (Image Credit), Nintendo, The NPD Group.

-Dom

MultiVersus Fights to Victory During 9th Straight Month of Sales Declines for U.S. Games Industry in July 2022 NPD Report

Summer is trending towards its end here in the States, and spending on video games is showing similar signs of laziness.

As I’ve written about recently, publishers and developers are generally seeing declines from highs of the last couple years when they benefited from more restrictive quarantine measures. This is reflected in today’s monthly sales report from The NPD Group, which showed another period of lower spending by consumers across all of gaming.

With an almost double-digit decline in total spend during July, the games industry experienced its ninth consecutive month of contraction. It’s worth keeping in mind that last year was an all-time high for July spending, so it’s nowhere near a doomsday scenario.

This is attributed to a variety of factors, namely a normalization towards pre-pandemic levels and leaning towards other entertainment options. Purchasing on subscriptions like Xbox Game Pass and PlayStation Plus, continues to be the lone bright spot. Losses elsewhere, notably mobile experiencing its worst decline of 2022 to date, prove to be weighing down the results.

Out of Video Game Content, Hardware and Accessories segments, only Hardware was able to generate any sort of monthly growth.

In what I’d call the surprise upset of the year, character fighter MultiVersus emerged victorious for overall software sales. This free-to-play game from Warner Bros managed to snag the top spot away from 2022 heavyweights like Elden Ring and Lego Star Wars: The Skywalker Saga solely due to people purchasing its founder pack.

Positive signs on the console front continued for Sony’s PlayStation 5 as it led hardware ranks last month when measured by dollar sales, bolstered by improved stock at retail. Which is reassuring, even if temporary, given global chip cost is still increasing and supply chain disruptions are still rearing their ugly head.

The NPD Group’s Mat Piscatella shouted out a couple items of note on Twitter, namely the aforementioned improving supply for hardware and an “impressive” start for Xenoblade Chronicles 3 on Nintendo Switch which debuted in fourth place on the software list.

Look below the fold, so to speak, for a full recap of July’s monthly sales report.

United States Games Industry Sales (July 3rd, 2022 – July 30th, 2022)

When compared to the record $4.57 billion in monthly earnings this time last year, total consumer spending on gaming dipped 9% in July to $4.18 billion. The gallery above displays a handful of handy images digging into the specifics. I’d point attention to the trend chart showing the past few years, clearly displaying this latest amount is nearly identical to that of July 2020.

Expanding to an annual figure for more context, aggregated 2022 sales are currently down 10% to $30.46 billion. This was upwards of $33.86 billion in the seven months ending July 2021.

The biggest contributor was Video Game Content, which counts software and related purchasing, hitting $3.67 billion during July. That’s roughly 88% of overall spending for the month. It’s also off 10% from last year’s $4.1 billion.

Mobile is traditionally the main factor within Content. Unfortunately, mobile just experienced its worst monthly decline of the year to date. This was vast under-performance, considering historical seasonality indicates this is when mobile spend should actually be doing well. While the report didn’t share an exact dollar or percentage movement, I’d call it a yellow flag that’s worth monitoring as we move more into the back half of 2022. Top mobile performers, in order, were Candy Crush Saga, Roblox, Coin Master, Pokémon Go and Evony: The King’s Return.

Also a part of Content, premium games boasted three newer releases within the top eight of July’s best-sellers.

The shocker here again being July’s leader in MultiVersus, which hit open beta with only days left in the tracking period plus was the best-selling title on the Xbox platform list. It’s reminiscent of 2017’s Fortnite Battle Royale, which started its reign in beta form and remained that way for a while. The reason a free-to-play game like MultiVersus was even on the list, let alone led, was the strength of its Founder’s Pack offering things like characters and in-game currency. Combine a low barrier to entry with solid gameplay and optional monetization for an estimated 12 million players right now and that’s a recipe for solid earnings.

This also means Warner Bros published two of the Top 3 titles within the premium ranks, seeing as Lego Star Wars: The Skywalker Saga moved down one spot to third place. The sheer consistency of this 3D action adventure is notable, maintaining a strong position since starting out back in April.

Sandwiched between those as July’s runner-up was, of course, Elden Ring. Which has been, and will be, a constant force on the U.S. charts. Just yesterday, publisher Bandai Namco shared how From Software’s latest surpassed yet another sales milestone, reaching 16.6 million units sold globally as of June. That’s up 3.2 million since March’s 13.4 million total. I expect it to achieve 20 million next quarter as it will compete with Call of Duty: Modern Warfare 2 for this year’s domestic chart-topper.

The second new release to chart in July was Xenoblade Chronicles 3, making it to #4 even without its digital sales counted. That’s the best start for any title in the series from a ranking standpoint. Its predecessor Xenoblade Chronicles 2 ranked #16 back during a heavy holiday month of December 2017, plus the original didn’t make the Top 10 back in April 2012 when it launched in North America. This year’s entry was also Switch’s best-seller during July.

Digimon Survive was the only other new entry on the overall chart, achieving eighth place to start. This is quite the accomplishment for the visual novel slash tactical RPG also published by Bandai Namco, considering it went on sale with only a couple days left in the July tracking period.

As for other movers, Electronic Arts’ F1 22 stood out as passing other titles into the Top 10 during its first full month of sales. Overwatch and Nintendo Switch Sports dropped outside the Top 10 while two older Call of Duty titles in Black Ops Cold War and 2015’s Black Ops 3 shuffled into the Top 20, showing a clear consumer appetite ahead of mid-September’s showcase for this year’s military shooter.

With respect to 2022 so far, the Top 10 list was unchanged as Elden Ring, Lego Star Wars: The Skywalker Saga and Pokémon Legends: Arceus remain as best-sellers. I expect that to change in August. Without a doubt.

Here’s a full rundown of the best-selling software during July and 2022 right now.

Top-Selling Games of July 2022, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. MultiVersus
  2. Elden Ring
  3. Lego Star Wars: The Skywalker Saga
  4. Xenoblade Chronicles 3*
  5. Call of Duty: Vanguard
  6. MLB: The Show 22^
  7. Mario Kart 8*
  8. Digimon Survive
  9. Minecraft
  10. F1 22
  11. Kirby and the Forgotten Land*
  12. Super Smash Bros. Ultimate*
  13. Animal Crossing: New Horizons*
  14. Overwatch
  15. Pokémon Legends: Arceus*
  16. Nintendo Switch Sports*
  17. Call of Duty: Black Ops Cold War
  18. Far Cry 6
  19. Call of Duty: Black Ops 3
  20. Monster Hunter Rise

Top-Selling Games of 2022 So Far, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Elden Ring
  2. Lego Star Wars: The Skywalker Saga
  3. Pokémon Legends: Arceus*
  4. Horizon Forbidden West
  5. MLB The Show 22^
  6. Call of Duty: Vanguard
  7. Gran Turismo 7
  8. Kirby and the Forgotten Land*
  9. Mario Kart 8*
  10. Madden NFL 22
  11. Minecraft
  12. Nintendo Switch Sports*
  13. FIFA 22
  14. Marvel’s Spider-Man Miles Morales
  15. Monster Hunter Rise
  16. Super Smash Bros. Ultimate*
  17. Animal Crossing: New Horizons*
  18. Call of Duty: Black Ops Cold War
  19. Mario Party Superstars*
  20. Dying Light 2: Stay Human*

The only large segment to gain in July was Video Game Hardware, moving up a solid 12% to $362 million in consumer spend. I believe this is the best result since way back in July 2008, when it reached almost $450 million during the height of Nintendo Wii fever.

Funny what can happen when people can find boxes at retail!

Consoles sales are still currently down year-to-date, albeit Hardware is the only category to remain in single-digit decline territory. During the first seven months of 2022, spending totaled $2.5 billion or 7% lower than the $2.67 billion at this point last year.

Just as it did back in June, PlayStation 5 generated the highest amount of dollar sales compared to all other competitors. Xbox Series X|S came in second place, as I confirmed with The NPD Group directly. Both families generated double-digit gains in revenue compared to July 2021, which is reassuring at this stage in the cycle given where supply has been the past two years.

This is great sign for these manufacturers individually and the general potential of the domestic industry here in 2022, implying better inventories and ongoing demand. The economic equation has been out of whack for too long, leading some to believe that scarcity was leading to increased levels of buyer interest. Personally, I maintained the demand side has been consistently high since late 2020. It’s just time for supply to catch up, hopefully over a longer time frame rather than a temporary boost.

If measured by unit sales, Nintendo Switch topped the category again during July. Similarly, PlayStation 5 was the runner-up by this metric. Same as June, in both regards.

The major takeaway for those that track these things closely is supply constraints might very well be easing. Slowly. Or the refrain could be temporary. With the semiconductor situation globally where experts are still projecting 10 to 15% price increases, I’m hesitant to be too optimistic in this area. What’s great is the supply chain seems to be firming up. That’s on display with PlayStation’s results here plus something like Valve increasing production of its Steam Deck handheld. Consumer electronics are hitting the market.

Along these lines, Sony is quite upbeat on the remainder of this year into early next year for PlayStation 5, which recently hit nearly 22 million in lifetime shipments. It recently reiterated what I think is an ambitious 18 million units sales target for the fiscal year ending in March 2023. Right now, the current generation of hardware is lagging its predecessor, though executives are signaling strength to the market. I hope that turns out to be true, even if my forecast is in the 15 to 16 million range. As a reference, Sony shipped 2.4 million units during April to June which is up slightly from 2.3 million a year back.

Nintendo is more conservative on its aging Switch hybrid as compared to prior years, setting an achievable target of 21 million for its fiscal year ending at the same time. Granted it’s at over 110 million units lifetime, with only a couple years left before its successor in my opinion as I don’t expect another mid-generation refresh or any sort of “Switch Pro XL HD” version.

The remaining category of Video Game Accessories moved down the most during the month, dipping 22% to just under $150 million. Now, everything in perspective. This is against another record-high for a July month last year when it reached $190 million. Thus, while it’s more than a 20% decline, the comparable period last year was the strongest ever.

When accounting for the year to date, Accessories spend is now just above $1.2 billion. That’s also showing the most precipitous decline of the three categories at 15% lower than last year’s $1.41 billion.

Running in parallel to the Hardware segment during July, a PlayStation product led the charge. The PlayStation 5 DualSense Midnight Black edition was the top-selling accessory, retaining its monthly lead from June. Sony’s controllers, both current generation DualSense and DualShock 4, have been consistently winning the past few months.

Still, the Xbox Elite Series 2 controller maintains its stranglehold on the annual period so far based on generating more revenue per unit because of its premium price tag. It’s been leading year-to-date for a while now.

Accessories isn’t the most glamorous of topics, I’m wondering when we’ll get a virtual reality headset check-in from NPD Group any time soon. In particular, the Meta Quest price increase kicked in earlier this month. Which, even with a dip in demand, might cause dollar sales to rise. I’d still expect a game pad to lead, mainly because of negative reaction from consumers to any sort of price bump in an inflationary environment.

For those of us tracking the U.S. games industry closely, the themes of 2022 were well intact during July: normalization, inflation, supply challenges and lighter spending compared to strong comparables. The release calendar was still quite light, even with a surprise like MultiVersus and a solid start for more niche titles in the West like Xenoblade Chronicles and a Digimon visual novel.

Now, August is when things will really pick up on the premium software side. It’s the perennial start of the games industry’s commercial swell before pushing into the pre-holiday competition.

As it does every year, a new Madden game will kick off the late summer sales rush. Madden NFL 23 fully launches today from Electronic Arts, featuring the late great John Madden on its cover. Regardless of its reviews and reception, this franchise will always be a commercial juggernaut leading into the football season. I’m expecting it to lead August’s ranks, and easily at that.

The other brand new AAA launch for August is Saints Row incoming next week on a multitude of platforms. Volition’s latest in the long-running open world franchise is a reboot this time, so it’s somewhat of a wild card when it comes to sales. I think it’s releasing at the perfect time, with no Ubisoft or Rockstar open world debuting alongside, which will provide a noticeable commercial benefit. Published by Deep Silver, I see Saints Row starting in the Top 5 on August’s overall software list.

Otherwise, Nintendo’s slate is light as a feather without any major games of note. Soul Hackers 2 from Atlus will be out soon, and I could see an appearance in the Top 15. PlayStation also launched its Marvel’s Spider-Man Remastered on PC, which could very well fling back onto the charts.

Considering how stock might go, I’m forecasting another PlayStation 5 dollar sales lead in August. July’s numbers and anecdotal evidence all show a continually improving supply situation for Sony and its peers. Plus, a major multi-platform sports title like Madden hitting market means there’s going to be more casual folks yearning for the hottest new generation console. That said, I’ll wager Nintendo Switch keeps its unit sales win streak alive even without any first party bangers.

That’s a wrap on this past month’s analysis. I highly recommend checking out Piscatella’s thread on social media here because he highlights more on the platform side and various details. As always, thanks for visiting. Be safe and healthy out there!

*Digital Sales Not Included, ^Xbox & Nintendo Switch Digital Sales Not Included

Note: Comparisons are year-over-year unless otherwise mentioned.

Sources: Bandai Namco, Sony Corp, The NPD Group.

-Dom

PlayStation 5 Lifetime Shipments Total 21.7 Million As Sony’s Gaming Business Sales & Forecast Decline in First Quarter 2022

After writing about Microsoft’s earnings earlier in the week, it’s now time to recap Sony’s fiscal year 2022 first quarter results.

Mixed as they were. Overall sales and profit grew for Sony overall, in part due to a weaker yen and boosts from the likes of Pictures and Music. However, sales within its PlayStation business declined amidst a variety of factors. This was mostly expected based on a high comparable last year, a limited suite of first-party exclusive games plus signs of a broader slowdown in discretionary spending.

