Star Wars Jedi: Survivor & PlayStation 5 Blast to the Top of April 2023 Circana U.S. Games Sales Report

It’s beautiful outside here in the Tri-State. To me, that’s the perfect opportunity for everyone to enjoy another sales recap!

This time it’s April’s domestic games industry spend report from tracking firm Circana, formerly known as The NPD Group.

Last month, a solid boost from hardware and various premium game releases weren’t enough to offset lower or flat performance elsewhere. This downward movement in key areas resulted in a 5% decline for total spending.

In fact, this past April closely resembled last year’s headlines.

At that time, Lego Star Wars: The Skywalker Saga was the top-selling game. Hardware also generated growth, although overall sales dipped in the high single-digits.

This year it’s Star Wars Jedi: Survivor blasting to the top of the premium software charts. Unfortunately, every sub-section within Video Game Content except for non-mobile subscription sales exhibited declines, meaning that even with new launches, people spent less on gaming.

Just like last year, Video Game Hardware was the only category to move upward in April, bolstered by big gains from Sony’s PlayStation 5, the month’s best seller by revenue, and Nintendo Switch which led by units sold.

“It’s good to see all the new games in the Top 20,” wrote Circana’s Mat Piscatella. “But Lego Star Wars: The Skywalker Saga and Elden Ring provided a tough year ago comparison.”

There were certainly good signals, like consistency in console supply and a healthy number of AAA title launches. Still, mobile continued to struggle, Xbox is nowhere to be found plus inflationary pressure in the market remained. Folks chose other forms of entertainment, perhaps adjacent to gaming like seeing an awesome The Super Mario Bros. Movie, or simply went outside to touch grass, basking in the burgeoning springtime weather.

Historically, April was still a solid result even for overall sales. Here’s a closer look at these monthly figures and, further down, a set of predictions as the industry looks ahead to a Zelda-filled May.

United States Games Industry Sales (April 2nd – April 29th, 2023)

Referencing the above gallery, in totality, people spent $4.12 billion in games during April which is 5% less than the same month in 2022. The annual spend amount is currently trending down a modest 2%, to $17.71 billion. That’s actually a marked improvement since the first quarter as I wrote about in March, when the annual figure was trending towards 5% lower.

April was already the third month this year to experience a decline. The only exception was February due to a substantial boost from Hogwarts Legacy. Last month’s soft result was attributed to a decline in the broadest category of Content, which includes software, add-on, subscription and related spending. Essentially, while people bought more consoles, they spent less on the things they play on those devices. Peripheral spending was consistent, at least.

Focusing on the Content segment, sales dipped 6% in April to $3.6 billion. This means it made up 87% of the overall figure, compared to 88% last year. Within 2023 to date, Content sales are currently down 4%, to $15.11 billion.

Mobile contributes a major portion of Content sales, and Circana’s report said that spending trends were “relatively stable” compared to March. This doesn’t tell a whole lot. All we know is mobile is one of the sub-categories that declined year-on-year because, unfortunately, the report doesn’t get more granular. The top five earners for mobile during April were Candy Crush Saga, Roblox, Royal Match, Coin Master and Gardenscapes.

The story within premium software was new games. Titles launched in April occupied seven of the Top 15 slots on the overall chart.

Star Wars Jedi: Survivor leading April was a super impressive win for Respawn Entertainment and Electronic Arts, considering it went on sale two days before the tracking period ended. Even with that short amount of time, it’s already the 4th best-selling title of 2023. As a quick comparison, its predecessor Star Wars Jedi: Fallen Order launched in second behind only Call of Duty: Modern Warfare in November 2019 during a hectic pre-holiday rush.

April’s runner-up was Dead Island 2, another new launch. It’s a great start for the long-awaited zombie slasher from Dambuster Studios and Deep Silver, which is immediately the year’s 6th best-selling game. This domestic performance reflects its global success, as it sold over a million units within three days on market. Way back in September 2011, the original Dead Island started in 3rd.

Further down, Electronic Arts had another Top 10 finisher in April with PGA Tour at #7. Capcom’s popular Mega Man Battle Network, which surpassed 1 million units globally as the fastest-selling title in Mega Man history, ranked at #8. The latter was the month’s top-selling title on Nintendo Switch as a platform.