Sony’s Game & Network Services (G&NS) segment sales declined in the low single digits over the last 3-month period, marking the lowest Q1 output since fiscal year 2019. Profitability took an even bigger hit, moving down almost 40%, due to general weakness in software plus increased spending on its pending projects.

Hardware proved to be the main bright spot, experiencing a double-digit revenue rise as PlayStation 5 reached 21.7 million in lifetime units shipped. That’s after selling-in 2.4 million boxes in the April to June period, up ever so slightly from last year’s 2.3 million.

Sony also reduced its financial forecast for the PlayStation business, revising downward both revenue and profit metrics while highlighting it expects a bigger decline in 3rd-party software sales. Profit will also be impacted by closing the purchase of Bungie, which went effective a couple weeks back.

Somewhat surprisingly, management reiterated its PlayStation 5 hardware shipment target at 18 million consoles for full year. I tend to disagree, personally. I believe Sony’s management is exceptionally bullish in the face of continued pressure from multiple angles, including supply chain and broader price pressure. I expect reduced guidance within the next two quarters unless input costs drastically improve.

“At this point in time, we have made no change to our 18 million unit sales forecast for PlayStation hardware in FY22,” said executives in the company’s prepared remarks. “But since we are seeing a recovery from the impact of the lockdown in Shanghai and a significant improvement in the supply of components, we are working to bring-forward more supply into the year-end holiday selling season.”

Time to move forward into recapping the underlying financials and make some fun predictions of my own!

First referencing the slides from Sony in the above gallery, these display how it generated $17.86 billion in revenue during the quarter which is up 2%. Operating profit rose 3% to $2.37 billion.

Both these set all-time highs for a first quarter, when measured in local currency. I’m using an average exchange rate to convert into dollars.

Given the environment these are very good, even if slight, gains. Granted, it’s worth reiterating how a weak yen will help top-line growth for global consumer companies like Sony.

That currency impact is on display within the PlayStation business, where its top-line would have been even worse if the exchange rate impact wasn’t as robust. Sony’s gaming division saw revenue dip 2% to $4.67 billion. With higher costs recently, operating profit declined a precipitous 37% to $408 million.

As the G&NS segment slide shows, the top-line revenue includes a substantial foreign exchange rate impact. It also accounts for a decline in both 1st and 3rd party software, a trend consistent with Xbox’s quarter as well. Compared to this time in 2021, people simply aren’t spending as much time or money on software and related content, even if they still have demand for hardware.

This exact dynamic is reflected in the product category slide from its supplemental information and the colorful chart I’ve compiled. Sales from Physical Software, Digital Software and Add-On Content all fell double-digits in the quarter. Hardware and Others, which includes peripherals and first-party game sales not on PlayStation platforms, boosted 12% and 28% respectively. Network Services is also proving to be resilient right now, moving up a modest 4%.

The two additional charts provided expand Sony’s reporting over the latest 12-month period, a method I use to smooth out results and provide better perspective on how companies are performing. It smooths seasonality and considers the last four quarters in aggregate. On the revenue side, PlayStation revenue topped $21 billion. Which is up compared to this time last year when it was $20.6 billion. Operating profit is also up year-on-year, from $2.33 billion in the 12 months ending June 2021 to $2.44 billion now.

What does that mean? Well, in the scope of recent years, these quarterly drops aren’t as damaging as they seem because the last few quarters have been abnormally high for the games industry. It’s that normalization I’ve written about before, as things like global inflation and folks seeking other forms of entertainment enter the picture.

In comparison to industry peers like Tencent, Microsoft and Nintendo, Sony’s current gaming output is near the top. Tencent’s recent annual figure is roughly $33 billion, continuing its reign as the biggest gaming company in the world by sales. Then Sony slots in next at $21 billion, which is lighter lately because it’s converted from a currency in free fall. Microsoft recently reported $16.22 billion, while Nintendo’s latest from last quarter is around $15 billion. The last two years have been a healthy time for the biggest publishers, manufacturers and developers, given all that’s happened, so some headwinds now are natural.

In addition to the financial metrics I love to highlight, Sony shared a variety of additional figures on software sales, digital contribution, services and engagement factors. All very important in gauging the well-being of PlayStation as a business.

First, I’ll talk software sales, the bread and butter of any gaming ecosystem. We already know that revenue from these sources declined in the double-digits, which is reflected in unit sales as well. Full game software on PlayStation platforms dipped 26% to 47.1 million units. Within that, first party titles (those published by PlayStation) lowered even further, down 39% to 6.4 million.

This period includes the second quarter for titles like Horizon Forbidden West, Gran Turismo 7 and MLB The Show 22. It could mean sales a few weeks out from launch are lower because people are playing less, which they are, or potential buyers are waiting until discounts because many new generation titles now start at a higher price point. Which extends the length of a title’s sales trajectory, though earns Sony less per unit sold over time.

Those gamers that are buying software for PlayStation platforms are doing so via its digital storefront more than ever. The number of digital game units sold compared to the total reached 79%, which ties an all-time high set back during the quarter between January and March 2020. To say it another way, fiscal Q1 had the same digital proportion as around the beginning of major quarantines during the early parts of the pandemic.

With respect to player count and engagement, it’s another mixed bag. PlayStation Plus memberships rose 1 million compared to last year’s number, currently reaching 47.3 million subscribers. It’s almost the same number as last quarter, down only around 100K. On the other hand, the key metric of Monthly Active Users (MAUs) showed weakness, going down from 105 million last year to 102 million now.

Sony’s explanation is that hours spent on the platform came in below estimates. Which fits with my expectation, given the release slate and other entertainment options.

“Total gameplay time for PlayStation users declined 15% year-on-year in Q1,” management said in its remarks. “Gameplay time in the month of June improved 3% compared with May and was down only 10% versus June 2021, but this is a much lower level of engagement than we anticipated in our previous forecast.”

This report also marks a bittersweet milestone, as Sony no longer reports hardware sales for the PlayStation 4. The 2013 console ends its historic run around 117 million units sold globally. That’s enough to be the second best-selling home console of all time behind only the PlayStation 2. Where does PlayStation 5 stack up against its predecessor right now? Well, PlayStation 4 had shipped 25.4 million by its seventh quarter on market, meaning PlayStation 5 is lagging by almost 4 million units. Congrats to everyone behind the PlayStation 4, one of the highest-selling devices across the history of gaming.

Stepping back to take it all in, Sony’s fiscal first quarter results were mildly impressive overall while expected temporary weakness hit the PlayStation segment. Three months ago, I wrote about being more cautious than Sony’s management on its gaming prospects for the coming fiscal year. So, this sort of decline fits with that hypothesis, which I’m continuing here.

“The results forecast we announced in May incorporated an outlook for the growth of the global economy developed in January as well as major risks contemplated at the time of the forecast such as the direct impact of the situation in Ukraine and the impact of COVID-19 in China,” executives noted in the company’s prepared remarks.

The highest profile aspect of guidance is PlayStation 5 hardware, where Sony stubbornly kept the 18 million unit sales target for the year ending March 2023. While the next couple quarters will feature software titles that can be system-sellers, my problem is how chip prices could rise in the double-digits over the remainder of this year, and shutdowns or lockdowns will continue to impact part suppliers in the pipeline. My current target is between 15 to 16 million sold this fiscal year for PlayStation 5, implying it still has upwards of 13 to 13.5 million to go.

I also want to address a question that arose during today’s earnings call. Per a transcription from Video Games Chronicle, executives were asked about the potential for a price increase for PlayStation 5. That’s right, an increase! In fairness, Sony has recently bumped up prices for certain items in its local Japanese market plus Meta increased the cost of its Quest 2 virtual reality headset by US$ 100.

Even given the challenges faced by electronic manufacturers right now, I think it’s potential product suicide to drastically raise prices on consumers that are already cash-strained. Especially when it comes to the PlayStation 5, which already sees inflated secondhand prices amidst rampant scalping and limited inventories. Thankfully, Sony Chief Financial Officer (CFO) Hiroki Totoki agrees, for now, and dismissed the question.

On the financial forecast side for the remainder of this fiscal year, Sony raised its sales estimate by 1% while simultaneously reducing its operating income projection by 4%. For PlayStation alone, it revised revenue and profit downward by 1% and 16% respectively. That PlayStation profit reduction stands out the most, factoring increased costs associated with closing Bungie and Haven Studios acquisitions.

I’d say I’m cautiously bullish on this update. Even with big blockbusters like Madden 2023, FIFA 2023 and the highly-anticipated God of War Ragnarök on the horizon in the coming months, I’m worried about those diminishing engagement hours, lower spend on ongoing content and, of course, stagnating hardware production. Uncertainty is the enemy of those who make predictions, so I’ll keep my tentative outlook and say I think we might see lower results.

One wildcard in this scenario is PlayStation VR2, which has a launch roadmap that’s apparently in full swing according to PlayStation Blog. I continue to be shocked by how soon Sony is showing the device, which I didn’t expect for at least another year or more. It seems like it’s been in development for a long while, though release has been pushed back given the difficulties of supplying PlayStation 5, which is necessary to run the headset.

I don’t know if it’s a wise decision to spend on making and marketing both PlayStation 5 and PlayStation VR2 during a holiday season where costs are moving up across the board, and consumers can barely find the console at retail. Does Sony intend to launch the peripheral before March 2023 to meet that fiscal year deadline? Can it match the US$ 400 price tag I think it needs to be attractive? Based on where it’s at in development, I can see it. Even if I don’t necessarily agree with the move.

Thus concludes another recap session during this busy earnings season. Hop over to my full calendar for more on when other companies are reporting in the coming weeks, and thanks for taking the time to visit the site! Be safe, friends.

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported average conversion: US $1 to ¥129.4.

Sources: Company Investor Relations Websites, Getty Images (Photo Credit), Meta, PlayStation Blog, Video Games Chronicle.

-Dom

PlayStation 5 Hits 19.3 Million Lifetime Shipments As Sony Reports Sales Gains & Sets Ambitious Annual Hardware Target

Now that I’ve posted about recent results from both Microsoft and Nintendo, it’s time to dig into the last of the “big three” console manufacturer this earnings season.

That would of course be Sony, which posted its annual results for fiscal 2021 on Tuesday.

During these 12 months ending March 2022, the Japanese consumer tech company saw positive momentum in both its overall business and PlayStation segment. Sales and operating profit for the firm in general each saw double-digit gains since last year.

Even amidst challenges on the hardware side, momentum hasn’t slowed much since a record holiday quarter for PlayStation. While growth rates hovered in the low single-digits, Sony’s Game & Network Services (G&NS) just achieved its second best trailing annual revenue and operating profit. This is especially impressive given the major demand spike last year during more restrictive quarantines in various markets.

Hardware is the headliner for Sony’s gaming business now that the current console generation has entered its second year. After shipping the expected 2 million PlayStation 5 consoles during the quarter of January to March, fiscal year shipments totaled 11.5 million. This was in-line with Sony’s guidance, which I’ll note was reduced from nearly 15 million just last quarter.

It follows that PlayStation 5 is now upwards of 19.3 million lifetime. It’s still not easy to find one and Sony’s suppliers are limited by part availability, which means it’s lagging its predecessor more than ever. At this point, PlayStation 4 had shipped over 3 million more units. It seems that more than its counterparts in the space, Sony is having a tougher time securing inputs.

Which is why I was a bit surprised by its forecast looking ahead to the next fiscal year ending March 2023. Sony’s management has set quite an ambitious goal of moving 18 million PlayStation 5’s over that time. It would be an increase of 6.5 million, and bring lifetime units to 37.3 million. Personally, I’m not nearly as optimistic.

Elsewhere in the report, Sony reported slight contractions in a couple engagement statistics. Both PlayStation Plus memberships and Monthly Active Users (MAU) declined since March 2021, signifying it’s lost players since the pandemic peaks. However on the financial side, Sony overall and PlayStation saw sales and profit increases which means those people sticking in the PlayStation ecosystem are spending money.

One area where PlayStation excels is first-party software. Its teams are responsible for some of the most critically-successful titles in the industry, thus enticing buyers to pay that premium price tag. So it makes sense executives call out plans to invest more in its game development resources and strategy of placing titles on other platforms, namely PC.

“Going forward, we aim to grow the game business by strengthening our first party software and deploying that software on multiple platforms,” said Chief Financial Officer (CFO) Hiroki Totoki during its earnings call. “

Buckle up, let’s see what’s driving Sony’s recent growth.

The gallery above contains various slides and charts based on Sony’s FY 2021 results.

For the company in total, fourth quarter revenue rose 2% to over $20 billion. That led full year sales growth of 10% to above $88 billion. In terms of operating profit, this was $2.33 billion or almost three times as much as the prior year. That substantial quarterly momentum was behind the annual profit jump of 26% to upwards of $10.71 billion.

G&NS is still the leading business by both sales and income when looking at segment reporting. Pictures and Electronics Products & Solutions (EP&S) grew the most, while Financial Services proved to be the only major business line to decline during this time.

Focusing on the PlayStation business alone, January to March sales increased a modest 1% to $5.9 billion. Operating profit nearly doubled to $777 million. Over the latest 12 months, gaming generated $24.4 billion in revenue which was 3% higher than prior year. Annual operating profit was effectively flat around $3 billion.

The top-line growth was attributed to an increase in hardware sales plus the impact from foreign exchange rate, outpacing a decline in mainly third party software. Sony stated it’s seeing better margins for hardware, contributing to that more consistent profitability. Which is good news in this environment of rising costs. It means when hardware is selling, on average its price point makes up for manufacturing expenses. This is consistent with Sony’s comments in the past that the standard PlayStation 5 edition became profitable after only a handful of quarters on market.

This dynamic is reflected in the product category chart, where annual sales from Hardware & Others grew 10% to $7.5 billion. Network Services boosted 7% to $3.6 billion. Digital Software & Add-On Content was the only sub-grouping to decline, though it wasn’t by much. It saw a 2% dip to $12.7 billion, and still comprises more than half of the PlayStation business. Underlying this was mainly a reduction in add-on content, implying a bit less spending on that type of downloadable content.

Per usual, I’ll run a quick comparison to major players in the games industry. Here’s what I wrote in my article on Nintendo, because it’s relevant here:

Tencent reports later this month, though most recently had an industry best $27 billion from gaming. Microsoft’s Xbox division posted $16.5 billion. Factoring the pending Activision Blizzard deal, it could be upwards of $23 billion to $24 billion depending on cost savings, etc. Unfortunately, both of these companies don’t break out profit from games. Nintendo’s recent results show revenue upwards of $15 billion. Thus, while Nintendo’s overall sales aren’t as much as these others, it’s currently more profitable than the PlayStation brand.

Moving onto a round-up of various supplemental updates from Sony’s materials, I’ll now talk software performance, player engagement, subscription movement and services output.

First up is software sales, as measured by copies sold. For the year, Sony reported declines in both total and first party games. On the whole, 303 million units sold across PlayStation platforms. Out of that, almost 44 million were first party games. Compare that to 339 million and 58.4 million respectively during last year. And it wasn’t really a lack of output. On the console exclusive side, titles like Ratchet & Clank: Rift Apart, Uncharted: Legacy of Thieves Collection, Horizon Forbidden West, Gran Turismo 7, Ghostwire Tokyo and Returnal hit this year. While lower year-on-year, first party software wasn’t as much to blame here.

It’s more releases from external publishers that are causing declines, and I wager softer performance of Call of Duty: Vanguard is the most significant contributor. While it’s still massive, the title is under-performing in the context of premium Call of Duty offerings. Perhaps the suite of sports titles that usually hit in the Fall, as well. And this latest quarter saw Elden Ring, which seems to be more successful on PC, plus Dying Light 2: Stay Human.

Now, it’s also a natural normalization of spending from pandemic highs. People are seeing higher prices elsewhere, thus limiting more discretionary spending. It’s not necessarily a doomsday scenario.

Digital split ended up being pretty consistent in the realm of software sales. Downloads made up 66% of all game sales during fiscal 2021, which is effectively the same as last year’s 65% figure. Lately then, this means 2 out of every 3 games sold on a PlayStation platform is downloaded as opposed to purchased via traditional retail.

Looking at Sony’s current main subscription of PlayStation Plus, memberships declined ever-so-slightly to 47.4 million. It was at 47.6 million in March 2021. The company recently outlined its rebranding plan, which will combine this service with PlayStation Now streaming capabilities into a set of PlayStation Plus pricing tiers. I think it’s overly complicated to have three tiers, and it’s not a true competitor to Xbox Game Pass in its form starting this June. Though I believe it can attract more subscriptions, so the end result should be a net positive. Even if I don’t think Sony is going far enough with what it’s offering.

Similarly on the engagement side, Monthly Active Users (MAUs) dipped in fiscal 2021. It started the year at 109 million, then ended up at 106 million. Management didn’t share much more in the way of engagement or play hours, so I have to infer that they were lower than a year ago. Which makes sense as I’ve talked about mean reversion and spending normalization.

Not to be forgotten just yet, PlayStation 4 made an appearance in the supplementary report with 100K units shipped during the fourth fiscal quarter. That brought its annual total to exactly 1 million consoles shipped, and pushed its lifetime figure to around 117 million. Based on Sony’s optimism around PlayStation 5 shipments increasing, this could very well be the last hurrah for its predecessor.

Considering the current consumer technology environment and where purchasing habits were at this time last year, Sony’s fiscal 2021 report is a triumphant one. Gains in both revenue and profit while battling headwinds from component shortages and rising inflation are worth celebrating. For PlayStation, hardware may be lagging historically and software sales are trending down, yet these are temporary situations. Financially this business is stable as ever, supplementing its traditional console sales with digital, service and add-on spending which will only increase as PlayStation Plus rebranding and partnerships with external publishers continue.

Before closing out, I’ll take a look ahead leveraging Sony’s own forecasts. It’s also time to throw in some predictions of my own!

Starting with that PlayStation 5 guidance of 18 million console shipments expected in the coming year. Management suggests the company will be able to secure enough parts, and at reasonable prices, to reach this elevated goal compared to the 11.5 million over the last 12 months. I believe they *think* they can, yet what will happen in reality is anyone’s guess. Even the smartest leaders can’t accurately predict the future when there’s this much uncertainty.

Personally, I don’t see what executives do. Reading the room using comments from chipmaker CEOs and industry experts, plus considering lock-downs in China, I’m much closer to 15 million or 16 million. More than most, I’m preparing for the semiconductor shortage to last into next year or more. The longer it goes, and if inflation continues with it, I predict Sony will reduce that forecast something like six months from now.

Flipping to financial forecasts, Sony is anticipating some robust top-line growth though guarding against pressures on the profitability side. The firm expects revenue to pass $101 billion in the year ending March 2023, which would be an increase of 15%. Even with that double-digit sales growth, it’s guiding towards 4% lower operating income of around $10.3 billion.

Sony is expecting a similar trend within G&NS where revenue will be higher yet operating profit should decline. In fact, revenue guidance is showing a substantial 34% jump to $32.6 billion which would be a record year for PlayStation. That reflects positive impact from hardware, peripherals, software and exchange rate impact. Still, much higher costs for game development and expenses related to acquisitions will drag down operating income by 12% to $2.7 billion.

“We plan to increase software development expenses aimed at strengthening first party software at our existing studios by approximately 40 billion yen ($300 million) year-on-year,” Totoki said. “And we have incorporated that impact into this forecast.”

Executives expect the $3.6 billion Bungie deal in particular to close before December 31st. If the G&NS segment excluded this acquisition, Sony claims operating profit would be virtually flat.

Taking a look at pending flagship software releases on the console exclusive side, the schedule is actually somewhat light for the next 12 months. Square Enix’s Forspoken was pushed from May to its current window of October. God of War Ragnarok is the big one of course, currently with a nebulous “2022” timing. I may be in the minority, I just don’t buy that the sequel to 2018’s masterpiece God of War will be out this year. However, I do see a launch between January and March 2023, in which case it will help boost sales this fiscal year. Then there’s titles like Marvel’s Spider-Man 2 and Marvel’s Wolverine from Insomniac that are still a ways out.

Then there’s the potential for PlayStation VR 2 during the coming 12 months. Sony’s been drip-feeding information on its next generation virtual reality headset in recent months, showing off its form factor, brand new controllers, advanced technologies and Guerilla Games’ Horizon Call of the Mountain project. Many industry followers think it will launch this year. I’m skeptical given it has to exist in the same supply conditions as the PlayStation 5 right now, though it wouldn’t shock me to see it out this holiday season.

Tangential to gaming is Sony’s transmedia push, seeing as the Uncharted movie has made nearly $400 million dollars since dropping in February. The company clearly has strength in IP ownership, and plans to leverage that in places other than just gaming.

“Following the success of the first movie adaptation of the popular PlayStation game title Uncharted in Motion Pictures, we are leveraging our game IP by proceeding with the adaptation of Ghost of
Tsushima
and The Last of Us into video content,” Totoki said.

Then there’s the constant swirl of rumors around potential acquisitions. Sony of course shouted out the Bungie and Haven Studios purchases. Could there be more in the near future? I’ve heard the rumblings about Square Enix after it sold various assets to Embracer Group. I’m thinking it remains independent and continues to partner closer with Sony. Which leaves other third parties still available. If I had to guess, I’d say another development studio or two will be next. And no, not FromSoftware!

Sony’s plans are ambitious and it expects to see substantial revenue growth in the coming year, even if high costs put pressure on its profitability. I believe top-line growth for gaming in particular will be limited if it misses the PlayStation 5 hardware guidance, so I’m more bearish than Sony’s leadership. It all depends where component cost and availability trend, and my estimates prepare for the worst.

Have any questions on today’s Sony recap? What are your reactions to the news and numbers? Do you think PlayStation VR 2 and God of War Ragnarok will be out this fiscal year? Am I crazy to think it won’t hit the 18 million PlayStation 5 target? Yell at me here or on social media, as always.

Oh. And always check my latest earnings calendar for more on gaming, media and tech company results. Have a great rest of the week and season, be well everyone!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported conversion: US $1 to ¥112.3.

Sources: Company Investor Relations Sites, KnowTechie (Image Credit), PlayStation Blog.

-Dom

PlayStation 5 Shipments Reach 17.3 Million as Sony Reports Best Third Quarter PlayStation Operating Profit Ever & Lowers Hardware Forecast

In what’s continuing as the busiest year in gaming news ever, Sony is back after announcing its $3.6 billion acquisition of Bungie to this time reporting its fiscal year 2021 Q3 earnings results.

An eventful one, it was.

In addition to providing updated figures on PlayStation hardware, software and engagement, Sony’s results showed that the gaming division recorded its second best quarter ever for top-line sales. Quarterly revenue exceeded $7.15 billion, which is second only to last year’s $7.77 billion.

Even further, operating profit rose 15% to $817 million in PlayStation’s single best operating profit for a third fiscal quarter. This is the coveted holiday period between October and December, which is most significant for consumer tech companies because of peak demand in various parts of the world. This record profit result and strong growth happened against a high comparable last year around the launch of PlayStation 5.

Right now, and in the immediate future, we know it’s availability dictating a lot of where the business is going. So these results are wholly impressive given this environment, which is continuously supply-constrained and facing delays on the software front. Behind the resilience is add-on content, an expansion in PlayStation Plus memberships plus a shift towards digital software.

On the hardware side, lifetime PlayStation 5 console shipments since launch are now 17.3 million after moving 3.9 million in this latest quarter. When compared to PlayStation 4, the brand’s fastest-selling console, that was at 20.2 million by this point. Its second holiday quarter was a strong 6.4 million, which is 2.5 million above PlayStation 5. It’s clear the current generation is starting to lag in a historical sense, facing various outward pressures amidst the semi-conductor crisis.

Oh, I guess this also means PlayStation 5 has officially passed the 13.56 million units that Nintendo’s Wii U reached across its lifetime. Add it to the list.

Because of supply concerns, Sony reduced its full year annual hardware guidance for PlayStation 5 to 11.5 million units. Previously it expected in-line with PlayStation 4 at upwards of 14.8 million. This implies only 2 million more PlayStation 5’s shipped in this quarter ending March 2022, which would also be below PlayStation 4’s 2.3 million in the corresponding period.

“Limitations on the supply of components are expected to continue going forward, but we are continuing to exert every effort to meet the strong demand for PlayStation 5,” said Sony’s Chief Financial Officer (CFO) Hiroki Totoki.

Here’s a full breakdown of the overall results plus PlayStation business segment, then the various supplementary statistics Sony shared. There’s even more color around the Bungie acquisition later in the article. Numbers, charts and more below!

For the company as a whole, both sales and profit metrics experienced double-digit gains and set new all-time highs for a fiscal third quarter.

Revenue increased 13% to $26.66 billion, while operating profit rose an impressive 32% to nearly $4.1 billion. Major growth in Pictures and Imaging & Sensing Solutions business segments boosted these historic results.

Drilling into Game & Network Services (G&NS), aka the PlayStation business, this is still Sony’s leading category by revenue at nearly twice as much as the next contributor in Financial Services. The PlayStation brand accounts for 27% of Sony’s sales and 20% of aggregate profit.

I’ve already mentioned the $7.15 billion in revenue, down 8% since last year, and $817 million in operating income during third quarter for G&NS. Slides from the company’s presentation cite declines in hardware, peripherals, first and third party software overtaking the impact of exchange rates on the sales side. Alternatively, lower expenses and better margins for PlayStation 5 spurred profit growth.

Those that have read my recap articles know what’s coming. Let’s frame these quarterly figures in context. There’s charts in the above gallery displaying trailing 12-month time frames for each of these.

Over the last four fiscal quarters, which is also calendar year 2021, PlayStation sits at almost exactly $24 billion in revenue. While down from the all-time high of $24.67 billion three months ago, it’s still the second best on record. Not too shabby. For operating profit, the most recent annual number is $2.56 billion and a slight increase over last quarter’s $2.45 billion.

The dip in trailing revenue makes sense, given the slowdown in hardware units and nearly every sub-category within the gaming business. The profitability bounce-back is more noteworthy, in my opinion. It reflects that amidst slowing production of hardware, there’s lower costs bumping up margins giving good impact to PlayStation’s bottom line.

The last of my charts in the gallery shows every product category within the gaming unit and where it’s been in recent quarters. My main observations are it’s the best time for digital software, the second best quarter for add-on content and even hardware, the latter two previously set during holiday 2020. There’s also the slow and steady upward trajectory of Network Services, proving that online play and the related software perks of PlayStation plus are keeping players in the ecosystem. The rumors around a potential combination of services into code-name “PlayStation Spartacus” would bolster this particular slice. I expect this trend-line to continue.

Now that Sony has reported, let’s quickly compare to industry peers. Pulled from my recent article on Microsoft’s results, here’s how it plays out. Sony’s trailing 12-month revenue of $24 billion still comes in below that of Tencent’s gaming businesses, generating $27.3 billion as of September 2021. Microsoft’s record $16.28 billion from annual Xbox sales is up next. If combined with Activision Blizzard, it would be $25.33 billion and actually could exceed Sony’s latest figure. Nintendo reports tomorrow, so I anticipate this figure to rise, however its latest for now is $14.7 billion. Keep in mind there’s impact from exchange rates of course plus Tencent won’t report until next month, though I like to show how each stacks up on a relative basis.

Beyond the fancy financials, Sony provided various updates on players, software and services within its PlayStation ecosystem.