In a rare appearance for Microsoft’s Xbox brand, Minecraft Legends started in 11th place. Compare this position to Minecraft Dungeons, which debuted in 15th back in May 2020. These are certainly impacted by the lack of Xbox Game Pass in these kinds of charts, because it’s not realistic to break out spending for individual titles on the service.

The last of the new releases in April were Final Fantasy I-VI Bundle from Square Enix at #14 then Nintendo’s Advance Wars 1+2 Re-Boot Camp one spot down at #15. While the latter’s performance seems lackluster at first, it’s actually pretty good since Nintendo doesn’t share digital. It was the month’s 3rd best-selling title on Switch.

For the 2023 ranks to date, the main movement happened because of Star Wars Jedi: Survivor and Dead Island 2 slotting high on the list, thus pushing two PlayStation console exclusives out of the Top 10: The Last of Us Part 1 and God of War: Ragnarök.

Check out the full charts below.

Top-Selling Games of April 2023, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Star Wars Jedi: Survivor
  2. Dead Island 2
  3. MLB: The Show 23^
  4. Resident Evil 4
  5. Call of Duty: Modern Warfare 2
  6. Hogwarts Legacy
  7. PGA Tour 2023
  8. Mega Man Battle Network Legacy Collection
  9. FIFA 23
  10. Mario Kart 8*
  11. Minecraft Legends
  12. Elden Ring
  13. Minecraft
  14. Final Fantasy I-VI Bundle
  15. Advance Wars 1+2: Re-Boot Camp*
  16. New Super Mario Bros.*
  17. The Last of Us Part 1
  18. Pokémon Scarlet & Violet*
  19. Madden NFL 23
  20. Super Mario 3D World + Bowser’s Fury*

Top-Selling Games of 2023 So Far, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Hogwarts Legacy
  2. Call of Duty: Modern Warfare 2
  3. Resident Evil 4
  4. Star Wars Jedi: Survivor
  5. MLB: The Show 23^
  6. Dead Island 2
  7. Dead Space Remake
  8. FIFA 23
  9. Madden NFL 23
  10. Elden Ring
  11. The Last of Us Part 1
  12. God of War: Ragnarök
  13. Mario Kart 8*
  14. Minecraft
  15. Pokémon Scarlet & Violet*
  16. Fire Emblem Engage*
  17. Forspoken
  18. Sonic Frontiers
  19. Octopath Traveler II
  20. NBA 2K23*

Hardware continued as the bright spot in April’s announcement, as it’s been lately due to stock being consistent and ongoing demand from potential buyers. This segment grew 7% last month to $367 million. It’s up 18% for the year to date, earning upwards of $1.82 billion.

Driving April’s bump were double-digit dollar gains for both PlayStation 5 and Nintendo Switch, as compared to the corresponding time in 2022. PlayStation 5 clearly continued its momentum from March, when it moved past PlayStation 4 sales when launch-aligned here in the States, leading the company to achieve its global annual hardware target when it reported fiscal results recently.

Importantly for this consumer report, not only are inventories present, people are consistently looking to snatch up both consoles to play aforementioned new releases and evergreen experiences alike. The $367 million of April is the best hardware spend for an April month since around the start of the pandemic in 2020, when it was $420 million.

When measured by dollars generated, PlayStation 5 was top dog for April driven by its loftier price tag. Nintendo Switch came in second place by this metric.

Flip that around if using units as the measure: Nintendo Switch sold the most units, while PlayStation 5 was runner-up. This is mainly due to the introduction of The Legend of Zelda: Tears of the Kingdom’s OLED model, which had a “very strong” start according to Piscatella.

Expanding to 2023 right now, PlayStation 5 is currently leading by both dollar sales and units moved. As it’s easy to see, Nintendo Switch is second by both of those.

What’s also clear is a distinct lack of contribution from the consistently-third-place Xbox Series X|S. While it’s partly because of Microsoft’s shift away from a hardware focus towards ecosystem and subscription, I’m slowly becoming more concerned with Xbox’s performance as compared to peers. Console sales are moving in the wrong direction, even alongside Nintendo’s long-in-the-tooth Switch.