Its online service PlayStation Plus tallied up 48 million subscribers as of December, slightly higher than the 47.4 million at end of 2020. On the flip side, Monthly Active Users (MAUs) across all PlayStation Network declined to 111 million from 114 million last holiday.

This implies that while paid users for PlayStation Plus are consistent, people are spending less time playing. No doubt impacted by last year being the launch of a brand new console, higher availability of vaccines recently plus more open economies. Gaming is still a go-to entertainment, of course. It’s just that folks are spending time on different media.

On the conference call, Totoki echoed this sentiment on engagement. “Total gameplay time of PlayStation users in December 2021 was 20% lower than the same month of the previous year, which was immediately after the release of the PlayStation 5,” he said. “But gameplay time increased approximately 7% from December 2019. For a quarter in which there were only a few major titles released, we think this was solid performance.”

I tend to agree, primarily because Sony is monetizing its base even as they spent less time gaming.

Full-game software sales also showed a downward trend year-on-year, declining to 92.7 million from the recent high of 104.2 million in fiscal 2020 Q3. First party title unit sales were 11.3 million, or 12% of the total, compared to 19 million and 18% of the total prior year. Partially reflective of the limited holiday lineup on the exclusive side, while major seller Marvel’s Spider-Man: Miles Morales hit market last year.

Consistent with digital software being its highest ever from a product category revenue standpoint, the split of digital full game sales is increasing. 62% of all software was digital download, compared to 53% last year. All three quarters this fiscal year have been at or above this same 62% figure. Basically, between 6 to 7 out of every 10 software units sold are now downloaded.

Because of known limitations on the PlayStation 5 production side, Sony is still chugging along manufacturing PlayStation 4 consoles. It shipped 200K of its prior generation box during the quarter ending December, resulting in lifetime sales of 116.9 million. At this rate, it might someday pass Game Boy’s 118.69 million. In a few years, hah.

Projecting into the future, it’s a challenging environment for the PlayStation from a hardware perspective though there are plenty of opportunities on the software and services side.

We’ve talked to death about high demand, low supply. My economics professors would be so proud!

Production and inventories aren’t getting better, as clearly displayed by PlayStation 5’s vast under-performance during a holiday quarter when unit sales have historically been much higher. Consistent with Sony’s formal guidance reduction, I’m lowering my estimate for PlayStation 5 shipments in the year ending this March. Last quarter, I was ambitious at 15 million. Even then I said confidence was waning. Now, I’m down to 12 million which would mean January to March has to reach 2.5 million.

Intriguingly, Sony lowered its fiscal year revenue outlook for the G&NS segment to $24 billion from $25.5 billion yet decided to boost its operating profit target from $2.86 billion to over $3 billion. This is a telling turn of events, signaling further cost reductions that will outpace lower dollar sales for PlayStation. Manufacturing less consoles does have the benefit of lower expenses, I suppose!

The last fiscal quarter ending next month will ramp up on the first party software side, as both Horizon Forbidden West and Gran Turismo 7 are slated to launch. There’s also third party console exclusives like Sifu and now Ghostwire Tokyo, announced today for March 25th. While releases like this won’t drive console sales as much as in the past because of inventories, it will benefit software sales, notably that digital content segment, plus player time investment.

Finally on the topic of acquisitions, Sony’s executives naturally did not comment much when asked about Microsoft’s industry-changing $68.7 billion purchase of Activision Blizzard and if they had plans to snatch up any large publishers.

They did, of course, talk about their major purchase in Bungie. While I didn’t dedicate an entire piece to it, I did want to mention Sony providing additional flavor around the deal, the resulting relationship and how it fits with the future of PlayStation as a brand.

Bungie, creators of Halo and makers of my beloved Destiny, was one of the largest private independent studios in the industry at over 900 employees. To me the main reason to me why it made a deal with Sony, as opposed to a traditional publisher or a software and cloud company like Microsoft, is the trans-media potential of crossover with film and television plus the opportunity to remain mostly independent.

On Sony’s side of the bargain, the upside is huge. One glaring weakness in PlayStation’s portfolio is a lack of live service and ongoing game expertise, which is crucial in 2022 going forward. Bungie provides that, both from a business model and technology standpoint. Along these lines, execs claims global revenue in the games industry from live services have been growing at an annualized rate of 15% since 2014 or the year Destiny launched.

“We intend to utilize these strengths when developing game IP at the PlayStation studios as we expand into the live game services area,” Totoki pointed out. “Through close collaboration between Bungie and the PlayStation Studios, we aim to launch more than 10 diverse Service Games by the fiscal year ending March 31, 2026.”

Alongside this movement towards games-as-a-service, Totoki also discussed the mid-term plan to grow first party software dollar sales to double its current amount by fiscal 2025. Between this internal acceleration of exclusive IP, pushing more into ongoing games with the help of Bungie’s knowledge plus the potential for a Xbox Game Pass-like service in PlayStation Spartacus, Sony’s gaming approach is looking more balanced than it’s ever been.

It does seem to be a good compromise and united.. destiny for both companies.

That’s a wrap on a mostly successful quarter for Sony, especially as a whole with those record results, even considering the lag in PlayStation 5 shipments and downward revision for certain items in the PlayStation division. Other areas are picking up the slack, proven by the record profitability exhibited within its gaming business. While its forecast is lighter for hardware and gaming sales, that operating income guidance increase is reassuring.

Did anything stand out to you in the report? What was the most surprising part? Do you agree with my forecast for hardware or are you more conservative like Sony’s management team? Feel free to drop a comment here or on social media.

Be safe and well. Thanks for reading!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on the reported conversion: US $1 to ¥113.7.

Sources: Company Investor Relations Websites, LEGDAY on Twitter (Image Credit).

-Dom

PlayStation Records Best 2nd Quarter Sales Ever While Profit Falls Over 20 Percent

Now up this quarter for console manufacturers and game development is Sony, owner of PlayStation and responsible for many commercial hardware successes plus some of the most memorable, big budget titles of all time.

Speaking of all time, Sony established yet another massive record when it reported fiscal 2021 second quarter results ending September. Its Game & Network Services (G&NS) segment, which houses the PlayStation brand, just achieved its best ever revenue during a second quarter: $5.86 billion. The prior record holder was three years ago in 2018 at roughly $5 billion, when PlayStation 4 was well into its lifecycle.

The Japanese consumer tech giant attributed this top-line success to an increase in hardware sales, a better 3rd party software effect plus exchange rate impact despite a dip in first-party game sales mainly on a more sparse lineup. This means PlayStation 5 is showing solid momentum at this stage, bolstered by buyers spending on multi-platform software, services and add-on content.

On the downside, operating profit for the PlayStation unit dipped more than 20% in the second fiscal quarter ending September to just over $750 million. Partially because of a tough comparable to a powerful number last year during maximum quarantine restrictions globally. Sony is of course selling less PlayStation 4 consoles and related accessories lately. Not to mention the average cost of making a PlayStation 5 during the quarter exceeded its price point, and first-party software is currently lagging.

When focusing on hardware shipments, PlayStation 5 has already reached its fourth quarter on the market. Time flies. Sony said it produced 3.3 million PlayStation 5 consoles during July to September, bringing its lifetime total to 13.4 million. Both of these figures are ever so slightly below the PlayStation 4 during the same relative time frame, which moved 3.4 million during the same fiscal quarter and reached 13.8 million at this point in its life span.

No doubt Sony is feeling the impact of global component and chip shortages, though the good news is the latest hardware is mostly selling out when available. Technically we haven’t heard a formal update on PlayStation 5 hardware unit sell-thru since the 10 million milestone back in July, when the company announced it as the fastest-selling console it’s ever made. I’m confident it’s at least 13 million right now, implying parity with its predecessor. Or even better.

During the firm’s conference call, Chief Financial Officer (CFO) Hiroki Totoki acknowledged the production difficulties yet reiterated both its hardware shipment goal of 14.8 million PlayStation 5’s and current financial targets for Sony’s gaming business this fiscal year ending in March.

“We have not changed this target,” said Totoki, referencing the aforementioned 14.8 million guidance. “Worldwide there is a disruption in logistics and mainly semiconductors device supply are being constrained. This is having a larger impact. And as you know, the hardware sales in the first quarter were less unit-wise, and so this is having an impact on us likewise with the second quarter. I think with effort and putting in place different measures, the PlayStation platform momentum can be maintained.”

In order to reach this number Sony needs to ship an additional 9.2 million PlayStation 5’s in the next six months, a bulk of which will happen during the holiday season. Personally, I’m leaning towards betting this will be achieved. Even if I’m not as sure as I once was. More on that later.

For now, the fun starts. I’ll dig into some quick analysis of underlying numbers within this latest report and then it’s forecasting time!

On the whole, Sony generated roughly $21.5 billion in sales during the quarter which was a 13% increase. This was attributed to major boosts in G&NS, Pictures, Music plus its Electronics Products & Solutions (EP&S).

From a profitability standpoint accounting for expenses, the firm’s output was effectively flat. Operating income during Q2 moved up 1% to $2.87 billion. EP&S provided a substantial boon here, while the aforementioned decline in gaming profit led on the downside.

PlayStation was still the company’s main contributor from both a sales and profit standpoint. That record Q2 revenue of $5.86 billion was up 27% and represents right around 27% of Sony’s total top-line. While the $751 million in operating profit from this business marked a decline of 22%, it still comprises 26% of total profit.

Where does this fall in the context of results lately? Taking a look at trailing annual figures helps add to that perspective, which is displayed in the first two charts I’ve compiled. Over the last four quarters, the PlayStation brand is responsible for $25.47 billion in sales. This is its best ever aggregate result, a billion U.S. dollars more than any rolling period in recent memory.

Operating profit tells a different story of course since earlier days of the pandemic, as expenses rise plus first party software output slides. Adding up the past year, G&NS segment income was $2.54 billion. This is the lowest since fourth quarter fiscal 2019.

The last chart in the gallery above displays quarterly contributions from each product category within PlayStation’s portfolio. Add-On Content is the primary factor at $1.71 billion, nearly 30% of gaming revenue and 10% higher than Q2 in 2020. Hardware is the clear growth story, nearly tripling since the final hurrah of last generation. PlayStation consoles contributed a quarter of gaming sales for Sony, reaching $1.46 billion. On the software side, Physical dipped 17% while Digital edged up slightly.

These dynamics reveal a couple intriguing trends. Even if there are less people playing than last year, they are still purchasing additional items and downloadable content for the games they own. It’s representative of a modern industry where games have longer tails and stay supported well after release. Digital is proving resilient, while retail is inconsistent. Oh, and PlayStation 5 is popular. That’s an easy one.

It’s only natural at this stage to run a quick comparison against two of Sony’s main global competitors in Microsoft and Nintendo. As I wrote earlier this week, Microsoft’s corresponding quarter was also a record-breaker internally on the revenue side and it’s reached $15.86 billion over the last year. Nintendo reports next week, its latest trailing 12-month sales around $15.56 billion. I expect that to increase accounting for its latest quarter so it’s not apples-to-apples just yet. Either way, PlayStation is clearly exhibiting its sales prowess. With my usual caveat that top-line doesn’t tell the whole story.

Financials and hardware sales weren’t the only juicy parts of Sony’s latest report. There’s also updates on PlayStation Plus, user engagement, software then its corresponding digital split. Note I included a full excerpt in the earlier gallery containing this supplemental data.

PlayStation Plus subscribers reached 47.2 million as of September month-end, which is up compared to 45.9 million 12 months back. A mere fraction off the quarterly high of 47.4 million subs back in March.

Monthly Active Users (MAUs), or the estimated total unique accounts that used PlayStation Network or played software in the ecosystem, shrank from 108 million last year to 104 million now. It’s the lowest in at least the latest six quarters, a statistic which was reflected by executive comments.

On the conference call we learned gameplay of PlayStation users was down 17% in Q2. Still with PlayStation Plus momentum, additional content spend and digital sales consistency based on category metrics, management called it an improving “quality” of engagement. Basically while player count is an important barometer, it’s more about how much people are spending. If the former is down while the latter is up, it’s really a win.

Full game software unit sales across PlayStation platforms, a figure which includes bundles, totaled 76.4 million, roughly 10% of which were first-party titles. Compare that to 81.8 million and 16% first-party from July to September 2020. Digital download ratio is now at 62%, up a bit from 59%. Sony doesn’t report exact physical versus digital units. Based on that earlier physical software revenue decline, the implication is retail softness is behind the change.

These indicators reflect a handful of things to me: Lower exclusive output, better spend on evergreen experiences plus a general impact of game delays. The period between July and September was light for PlayStation exclusives. Deathloop and Kena: Bridge of Spirits led the charge really, alongside “director’s cuts” for Ghost of Tsushima and Death Stranding. The first is actually published by Xbox Game Studios and while the second recouped its development costs and did well on platform ranks, it’s still an indie project. Multi-platform launches like FIFA 22 and Madden NFL 22 weren’t enough to beat out a strong prior comparable.

Not to be forgotten just yet, PlayStation 4 is still active on the software side even if much less so on hardware shipments which were 200K. That brings lifetime to 116.7 million. Any hopes of the second best-selling home console of all time moving past PlayStation 2’s 155 million is out the window by now. The upside is the latest generational transition is the most opportunistic for consumers, as PlayStation 5 does have backwards compatibility.

That’s enough looking back. Instead, what’s next for Sony?

Well management is certainly optimistic on future prospects, raising fiscal year ending March guidance for both sales by 2% and operating income by 6%. It now anticipates almost $90 billion in revenue, then $9.45 billion in profit.

At the same time, it reiterated internal forecasts for the PlayStation business even in the face of weakening operating profit. Target is $26.34 billion in sales for the year, with almost $3 billion in operating profit expected. Both of these would be substantial, establishing new financial year records.