CEO of Microsoft Gaming Phil Spencer made some rather divisive comments recently in an interview with Kinda Funny, discussing the brand’s current spot within the industry and hardware cycle. I commend Spencer for fielding questions at a tricky time for Xbox, with declining console revenue and a disastrous start for Redfall. What irked me is two-fold. He’s been singing a similar “we have to do better” tone for years, even generations, now. The trajectory isn’t great, even if there are momentary high points like Forza Horizon 5 and Hi-Fi RUSH. Then, certain quotes here have a defeatist slant which is never something people want to hear from a brand’s ambassador.

The boss man seemed almost reserved to the fact that Xbox isn’t picking up market share. Sure, there’s no silver bullet that will turn the tide. Yet lacking a consistent output of exclusive titles and not appealing to the core gamer is unacceptable. I’d love to see a media outlet dig into the underlying fundamentals of the business, hardware in particular, because supply should no longer be an issue. Its earnings reports and regional results imply consumers are balking at picking up Xboxes, which is quite concerning even if that’s the smaller portion of Microsoft’s gaming revenue.

Alright. Rant over. Back to my regularly-scheduled conclusion of April’s recap.

The final segment of Accessories was, somehow, exactly the same as last year’s monthly figure at this time: $158 million. This means it turned positive for 2023 to date, moving up 1% to $779 million.

While not as pronounced, Accessories are running somewhat parallel to how Hardware is faring. Plus, it’s feeling the impact of premium peripherals. The higher-priced PlayStation 5 DualSense Edge Wireless controller in black repeated as the monthly best-seller. The premium pad is also 2023’s top-selling accessory right now.

Similar to the past couple months since its debut, there’s no mention of Sony’s PlayStation VR2. February’s release for the device looks much more like a soft launch now, both literally and commercially, mainly because it’s currently available only via Sony’s own storefront.

Last month’s general performance was decent, even if it’s the second straight yearly decline for an April month since maxing out back in 2021. It was a good time for big hitters like Star Wars and Dead Island franchises, plus Sony and Nintendo benefited from an improving hardware environment.

Personally, I’m keeping a close eye on mobile to determine when, or if, it can bounce back to provide a net benefit to content output. Right now, the industry is mainly being supported by blockbuster launches and console availability, especially as subscription spend normalizes and matures.

Shifting focus towards May, this might be the easiest prediction segment I write all year:

It’s Nintendo’s time to shine. (Zel-duh.)

For Hardware as a category, Switch is fully set to break PlayStation 5’s currently monthly streak on dollar sales, as I expect the hybrid device to lead by both revenue and units.

The Legend of Zelda: Tears of the Kingdom will undoubtedly be May’s best-selling software, even without digital. I mean, it’s already sold 10 million units during its first weekend alone, 4 million of which was in the Americas. The only other title on a Nintendo platform to ever reach the 10 million threshold in three days was November 2022’s Pokémon Scarlet & Violet, and that’s really two games counted as one!

This means that Tears of the Kingdom is not only the biggest Zelda launch of all time, beating out its predecessor, it’s the single fastest-selling software on a Nintendo platform in the history of Nintendo platforms.

What other new launches might chart? Take-Two Interactive’s LEGO 2K Drive is an intriguing one later this week, as I see Top 10 potential on the brand recognition alone. I don’t think the aforementioned Redfall from Xbox & Bethesda has even a remote chance, and I’m pessimistic on Daedalic Entertainment’s The Lord of the Rings: Gollum as well. Most publishers smartly moved out of Nintendo’s way.

Within Accessories, the official retail launch of PlayStation VR 2 could bump up the accessories portion. Will it? I’m not sure, though I’d bet spending will at least be flat again.

All of this will lead to overall domestic spending growth in May, I’d say in the mid-single digits with upside into the teens.

“May should be fun,” Piscatella said, sharing my sentiment. “Subscription growth continues to slow. PlayStation VR2 coming to retail [is] happening not a moment too soon.”

I recommend checking out his Twitter thread for Circana’s full report. Until next time, be well everyone. Thanks for reading!

*Digital Sales Not Included

^Xbox & Nintendo Switch Digital Sales Not Included

Sources: Capcom, Circana, Kinda Funny, Nintendo.

-Dom

PlayStation 5 Q4 Unit Sales Record Drives All-Time High for Sony’s Gaming Division in 2022 With a Couple Caveats

Gamers should be happy, for once, because the PlayStation 5 has finally arrived!

At least that’s according to Sony’s 2022 annual financial results, which proved that any lingering supply issues for the newest console generation are now over.