This historic performance would require a strong showing from PlayStation 5 hardware shipments naturally, hitting that 14.8 million figure targeted for the full year ending March 2022.

Responding to an analyst question, Managing Director of Investor Relations Sadahiko Hayakawa echoed confidence in the platform. “I think that with effort and putting in place different measures, the PlayStation platform momentum can be maintained. And especially to the users waiting for their PlayStation 5, said Hayakawa. “We want to be able to supply as many PlayStation 5’s as possible to our customers who are waiting. That is our thinking.”

Right now I tend to agree with the top-line target for G&NS, taking into account another holiday for PlayStation 5 and related software. A steady hardware prediction is trickier, given so many uncertainties and how a lot of it is out of Sony’s control, no matter what executives claim. I’ve moved toward being less confident in my 15 million annual shipment estimate, though I will keep it temporarily. Perhaps out of stubbornness.

And I’m nowhere near bullish on the profit target. Especially with rising component prices, lower chip availability, player figures wavering and inching up digital sales. Will additional content spending and hardware growth be enough to offset expenses? I’m going to say it misses slightly, with the room for review once seeing where the holiday quarter lands.

Before wrapping, I want to mention further comments from Sony’s leaders on investment and focusing efforts. After purchasing Bluepoint Games, Fabrik Games and Firesprite all during the past quarter, the team plans to maintain “aggressive” investment in its development capabilities. This implies expansion beyond its current studio suite, so I’m curious where the next move will be.

CFO Totoki also said Sony wants to enhance and increase PlayStation Studios to invest more on development of games for PC and mobile, pushing beyond its traditional console market share. The announcement of God of War (2018) planning a PC release in January 2022 echoes this statement.

PlayStation is clearly the most important part of Sony’s overall business, hitting records and doing its best to keep up with hardware demand. The cost of investment and input prices to make PlayStation 5 has had an effect on its bottom line lately, though maintaining its annual targets shows a positivity that I don’t fully share across the board until gleaning more from the global chip situation and holiday performance.

Did anything stand out to you while checking out my article or Sony’s announcement? Do you think it will meet its targets and boast record PlayStation performance? Give a shout here or on social media. Be safe and thanks for reading!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on the reported conversion: US $1 to ¥ 110.1.

Sources: Microsoft, Nintendo, Sony.

-Dom

Sony Reports Biggest First Quarter Ever for PlayStation Revenue

The latest gaming manufacturer to report earnings is Sony Corp, this time sharing fiscal 2021 first quarter results. During which the Japanese company revealed its PlayStation division recorded its highest first quarter sales ever even as PlayStation 5 shipments slightly lag its predecessor. Though sell-through to consumers for this latest generation of hardware is still going at a faster pace, driving gaming segment results for the consumer tech conglomerate.

This is the first full quarter that’s compared against highs set during the height of stay-at-home requirements, so the impact of a global pandemic on gaming and consumer spending is coming into focus. A record Q1 for Sony’s gaming department shows that audience demand is resilient, especially on the console side, even if software spend is descending from a very tall peak.

Suffice to say, PlayStation is making history even considering supply challenges facing the industry alongside easing pandemic restrictions.

Sony’s Gaming & Network Services (G&NS) i.e. PlayStation brand revenue rose just under 2% to a Q1 record of $5.62 billion. Higher than even last year’s impressive result of $5.5 billion, this performance was mainly driven by PlayStation 5 demand and exchange rate changes despite lower 3rd party software and add-on content sub-categories.

Essentially for Sony at this stage three quarters into a new generation of gaming consoles, hardware is selling out though its audience spend on games is slowing.

On the profit side, G&NS segment quarterly operating income dropped 33% to roughly $760 million on higher costs associated with making and marketing a new console cycle. More so, that lower third-party software and add-on spending relative to last year. Still when taking a broader perspective, this is actually fantastic output. It’s the third best operating profit performance in a first quarter in the history of breaking out the gaming segment.

Speaking of PlayStation hardware sales, Sony shared updated shipment figures for both of its latest boxes. PlayStation 5 shipped 2.3 million units in the quarter ending June, bringing lifetime to 10.1 million. This is notable for a couple reasons. First, it’s about 500K lower than PlayStation 4 did in the same quarter during April to June 2014. So its pace of shipment is slowing compared to its predecessor, no doubt impacted by a global chip shortage that’s adversely affecting everything from automobile to graphics processor output.

However, shipments can’t tell the whole story when there’s more information available. Sony Interactive Entertainment said recently PlayStation 5 sell-thru to its audience hit the 10 million milestone as of July 18th. That’s 3 weeks faster than PlayStation 4 took to reach that same amount. Which means the number of PlayStation 5 consoles getting to consumers (or perhaps scalpers, I know) at this stage in the cycle is higher than any other in the brand’s history.

There’s also the underlying profitability dynamics for these PlayStation 5’s moving through to households. According to executives on the earnings call, its standard disc edition is actually now profitable per unit after the tradition of being sold at a loss during initial quarters. I’ll note the version without a disc drive is not yet breaking even.

As expected this late in the PlayStation 4 life cycle, quarterly shipments dipped below the million unit mark for the first time since launch back in November 2013. This brings its lifetime mark to roughly 116.5 million. I expect this slowing to continue, and wouldn’t be surprised if Sony’s reporting tops out around the 120 million mark.

Well then. It’s time to get into the nitty gritty for a bit, then end with forecasts and predictions!

The above gallery above shows relevant slides and a handful of charts I compiled to illustrate where the PlayStation division is starting out this new fiscal year. I know it’s a lot of data. But it’s goods stuff, I swear!

Expanding broadly, Sony overall saw sales rise 15% in Q1 to $20.6 billion. Growth in both Electronics Products & Solutions (EP&S) plus its Music category outpaced all other categories, although gaming is still the main contributor from a dollar (or really yen) standpoint.

Quarterly operating profit for the company topped $2.56 billion, up 26%. Driven by that same EP&S category, dragged down by higher expenses within PlayStation.

I mentioned the record quarterly sales and lowering operating profit for G&NS before, so let’s see how these compare when expanding over time to smooth out the results. This helps put quarterly performance into context.

When looking at trailing 12-month gaming revenue accounting for this latest quarter, it’s again at another record high of $24.35 billion. That trend-line is impressive, no doubt bolstered by people trying to get their hands on the coveted new console. Trailing annual operating profit hit $2.75 billion, with the dip in the latest time period. Still, it’s higher than this same time last year. As the company gets more efficient in making PlayStation 5’s plus sees component costs potentially lower, I expect it to bounce back again.

You’ll also see a chart above drilling into category sales results within gaming. Of course, Hardware is the biggest gainer as it’s more than double the amount last year for obvious reasons. Consistent with earlier comments, both Physical and Digital Software decreased in the double-digits as did Add-On Content. Sony attributed that to 3rd party declines. Network Services is proving resilient, moving up compared to last year. The final category Others encompasses peripherals, PlayStation VR and first-party software on non-PlayStation platforms almost doubled, I imagine boosted by DualSense game pad demand.

On the software and engagement side, Sony shared new figures for game sales, PlayStation Plus subscriptions plus Monthly Active Users (MAUs) in its supplementary filing, the last of which is the estimated number of unique accounts that uses PlayStation Network during June 2021.

Full-game software sales totaled 63.6 million across PlayStation 5 and PlayStation 4 during the quarter, substantially lower than the 91.4 million during Q1 last year. Within this, 10.5 million were first party exclusives, down from 18.7 million.

Thing is, this is more a reversion to the average than a decline. There’s also how last year saw the massive launch of The Last of Us Part II. Executives said every new release during April to June 2021 exceeding internal expectations. Ratchet & Clank: Rift Apart is at 1.1 million units since June 11th. MLB The Show 21 hit market on April 16th and has since sold 2 million units while attracting 4 million players, certainly benefiting from a simultaneous Xbox Game Pass launch. Returnal also released in April, reaching 560K copies in the interim.

There’s also a specific shout out to PC versions of Horizon Zero Dawn and Days Gone as Sony opens up its legacy first-party catalog to a brand new audience.

Paid PlayStation Plus subscriptions reached 46.3 million from an even 45 million last year, while MAUs were down to 104 million from 114 million. This movement shows a bit lower average engagement, though it looks like new console owners are signing up for the PlayStation Plus service that allows online multiplayer and provides access to certain games each month.

The leadership team provided a bit more color on these stats, saying that total gameplay time of PlayStation users declined 32% from the highs of quarantine impact. It’s up 18% compared to the same quarter of 2019 fiscal year, a more normalized period even if well into PlayStation 4’s lifetime.

Now, how does Sony’s $5.62 billion revenue and $760 million operating income quarter compare to recent results from peers in the industry? As I covered in my piece on Microsoft’s latest financial year last week, the Xbox division generated $3.74 billion in sales during the same time frame. And Microsoft unfortunately doesn’t report Xbox’s profit. Hardware was the driver again, though it’s clear that PlayStation is outpacing Xbox in that department early in this generation based on expert unit estimates and these dollar sales.

Separately for the other major Japanese games manufacturer in Nintendo, it reports first quarter results tomorrow. So we’ll have a better picture then. Last year during the height of stay-at-home, Nintendo generated roughly $3.27 billion in sales and $1.3 billion in operating profit, implying a much higher margin with Switch towards the middle of its life span so we’ll see where it lands this year.

Edit on August 5th: Nintendo’s Q1 revenue totaled $2.91 billion while operating income reached nearly $1.1 billion. Consistent with it being the more profitable of the two, at least right now.

Back to Sony and looking ahead, the company provided updated 2021 fiscal year forecasts for its overall and segment operations. Sales guidance remained unchanged for the company overall at $89 billion, though it did boost operating profit by 5% to upwards of $9 billion. Within gaming, it confirmed annual guidance of $26.5 billion in revenue and $3 billion in profit. The former would be a record and the latter I believe the second best in its history, revealing just how bullish the Sony team is on the modern PlayStation brand.

Leadership also reiterated that it still expects to ship 14.8 million PlayStation 5 consoles during the financial year ending March 2022, which would be the same as PlayStation 4. This implies lifetime PlayStation 5 consoles would be 22.6 million after its first six quarters, slightly outpacing the 22.4 million of PlayStation 4.

Broadly speaking on the topic of looking forward, there were slides and additional comments related to general strategy that stood out from management too, consistent with recent trends of company spending and approach.

“PlayStation Studios, which oversees our first-party software production on a global basis, is accelerating investment to strengthen its production capabilities” said the team. They cited the purchase of Housemarque in June then Nixxes in July, two notable acquisitions for the PlayStation portfolio in this quarter alone. This sort of investment activity this year is even more than I anticipated from Sony when I wrote about broader predictions back in January. I expect another announcement in the back half of this fiscal year, this time of Bluepoint Games based in Texas.

Backing this up, executives shared more about future potential. “Going forward, we intend to continue to proactively make strategic investments with the aim of developing new IP, supporting our multi-platform strategy, and strengthening our service offerings including through add-on content.”

What this all means to me is Sony remains supremely confident in the PlayStation business and how the PlayStation 5 will continue as the fastest-selling console in its history. I’m doubling down on my original estimate for this fiscal year of 15 million hardware shipments, which I established in last quarter’s piece.

On the financial side, I believe Sony will match or exceed its guidance. A record year is in sight for gaming revenue. It’s selling as many consoles as its suppliers can make, cost of general marketing will flatten and segments like network services will prop up if software doesn’t keep pace with last year’s explosive growth.

Major questions still swirl around supply of components and the global semiconductor environment, which has limited the number of new consoles these manufacturers can produce. Imagine if that weren’t the case! Record numbers could be even higher. Then, can new hardware sales translate into player engagement remaining near recent highs? There are audience members that either started playing or returned to games sticking around, the pie is growing. It just depends on how much.

If this quarter is any indication, Sony is certainly having its fair share of slices.

Thanks for reading everyone. Check back to my earnings calendar for more dates, and there will be even more coverage here and on social media in the coming days. Be safe!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on the reported conversion: US $1 to ¥ 109.5.

Sources: Charles Sims (Photo Credit), Insomniac Games (Image Credit), Microsoft Corp, Nintendo Co Ltd, Sony Corp.

-Dom

Forget Console Wars: Sony & Microsoft Can Both Win Next Generation

Congratulations, gaming fans. You can do it!

All of you.

After Sony’s somewhat messy reveal yesterday of many things PlayStation 5 plus Microsoft’s announcements last week regarding the Xbox Series X|S platforms, the foundation of gaming’s next console generation are starting to fall into place.

With these announcements and a subsequent trickle of details, both manufacturers are solidifying their individual strategies. Sony with its more direct platform marketing and big-budget exclusive software compared to Microsoft’s two-tiered hardware plan plus service as an ecosystem play.

And I believe that both of these can, and will, work out for them.

Starting with Sony, the Japanese tech giant shared that the PlayStation 5 base version starts at $499 with a Digital Edition set for a quite competitive $399. The only difference being the latter doesn’t have a physical disc drive. Both release on Thursday, November 12th in seven markets, then November 19th in the remainder. Launch lineup includes games like Demon’s Souls and Marvel’s Spider-Man Miles Morales (which now has an Ultimate Edition with a remastered version of 2018’s Marvel’s Spider-Man), with the most notable point being increased prices compared to last generation. The broad video game price increase is officially underway.

Sony’s showcase also had brand new announcements like Final Fantasy XVI from Square Enix and Warner Bros’ Hogwarts Legacy then capped off teasing a new God of War title in development from its Santa Monica Studio. Overall, it was a tight, informative presentation albeit missing a number of key details for things like software release windows and pre-order timing.

Messaging from Sony has been all over the place in the time since this reveal. First off, Sony allowed retailers to dictate when pre-orders went live despite saying that they would provide “plenty of notice” previously. Also in the past, executives like Sony Interactive Entertainment’s President & CEO Jim Ryan have stressed how the company believes in generations. That is, targeting games for strictly the new console as opposed to cross-generational type releases.

Then yesterday, the garbled communication accelerated. The team said PlayStation 5 games including Marvel’s Spider-Man: Miles Morales, Sackboy A Big Adventure and even next year’s flagship graphical powerhouse Horizon Forbidden West will also have PlayStation 4 releases. An inconsistency with seemingly its underlying strategy of established generations. Now, this makes all the sense in the world from a business standpoint. There are 112 million PlayStation 4 consoles in the wild, most owners of which won’t upgrade for a number of years. A clean-break generational move is antiquated in 2020, when backwards compatibility and maintaining a library is important.

Early adopters are going to buy the shiny new box regardless. It’s more about people six months or years from now that will determine the trajectory of sales. These companies have to consider those just as much as the enthusiasts.

In another twist, Ryan said in a couple interviews with media that the overall catalog of games is less significant than having “new, great” software offerings. Combine this with the massive $100 million or more budgets for its first party projects, Ryan doesn’t think that launching games into a subscription service is sustainable.

The irony is that I believe bridging the gap between PlayStation 4 and PlayStation 5 is one of the reasons why Sony can be successful in the upcoming cycle. Maintaining continuity with its legacy owners and their libraries will allow people to upgrade without fear of losing access to their favorite games, especially with many titles being live services now and not providing clear upgrade paths. Early adopters are going to buy the shiny new box regardless. It’s more about people six months or years from now that will determine the trajectory of sales. These companies have to consider those just as much as the enthusiasts.

Another reason I believe Sony can achieve is competitive pricing, especially the Digital Edition at $399. This model comes without sacrifice in the power department, it’s just that it only allows for digital downloads. Sony apparently had locked in the idea of getting at least a version to the same launch price of PlayStation 4, and they succeeded. The question comes down to availability, and anecdotal evidence says the digital version is much harder to find despite Sony saying that the PlayStation 5 will have more units overall at launch than its predecessor.

Finally, and it’s no secret, Sony’s software prowess is near unparalleled in modern game development. Its studios are among the most talented in the business. With projects like Horizon Forbidden West and God of War 2021 in the pipeline from internal teams, Sony seems to be leveraging a similar software strategy as last generation in quality, single-player experiences.

It’s also making key partnerships with external publishers, such as the aforementioned deal with Square Enix for Final Fantasy XVI console exclusivity plus its work with Bluepoint Games on major remakes, to round out the portfolio. There’s also a new service offering as part of its PlayStation Plus membership: PlayStation Plus Collection, where legacy titles will be available for PS5 owners.

That’s how Sony can win. Solid hardware pricing to sell volume of both editions, new foundational games on console then PlayStation Plus and even PC on the back end down the line. It just needs better and more honest messaging, clean up the pre-order process ahead of November and share information on upgrade paths like it has with Marvel’s Spider-Man: Miles Morales in that the game moves with players from PS4 to the upcoming generation.

Switching to its main competitor in Microsoft of course, its Xbox Series X and Xbox Series S consoles debut a bit earlier the same week on November 10th in a simultaneous global launch, for $499 and an utterly aggressive $299 respectively. Both are also available via what’s called the Xbox All Access financing program, for $34.99 and $24.99 per month each. This comes with a subscription to Xbox Game Pass Ultimate, an immediate library of software. Which is a key part of enticing especially new buyers, not having to drop so much money up front like generations of the past.

As I’ve stated before, the American software and cloud conglomerate’s modus operandi is ecosystem and services. Lowering the barrier to entry, offering games and subscriptions on a variety of devices beyond its consoles, embracing cloud as a complement to traditional gaming plus connecting everything in its Xbox brand. Its Xbox Game Pass catalog of games monthly subscription service is arguably the best value in the industry, considering that all new first party titles launch simultaneously into the service on their retail date.

Then there’s Project xCloud. Microsoft formally launched the cloud streaming offering just earlier this week for Xbox Game Pass Ultimate members in various countries for use on Android phones and tablets. It’s a play on the future direction of the industry. Despite some critics prognosticating otherwise, I don’t believe it’s a replacement for traditional games. It’s a complement that will offer yet another way to play console and PC quality software. Which means it won’t cannibalize sales, it will be accretive to the business line.

“We really built this strategy around that – play the games you want, with the people you want, on the devices you want or already have,” said Phil Spencer, Head of Xbox. “The high-level goal for us is can we build a platform where more people want to play more games more often?”

What this means is that Microsoft is foregoing one-time purchases up front to make it up in volume, monthly fees and player engagement. It hopes to monetize on an ongoing basis, and keep people in the ecosystem whether using hardware, PC or even mobile via cloud.

So, what does this have to do with winning? Everything.

A holistic approach makes Microsoft less dependent on core hardware sales and major, blockbuster exclusives than ever before. Its hyper-competitive pricing tier for Xbox Series S gives the most realistic entry point for various slices of the market: lapsed gamers, those on the fence about an upgrade and even PlayStation owners looking for a way to try games not available on that platform. Sure, the company is chalking up a loss on hardware and even generating less revenue up front with service discounts. It’s still built up a user base of 10 million strong for Xbox Game Pass as of last month, many of which have or will renew even when their discounts expire. And according to various accounts, this leads to people not just playing more games but also buying them, bumping up software sales alongside the subscription.

Xbox has also been much better about messaging and marketing, sending a clear signal with both its pricing and retail packaging. Its social media team is on fire, rolling with the punches during leaks and summarizing perfectly the contrast between its console models. While some argue that offering two models with similar names is confusing, I strongly disagree and think that tech consumers are more knowledgeable than that in the age of multiple iPhone models and countless TV iterations. The pricing alone tells the story: Xbox Series S is for those looking to enter next gen at an affordable price, Xbox Series X is for the enthusiasts that are much less sensitive to cost.

A holistic approach makes Microsoft less dependent on core hardware sales and major, blockbuster exclusives than ever before. Its hyper-competitive pricing tier for Xbox Series S gives the most realistic entry point for various slices of the market

The main question (and it’s a big one, no doubt) surrounding Xbox is its software lineup, at least early in the cycle. Without games like Halo Infinite, Forza Motorsport or Senua’s Saga: Hellblade 2 at launch, it will lean more on smaller titles like The Medium from Bloober Team and Ebb Software’s Scorn, older first party games like Gears 5 and Gears Tactics plus external, multi-platform releases such as Assassin’s Creed: Valhalla and Destiny 2: Beyond Light. With the amount of studio acquisitions and announced games like the aforementioned bunch plus Rare’s Fable and Everwild, I anticipate a more beefed up portfolio within two years of launch. Which is really the time that’s most make-or-break for sales.

Microsoft is one of the world’s largest companies, and while Xbox is a key brand segment, it’s a small portion of the overall business. We’re still talking about an $11.5 billion or more annual revenue generator here, one where Microsoft is clearly investing in parallel to its Cloud offerings. The firm can sustain a hit from discounted Xbox Game Pass and All Access programs, as long as the opportunity is there to keep players over time. These are meant to build up the audience base and benefit over the longer term, even if shorter term it appears to be slower than its competition.

As noted throughout, we now know how both Sony and Microsoft are throwing down aggressive pricing this holiday season for some powerful next generation boxes. Both are investing internally, mapping out marketing, purchasing studios and making partnerships in attempts to win mind-share and, most importantly, dollars.

Sony promises more PlayStation 5 consoles at launch than PlayStation 4, offers an enticing Digital Edition upgrade for PS4 owners while also solidifies a more impressive launch lineup of software even if its messaging has been jumbled. Microsoft’s message has been direct: Its Xbox Series S is the most affordable of the bunch and both consoles are available via a financing option for folks that might not want to pay up front or have been impacted financially by coronavirus.

It’s not quite time yet for my detailed forecasts, though this piece should give an early indication of where I’m at in that I expect both manufacturers to sell out of launch stock then move into the later years of this generation with unique offerings that absolutely will attract buyers. Even some that will overlap. If I had to pick, I’m slightly more bullish on Sony’s prospects especially if they can supply enough Digital Editions to the market at that extremely attractive $400 point.

That doesn’t mean its competition can’t also win. Each has something the other doesn’t, which means victory is attainable for all. Most of which, console gamers. Even if they’ll probably continue to fight among themselves for eternity.

Stay safe all. Thanks for reading!

All prices reference above in U.S. Dollars. Local pricing available at manufacturer websites.

Sources: Fast Company, GamesIndustry.Biz, Microsoft, Sony, TechRadar, Washington Post, Xbox Wire.

-Dom

Review: The Last of Us Part II is an Unforgiving, Relentless & Painful Masterpiece

Two important notes: First, a general content warning that The Last of Us Part II deals with disturbing, violent subject matter. Second, I’ll be intentionally spoiling two major plot points, one of which happens early then another halfway. I believe it’s impossible to write a full critique without discussing them. There will be no spoilers for events after the second act. Oh, and of course the first game will be spoiled in full.

Please check back later if you’d rather not know about the story. It’s best to experience the game first, unless you are extremely curious in which case I appreciate you trusting me with these topics. On to the review (which now includes a new photo gallery by the end)!

From the Beginning

Just like The Last of Us Part II is a difficult game to play, this was a tough piece to write.

Because even considering its bleak setting, unyielding violence, dark worldview and pacing inconsistencies, the game is a masterpiece backed by premier storytelling, environment, direction, acting and technical achievement. It’s one of the most important releases this generation, if not ever, plus among the most intense, heartbreaking stories ever told in the medium that still has me reeling days after its end.

Part II is the direct sequel to 2013’s The Last of Us, a phenomenal experience in its own right and the first recent new title from Sony’s Naughty Dog studio amidst entries in the Uncharted series. This one is again a third-person action-survival game which picks up five years after main characters Joel and Ellie made their harrowing journey across country. They attempted to find the Fireflies in hopes that Ellie’s immunity from the Cordyceps virus could help with a vaccine, only for Joel to pull Ellie away after finding out she would have to die to uncover a cure.

What begins innocently enough in a settlement in Jackson County, Wyoming in Part II morphs into a savage revenge tale that will forever change characters and relationships to the bitter end.

Gruff, father figure Joel and now 19-year old Ellie have just settled into their respective lives in Jackson, where the bustling of people is a stark contrast to the loneliness of the prior game. Ellie’s grown up with friends, notably a new love interest named Dina and Dina’s former boyfriend Jesse, all of which patrol the surrounding areas hunting for infected to keep the community safe. It feels almost normal, with Jackson home to adults, children and animals doing their parts to survive the post-apocalypse landscape.

The player begins controlling Ellie on a patrol route alongside Dina, as the two exchange flirts and witticisms, ignoring their brutal reality. Even as Ellie inherits Joel’s caution of getting close to someone at the risk of getting hurt, it’s clear to see the beginnings of intimacy. Naturally feeling each other out. Which is part of the masterful setup and a common theme in the game. Characters are real, we get to know them through interactions, dialogue and journal entries.

What’s also evident from the start is how ridiculously talented Naughty Dog’s team is still at environmental work, character designs and perfection of subtleties that other studios might disregard. Snow falls gently from tree branches as the player bumps into them. Glass shatters with a smash as pieces fall naturally to the floor. Ellie’s gun silencer visually degrades the more she uses it. Limbs are strewn about when the pair fight their way through infected enemies. Each encounter or exploration section has its own examples, as if someone looked over every inch of the game to enhance it in a very specific way.

I keep thinking: It must take a considerable amount of effort to make animations look this effortless. So nuanced and smooth, approaching lifelike. Each precise movement taken into account. It must be painstaking. Unfortunately, Naughty Dog is a studio criticized for exceedingly tough work conditions with “crunch,” a term used to describe how many folks work long hours right up to release. My fear is that this is why the game’s tech is near unrivaled in the space. Still. I want to acknowledge the supreme talent, and there’s no place more evident than these areas.

Change of Perspective

It’s after Ellie and Dina share these special moments that the game cuts to a brand new character, an immensely important one: Abby. Athletic build and piercing gaze, she’s with a group of travelers right outside of Jackson. Hunting someone in the community. Her friend Owen tries to talk her out of a plan to hit an outpost to collect information, yet of course she departs anyway. The player takes control of this parallel story-line, rather than witnessing it through cutscenes, moving through the area this time as Abby. An early hint that the game isn’t what it seems.

Abby is soon overrun by infected, when suddenly we she meets two faces familiar to fans: Joel and his brother Tommy, out on patrol. The three barely escape, then rendezvous with Abby’s crew. All of which seem to know who Joel is. Before we know it, Abby’s shotgun shatters Joel’s kneecap and she’s picking up a golf club while towering over him. It’s the first of many gut-punches in the story, albeit telegraphed by the game’s marketing, seeing a beloved character on the flip side of torture. (Something he’s done countless times, as alluded in The Last of Us.)

After Ellie hears the shot, she arrives just in time to see Abby’s striking blow on Joel. He’s gone. Screaming and frantic, she vows to hunt them all down. The irony is Abby and friends spare Ellie’s life, along with Tommy’s, because they found their target. They achieved their goal.

Then Ellie’s warpath begins.

Part II moves to follow Ellie and Dina on their attempt to find Tommy, who is also seeking revenge for his brother’s murder, and hunt down each member of Abby’s team. These people are based in Seattle as part of the Washington Liberation Front (WLF), a paramilitary organization controlling the city. The “Wolves.” These enemies are more specific than the generic hunters seen before, they use flanking tactics and are geared up for serious battle. They use dogs to sniff out the player, they call out to each other and scream in agony when a friend is found dead. It’s the kind of touch that somehow works, mainly because it’s used sparingly enough to not be redundant.

In one of the game’s highlights, the pair happen upon an open space area early in Seattle. The point is to find gas in order to kick off a generator that will open a door, yet there’s also optional buildings to find. One has a new weapon. Another an upgrade item. There’s puzzles with ladders or ropes, traversing vertically unlike the first game. It’s authentic because it feels like the characters would do this while stalking their prey, they wouldn’t know where the heck to go without context clues.

This sequence proves how scavenging is as good as ever. One of my favorite parts, scouring for written notes, hidden items or crafting parts. I’ve always said that reward structure is key in gaming. Part II certainly knows how to reward a player for spending time checking side areas and optional spots. Even if it’s not something tangible like an item, which it usually is, Naughty Dog showcases dazzling artwork or environmental design that bolsters the experience. The stories we learn indirectly from world items are just as significant as from dialogue or cut scenes. There’s more reward for exploring than simply the material.

What’s also evident from the start is how ridiculously talented Naughty Dog’s team is still at environmental work, character designs and perfection of subtleties that other studios might disregard.

Beyond this, after run-ins with the Wolves and a new faction called the Seraphites, rendezvousing with Jesse (who sneaked out of Jackson to help Ellie and Dina) and finding shelter in a theater, there comes a point where the game telegraphs a show-down. The culmination of our efforts!

It’s not, of course. The screen goes black, and reveals its master plan.

It begins again, this time playing as Abby.

This here is the game’s main transformation, why its structure is so effective. What starts as a seemingly traditional linear narrative turns into the story of two women, both determined for vengeance, yet unclear which is truly the antagonist. Are both of them? Neither?

What follows is the foundation of Abby’s backstory starting with a flashback that lays the groundwork for why she sought vengeance on Joel. It’s a subversion of the highest degree, that moment where the player steps into the shoes of the exact person we think is the villain. I hate Abby in the first act. In the next, I become her. By the end, I respect her.

While the original game progressed through seasons, the sequel is told mainly only a few days. We see the same segments in time from Abby’s perspective right after Ellie’s. At first, I admittedly didn’t like this. The pacing felt off and I found it jarring. We had seen the climax, then returned to way before that moment.

The more I played as Abby, learned about her motivations and histories, saw her life in the WLF alongside the people she cares about, it’s reinforced that every person has their own reasons. I didn’t have to despise her. There’s never one side to a story, quite literally, despite what the game first presents. Her and lifelong friend Owen are figuring out their feelings. Abby’s family history is tragic. She isn’t only the psychotic torturer as depicted early in the game. Yet the irony is that’s still a part of her, and her friends view her differently from that moment forward.

Here’s another gut-punch: She may even be justified in killing Joel.

Abby’s personality traits are bolstered by the introduction of new characters. The WLF is currently at war with a group called the Seraphites, a religious sect dubbed the Scars by their opposition because of their initiation process whereby they cut the face of new members. These people are tight-knit, devout and prone to violence in the name of their prophet.

At a critical turning point, Abby is captured by the Seraphites then left to hang. She’s saved by young Lev, who is really there for his sister Yara, both of which are former Seraphites themselves. The three escape and move to tend to Yara’s wounds. They can’t do so without help. This is when Abby seeks out Owen at his aquarium sanctuary. The aforementioned Mel, a medic in the WLF and Owen’s current lover, needs supplies to amputate Yara’s arm. Abby is AWOL from the WLF yet still willing to risk everything to travel with Lev to the hospital, an act of selflessness to return the favor for him saving her life.

Reality is Cyclical

It’s here that both ends of her spectrum come into focus: She’s been training for years to get payback, then applies this “by any means” rationale to her friends as well. She will always be both of these things now, and her relationships shift accordingly.

The unending cycle of violence caused by seeking revenge is obviously a strong theme, yet just the beginning in Part II. It’s not just about the ridiculous lengths that someone will go to achieve vengeance, it’s how much is that person willing to sacrifice in order to do so? Not just mentally. Tangible sacrifices like friendships and loved ones who may never look at you the same, even if they are part of the reason for the supposed justice. Payback has its costs, many of which are invaluable.

Without going too much further on individual story beats, as if it wasn’t obvious, so much of Part II is relationships. Forging new ones and losing others. Characters growing, struggling, fighting, protecting and risking life for each other. Dina and Ellie. Both of them with Jesse and Tommy. Abby and Owen. Owen and another WLF member Mel. Abby, Yara and Lev. Abby’s friends. Humans navigating the ruthless post-apocalyptic world.

There’s also sub-themes on the difficulties of post-traumatic stress syndrome, a character dealing with gender identity and stern religious beliefs infringing on personal choices. The concept that we can’t change what someone else has done. We can only control how we react to it.

Contributing to the effectiveness of the story and character moments is the incredibly talented cast of actors, comparable to a big budget movie. Troy Baker and Ashley Johnson are back as Joel and Ellie respectively, while newcomer to the series but industry veteran Laura Bailey slays, figuratively and literally, as Abby. Two Westworld alums Shannon Woodward (Dina) and Jeffrey Wright (WLF leader Isaac) plus video game voice actor Ashly Burch (Mel) all star. A truly stand-out role is Lev, acted by Ian Alexander from Netflix’s show The OA.

Combine this casting with Naughty Dog’s technology capabilities, I was awestruck. Dumbfounded that it was even feasible. Facial animations and character interactivity are unlike anything I’ve ever seen. The sheer technical mastery displayed is near unrivaled, whether it’s spectacle in the action sequences or specific in the intimate moments. The type of game that should, and will, be studied.

Then there’s the topic of representation, which I’d like to specifically shout out. The audience learned in The Last of Us: Left Behind expansion that Ellie is queer, which obviously continues here and is even more prominent in her blossoming attraction to Dina. Then, one of the new characters here is transgender and refuses to be controlled by a bigoted religion. While it’s part of what drives their motivations, it doesn’t need to be anything more than normal to the characters. The more representation in mainstream games, the better. Especially in this way.

One of the game’s goals is showing how grief can be all-consuming. It blinds us to logic. Yet people still have the capacity for mercy, regardless of how many times they have sinned before.

As tough as it is, since I could talk about narrative and characters all day, I’d like to move past story themes into other topics that round out this memorable experience.

Naturally, Part II builds on the mechanics, systems and enemy variety of the original. It’s not revolutionary in the third-person stealth action space, yet the improvements are meaningful especially when it comes to the dynamics of combat with Ellie and Abby having more rounded skill-sets than the burly Joel.

Weapons are traditional, mostly standard firearm and bow archetypes, plus improvised explosives like stun bombs and molotov cocktails made by characters scraping together supplies in true end-of-the-world fashion. A new favorite of mine is the trap mine, a proximity device which Ellie can place on the ground. I used it to both protect areas from flanking enemies or strategically cover a specific spot in the path of their patrol.

The cadence is familiar. Scavenging for supplies, crafting to gear up for a fight, sneaking around picking off enemies individually then scrambling when it all goes wrong. Both playable women are athletic and maneuverable, they can jump and go prone, which are way more substantial than they first seem. There’s the added element of new companions as well, similar to Ellie supporting Joel in the first. Character AI is helpful and will make their own moves, even help the player out of a jam.

The three main enemies are of course the infected, then human groups WLF and Seraphites. Certain infected have mutated into new types, namely the gas-cloud bursting Shamblers and others that blend more into the environment, which makes even facing a small group more demanding. Both groups of humans use call-outs and attack strategies, the WLF being more militaristic as Seraphites using creepy whistles to communicate. The WLF even uses dogs, which will guide their owners according to the player’s scent. This requires a tactical approach, especially on a harder difficulty. Finally, we even see certain major combat moments that align more with traditional boss fights.

There are spots where these myriad foes are in the same space, so the player can lure one into fighting another. A move of which I took full advantage, if not just to see the results. These are all effective in making encounters feel unique, even if in reality they aren’t. I’ll say there are some stretches where it feels like there’s maybe one or two more fights than needed, which slows pacing especially for those more akin to stealth tactics.

Speaking of, total stealth seems viable throughout the game. Part II provides the tools, like bows, silencers, bottles and improved take down abilities. There isn’t some mandate that each area must be clear before moving on to the next, which is great to have as an option.

For those more interested in fighting it out, combat is way more flexible than the first game even if it’s still not the most memorable feature. Ellie and Abby are more malleable and adaptable to their situations. Scavenging during fights. Dodging, an excellent new mechanic especially in up-close fights. Lying prone. Crawling under vehicles. Jumping over obstacles. Even running away as a last resort.

I’d like to specifically call out the melee combat, which is exceptionally crunchy and brutal in its feedback. Whether hand-to-hand or with melee weapons, it’s among the most effective and viscerally painful close quarters fighting I’ve felt in games. Naughty Dog made it somehow both satisfying and sickening, partially through the sounds of enemies struggling to survive.

Now, this may sound predictable. A lot of it is. Then there’s times where it subverts expectations, even within its more predictable framework. Quiet moments are interrupted by hidden foes. The player must defend oneself when least expected. Scares during seemingly calmer moments. Long stretches without any enemies, a foreboding dread that lingers between character conversations. This heightened the tension, proving that there’s really no safety in this reality.

Since it’s a video game in 2020, Part II features upgrades to be found and skills to be opened. What’s cool is both characters have their own weapon sets and skill trees, not to mention collectibles, all of which operate independently. Workbenches allow for weapon enhancements via parts collected in the world, a callback to The Last of Us. Animations are slick as Ellie attaches a new part then wipes down her rifle, though for the most part, this is all standard.

The system with the smartest implementation is ability upgrades. This time around, it’s all based on training manuals that the player must find throughout the world. Each manual starts a new skill tree, and there are a number of them for each main character: Crafting, Stealth, Precision, Explosives and the like. Every upgrade requires Supplements, a resource found by scouring mainly medical buildings or bathrooms.

This again goes back to my statement on rewarding players for their time and curiosity, an essential part of any great game. I don’t think it’s possible to fully unlock each path in a single play-through, I unlocked most but not all on each character, so it’s a meaningful choice each time. Would you rather be sneaky or guns blazing, if you can’t be both? Between this, supplies and rounding out collectible sets, the game makes exploring every area its own journey.

Look Towards the Light

Consistent with the best stressful horror experience, Part II isn’t all about tense stealth sections or intense combat sequences. What sets it apart is Naughty Dog successfully inserts levity to break up the sheer brutality of it all. Most notably via flashbacks, mini-games and character moments.

Honestly, its best moments are unexpected so I won’t go into much detail. Sprinkled throughout the main campaign are flashbacks to earlier times for both Ellie and Abby, featuring Joel and Abby’s family plus Owen respectively. With a museum and aquarium being the backdrop to some of the best interactions, we learn even more about relationships than we could possibly through dialogue or texts. Many of these lead directly to the present day situation.

There’s also quiet times during the story itself where the world seems to disappear except for those on screen. Ellie and Dina early on, Ellie and Jesse while they look for Tommy, Abby and Owen various times as the writers try to convey their complicated history, then Abby, Yara and Lev settling in after their big escape. The foundation of player knowledge is built just as much on these as during the action, bolstered of course by the sensational performances and design technology.

A common thread is how Joel teaches Ellie to play guitar, which was hinted in the first game towards the end of their trek. In Part II, Ellie is now a proficient strummer so Naughty Dog adds a mini-game with real chords and the ability to practice whenever the instrument is close by. This blends seamlessly with the game’s music again crafted by composer Gustavo Santaolalla, leveraging plucked string melodies, dramatic build-ups and even renditions of one-time popular songs that act as main themes for certain characters.

There’s new puzzle type sections, as opposed to the plodding ladder or dreaded wooden pallet variety in The Last of Us. Many of them center on rope throwing, swinging or climbing which is somehow way more fun than it has any right to be. Plus, of the utmost importance: There are multiple times where the player can pet or play with a dog. I counted three, including two where fetch is totally an option. Game of the Year material level of pooch interaction.

This downtime is crucial. A game as bleak and relentless would be totally overwhelming if not for the opportunities to catch one’s breath. It’s also Naughty Dog’s craftsmanship on full showcase, the detail of the guitar strings or the intensity of someone’s stare. I can’t oversell how much detail is present, making these moments as warm and real as possible.

In terms of user experience, I commend the studio for its efforts on options and accessibility innovations. As written as part of its product page, Part II features more than 60 different options related to accessibility. It’s the best set of options I’ve ever seen. This covers areas like color modes, subtitles, full control mapping, button presses, assistance capabilities, visual aids, audio cues, motion sickness and help with navigating the play space. It took me a while to tweak these to my liking, which is how it should be. Anything that allows more people to enjoy it.

One feature in particular that I found useful is High Contrast Display, which simplifies the entire screen and highlights certain items in the world like players and collectibles while the background stays as plain as possible. I swapped to it occasionally to help locate a collectible or see what door I should open, so I can imagine how amazing it must be for someone who is color blind. It’s incredible.

I’m a big fan of minimalism in user interface design, so Part II is generally great in that regard. It has a simple heads-up display (HUD), which blends into the background unless in active combat or the player really wants to see it more. Essential for immersion, though there’s also the flexibility to make it larger and more prominent if that helps one enjoy the game.

On the performance and visual side, the game looks awe-inspiring albeit capped at 30 frames-per-second unfortunately. I never noticed any hitching or slowness playing on PlayStation 4 Pro, as it should be with that sort of restriction. Lighting is mind-blowing, especially as it reacts with foliage and grass. Snowy parts showcase both lighting and environmental reactions. And I’ve already gone on about character models, which are best-in-class. The least impressive part visually is probably the water areas, underwhelming and murky. No one’s perfect, after all.

The sheer number of areas and different environments is staggering. Even though all of them take place in a handful of cities, each is unique enough to stand out. The community feel of Jackson, the civil war torn Seattle plus multiple bespoke flashback sequences.

Oh. And its photo mode is great. In a new feature for this review, I’ve added a photo gallery with select shots. Highly recommend seeing for yourself!

It’s not just about the ridiculous lengths that someone will go to achieve vengeance, it’s how much is that person willing to sacrifice in order to do so? Payback has its costs, many of which are invaluable.

Now, even a masterpiece isn’t perfect. Part II is no different. I’d still argue its imperfections detract less from the final product than other titles.

There’s a couple instances of uneven pacing, namely the shift into Abby’s portion which signals the start of the second act. It comes after that false kind of climax, a restart when the race felt like it was just getting good. Because Naughty Dog is establishing her identity plus the personalities of the ones around her and their way of life, giving insight into the WLF as more than enemies, it takes build-up.

Combine this with the flashbacks and time shifts, it can be confusing at first. Once the game returns to “Seattle Day One,” the same time frame as when Ellie starts to seek out Abby, I found my bearings. This manipulation is a tactic by the designers to dole out information on their terms, slowly revealing not just Abby’s backstory but also how Joel and Ellie progressed once they moved into Jackson, which was anything but a traditional father-daughter dynamic.

It’s not a short game by any means, especially for a single-player narrative experience. My campaign clocked in at nearly 32 hours. I’m a notoriously slow and meticulous player, looking for side areas and collectibles as much as I can. There’s no doubt it can be finished in 20 hours if mainlining the path. I wouldn’t advise that, and instead say deal with the pacing inconsistencies because the exploration is totally worth it.

It Was for Everything

Part II is intentionally dark. It can be disgusting. An unfathomable cycle of violence, notably moments that are forced rather than driven by player choice. I’ve heard criticisms it’s a borderline murder fantasy. I’d combat that by saying while it’s dark, the player has the option for stealth or escape. Plus, there’s the lighter moments I’ve spoken about that balance the persistent misery.

Briefly about the interpretation of key story beats and the ending, I left satisfied. I understand why the characters made their choices during the conclusion, especially Abby after getting to know her. I can only talk about it from my perspective, I thought Naughty Dog’s direction was wholly effective and justified.

The Last of Us Part II is difficult. Not in its challenge, in that way where I want to look away or don’t want to press the button because I know the outcome is brutal. It’s foreboding. Unforgiving. Disturbing. This is exactly what makes it brilliant. It doesn’t have to be fun or a distraction, games should be much more. Seeing someone’s descent, always hoping there’s the possibility of atonement.

Naughty Dog proves yet again why it’s one of the most respected studios in gaming, the level of polish and detail in Part II is near unbelievable. The team improved on weaker aspects of the first game such as combat mechanics while maintaining the survival and scavenging, the side stories and collectibles, the crafting and upgrades plus the narrative strength that defined it.

One of the game’s goals is showing how grief can be all-consuming. It blinds us to logic. Yet people still have the capacity for mercy, regardless of how many times they have sinned before.

Where the first was fighting infected and finding hope in desolation, then doing anything for the ones you love even if it means dooming others, the sequel is about the duality of humanity at its most desperate and broken. Some seek retaliation that they will never find. Others pull together with those closest to them, finding redemption in that togetherness. Many do both.

It can’t all be for nothing. It wasn’t, no matter how much it feels that way. Everything matters, especially the hurt. It’s the only way that we can appreciate the small, fleeting fragments of compassion.

Title: The Last of Us Part II

Release Date: June 19, 2020

Developer: Naughty Dog

Publisher: Sony Interactive Entertainment

Platforms: PlayStation 4

Recommendation: If calling a game a “masterpiece” isn’t recommendation enough, I don’t know what is. The Last of Us Part II is an outright essential game, which will be remembered as such in future generations. It’s already hit 4 million copies sold within three days, the fastest-selling PlayStation 4 exclusive ever.

Sources: PlayStation Blog, Sony Interactive Entertainment, Screenshots on PlayStation 4 Pro.

-Dom

Let’s Count Just How Many Records Video Game Sales Set in April 2020

April 2020 will go down forever as a tragic, horrifying month globally for many people enduring the coronavirus outbreak. My condolences to all those impacted, I wish you all the best during these trying times.

One silver lining at least is that video games are able to provide at least some relief from the monotony of social distancing and lock-down orders. And if sales are any indication, tons of people are most certainly getting their money’s worth.

Last month was a monumental one for video game industry sales, both domestically in the States and globally across digital marketplaces. It literally might have a record-breaking amount of records broken.

Just today both U.S. industry tracking firm The NPD Group and global digital data provider SuperData reported their respective figures for April, in what’s one of the single most newsworthy days in the history of gaming sales nerdom.

Rather than a more comprehensive deep dive into the myriad of stats, we’re going to do a rapid-fire recap of all the ridiculous statistics revealed today alongside lists of top-selling games both in the U.S. and globally by digital revenue. Then, I’ll get through a brief bit of commentary before we say goodbye.

Ready? Time to hit record.

Last month was a monumental one for video game industry sales, both domestically in the States and globally across digital marketplaces. It literally might have a record-breaking amount of records broken.

United States Games Industry Sales (April 5th to May 2nd):

Overall games industry spending increased a crazy 73% since this time last year, generating $1.5 billion. This is a record high for an April month, eclipsing that of April 2008’s $1.2 billion.

Monthly game software sales jumped 55% since April 2019, reaching the highest level ever for an April at $662 million. This beats out the previous record-holder again from April 2008, which totaled $642 million.

Within software, the most notable record is for Final Fantasy 7 Remake which led the monthly rankings chart and set a new franchise high for launch month dollar and unit sales, eclipsing that of Final Fantasy XV from 2016. Square Enix’s latest JRPG re-imagining is immediately the 3rd top seller of 2020 so far plus the best-selling PlayStation 4 title on the year.

It wouldn’t feel right if we didn’t mention Nintendo’s flagship hit Animal Crossing: New Horizons, even if the only record it set is short-term. The cute simulation and lifestyle game was ranked #2 on both the April and 2020 to date software charts. Its mini-accomplishment is that it’s the top-seller on Nintendo Switch as a platform over the past 12 months.

In terms of commercial successes we talk about every month, Call of Duty: Modern Warfare was the 2nd top-seller of April and is still the highest ranked game of both the last 12 months and 2020 itself. During its 7th month run since release, it’s the 4th fastest-selling game ever tracked by NPD Group. That fits my description of an “almost” record, so I’ll allow it.

Moving like Jagger to a game that’s the opposite of talked about each month, Just Dance 2020 is the quickest selling game in Ubisoft’s long-running franchise since Just Dance 2014. It improved its ranking on the monthly software chart, now at #11 in April after boogying to the 17th spot in March.

Quickly flipping to the hardware category, overall dollar spend is so close to being a record that it gets like half a point. Console sales reached $420 million during April 2020, up a whopping 163% versus this time last year. April 2008 refused to be dethroned this time, as it maintains the best April month ever when it generated $427 million.

Within the Hardware segment, Nintendo Switch held the #1 spot for the 17th straight month. Here comes the real doozy: During 2020 so far, its sales are the highest of any single platform in the history of domestic tracking for the first 4 months of a year outpacing even the Wii over a decade ago in April 2009. Incredible, especially in a time with supply concerns.

Not only that! Dollar sales of the “Big 3” consoles in the Nintendo Switch, PlayStation 4 and Xbox One all increased more than 160% year-on-year with Xbox One generating the best growth although NPD Group did not reveal an exact figure. From a unit sales standpoint, each of these hit record April amounts according to Wedbush Securities analyst Michael Pachter:

Switch: 808,000

PlayStation 4: 411,000

Xbox One: 329,000

Last category here is accessories and game pads, which generated $384 million in monthly sales for an increase of 49% since April 2019. Record alert! Consumer spend on game pads reached a high for an April month, clearing almost twice as much as last year’s amount. PlayStation 4’s Dual Shock 4 black controller topped April’s list, while Nintendo’s Switch Pro Controller is still the best for 2020.

Want another record? I’ve.. heard we got one for ya. Spending on headsets and headphones achieved the best April month in history, beating out that of April 2018. Last month also boasted record results for Steering Wheels and Game Cards. Note that we didn’t hear exact figures for any of these sub-categories, only that they had their best April months of all time.

I feel like we all need a breather after so many records. Let’s look at the full domestic software charts for both last month and year-to-date before going global.

Top-Selling Games of April 2020, U.S. (Physical & Digital Dollar Sales):

  1. Final Fantasy 7 Remake
  2. Call of Duty: Modern Warfare
  3. Animal Crossing: New Horizons*
  4. NBA 2K20
  5. Grand Theft Auto V
  6. Resident Evil 3 Remake
  7. Call of Duty: Modern Warfare 2 Remastered
  8. MLB: The Show 20
  9. Madden NFL 20
  10. Red Dead Redemption 2
  11. Just Dance 2020
  12. FIFA 20
  13. Mortal Kombat 11
  14. Borderlands 3
  15. Predator: Hunting Grounds
  16. Mario Kart 8 Deluxe*
  17. Star Wars Jedi: Fallen Order
  18. Persona 5: Royal
  19. Need for Speed: Heat
  20. Dragon Ball Z: Kakarot

Top-Selling Games of 2020 So Far, U.S. (Physical & Digital Dollar Sales):

  1. Call of Duty: Modern Warfare
  2. Animal Crossing: New Horizons*
  3. Final Fantasy 7 Remake
  4. NBA 2K20
  5. Dragon Ball Z: Kakarot
  6. MLB: The Show 20
  7. Grand Theft Auto V
  8. Resident Evil 3 Remake
  9. Madden NFL 20
  10. Mario Kart 8 Deluxe*

Gaming allows individuals to escape into new, exciting worlds where they don’t have to worry about a pandemic. Or they can at least virtually fight back against one.

Worldwide Digital Games Industry Sales (April 2020)

Expanding to the global games market, let’s check out digital sales estimates from SuperData via its usual monthly report. In general, this only includes digital downloads and additional revenue through in-game transactions thus excludes physical copies sold.

And again to confirm, these are internal estimates as opposed to say publisher data.

Spending on digital games around the globe surpassed a monumental $10.5 billion during April 2020 which is the highest month ever and growth of 17% since last year. Ding ding. Another record!

Driving this figure was a jump in console sales of 42%, mobile growth of 14% then PC sales moving 12% higher. Of course this is temporarily bolstered by lock-down orders, as gaming has become a popular way to defeat the inevitable boredom that sets in from staying home. The question becomes how long can it last?

Diving into more individual game results, usual suspect Animal Crossing: New Horizons sold 3.6 million digital copies in April which is down slightly from the record 5 million in its launch month of March. Still, it was the top-selling console game on the worldwide chart. Here’s this month’s record: After only two months on market, it’s already the top-selling Nintendo Switch title as measured by both digital unit sales estimates and dollar revenue from downloads.

The aforementioned Final Fantasy 7 Remake, which was the best-seller in the States during April, achieved the 2nd spot on the global digital rankings. Since we’re certainly counting, its total of 2.2 million digital downloads set multiple records for a launch month. This is the best digital result within the franchise ever, plus it’s the fastest-selling PlayStation exclusive to date beating out Marvel’s Spider-Man in 2018 by a slim margin. A win is a win!

While not a record, Resident Evil 3 Remake achieved another notable result during April 2020. Capcom’s latest remake in the long-running horror franchise eclipsed 1.3 million digital units sold during this its launch month, slightly below the 1.4 million of its predecessor in 2019’s Resident Evil 2 Remake.

Back to the records. Last month, League of Legends hit its best player count of all time and spending in Grand Theft Auto V on in-game content reached its highest level ever. Ongoing games continue in their appeal, as people gather virtually to either compete or work together collaboratively.

This leads into the full charts from SuperData estimates for global digital sales. Take it away, fancy image.

Top-Grossing Console Games of April 2020, Worldwide, Digital Sales:

  1. Animal Crossing: New Horizons
  2. Final Fantasy 7 Remake
  3. FIFA 20
  4. Grand Theft Auto V
  5. NBA 2K20
  6. DOOM Eternal
  7. Fortnite
  8. Call of Duty: Modern Warfare 2 Remastered
  9. Call of Duty: Modern Warfare
  10. Resident Evil 3 Remake

Alright. I believe I’m fully on record proving how April was a record-breaking month. Counting them up, there are more than a dozen here which is likely some sort all-time high.

My reactions? No one could have predicted this, not even as recently as a couple months ago. This is absolutely unprecedented, even if for the wrong reasons during a tragic time for our world history.

Gaming as much as any other medium is benefiting because of the feeling of connection caused by sharing on social media or gearing up with others online. There’s local play, which helps pass the time with the very few loved ones with which we can spend time. Gaming allows individuals to escape into new, exciting worlds where they don’t have to worry about a pandemic. Or they can at least virtually fight back against one.

It’s not much in the way of analysis to say that April was one of if not the most noteworthy sales months this generation. What’s difficult to say is how long it will last with all the uncertainty surrounding the scary longevity of coronavirus and the potential for a vaccine. I’m thankful that people have games to entertain, especially those on the front lines working hard for our safety, and that for now many have enough disposable income to spend.

As the summer starts here and new PlayStation 4 games like The Last of Us Part 2 and Ghost of Tsushima release then Nintendo launches Paper Mario: The Origami King, where will the broader economy be, what level of unemployment will we see and how will sales look going into the marketing cycle for next generation consoles?

Let’s celebrate April for what it was, while acknowledging we have a long way to go outside of games.

As always, please check out NPD Group Analyst Mat Piscatella’s thread for many more details plus friend of the site Jeff Grubb’s recap on Venture Beat on the domestic report, then SuperData’s site for the global update. Thanks for reading, be healthy!

^Digital PC Sales Not Included, *Digital Sales Not Included, #Digital Sales on Consoles Included

Sources: Media Play News, NPD Group, Square Enix, SuperData Estimates, Venture Beat.

-Dom