The Japanese consumer tech giant reported earnings in Japan last week for the fiscal year ending March 2023. Within, its PlayStation division had an exceptional time as hardware inventories returned and people everywhere could buy PlayStations once again. Its Game & Network Services (G&NS) segment produced almost $27 billion in annual sales, an all-time best.

What’s the catch?

Well, a historically weak yen had an outsized impact and was responsible for a substantial portion of revenue growth. Gaming also proved less profitable because of higher development and acquisition expenses. I’ll cover that more later.

Still, that’s not to dampen what Sony is doing with its gaming hardware business emerging out of the height of pandemic times. During January to March, the PlayStation 5 had the best non-holiday quarter for a gaming console ever with 6.3 million units sold. For perspective, it had shipped 3.3 million and 3.9 million in the same quarter during 2020 and 2021, respectively.

This means Sony beat its ambitious fiscal year target of 19 million shipped, reaching 19.1 million. It also drove lifetime shipments to 38.4 million, moving past the 30.75 million for Sega Genesis and Nintendo 64’s 32.93 million.

On the content side for PlayStation, while yearly software unit sales declined, its services and engagement statistics showed progress as PlayStation Plus and Monthly Active Users (MAUs) either remained flat or gained ground.

“Distribution inventories have normalized, and we are now able to deliver PS5 to customers without waiting almost all over the world,” executives said in prepared remarks. “In addition, the positive impact of increased PS5 sell-in has begun to appear in engagement metrics, with dollar-based third-party software sales exceeding the same month of the previous fiscal year in February and March.”

Here’s a closer look at the numbers for 2022, plus a preview of the year ahead with my new predictions.

Starting with Sony overall, its Q4 revenue jumped 35% to $22.6 billion. During fiscal 2022, sales rose 16% to over $85 billion, slightly above its target. This benefited from contributions across a number of business lines, including G&NS in addition to Entertainment, Technology & Services (ET&S) and its Music segment.

On the other hand, quarterly operating profit suffered a 51% decline to $950 million. It was virtually flat for the year, at $8.92 billion, above estimate. Headwinds included currency impact alongside lower contributions from PlayStation and Sony Pictures.

Gaming is a major factor for Sony’s overall performance. Both Q4 and 2022 overall proved to be mixed, with excellent top-line growth yet a weaker profitability outcome. PlayStation revenue between January and March launched 61% higher, to an all-time Q4 record of $7.9 billion. That was over a third of Sony’s sales for the quarter. During 2022, PlayStation sales grew 33% to a record $26.9 billion.

Again, on the flip side was profitability. Fourth quarter operating profit dipped 55% to $287 million. This drove the annual figure down 28% to $1.85 billion.

There’s great top-line movement yet worsening profit tells a totally different tale. Part of the reason behind record sales was massive exchange rate impact. Over the course of 2022, currency effect was upwards of $3.1 billion. That’s 12% of the total! If backing out this portion, for illustration purposes, Sony’s annual revenue would have been virtually flat.

Profitability took a hit mainly due to higher costs associated with making blockbuster first-party games like God of War Ragnarok, which had a reported budget of at least $200 million, plus purchasing Destiny creator Bungie among other smaller studios. Sony is also investing in its services suite and cloud offerings, and rebranded its PlayStation Plus membership structure. And frankly, it costs money to supply more hardware.

A primary growth driver was, naturally, PlayStation 5 hardware shipments. As regional data came in from key markets, indicators pointed to a big quarter. I still didn’t know if it could be this massive. Sony just shipped the most PlayStations in any fiscal Q4. To put this 6.3 million in context, the biggest January to March shipment total was 3.1 million right after its launch in fiscal 2013. Last year, Sony moved a paltry 2 million.

Even more, I bet most if not all stock is selling-thru to customers. The supply and demand equation has equalized, and Sony is clearly making up for lost time.

While this is impressive stuff, the PlayStation 5 continues to lagging its predecessor, which was at 40 million shipped by the end of its third fiscal cycle. That’s currently the fastest-selling console in Sony’s history. We’ll see if PlayStation 5 catches up. (Tease: It should by next year).

This performance was reflected in its product mix, where Hardware made up 35% of the quarter’s sales after more than doubling year-over-year. Next up was 21% via Add-On Content as it benefited from spend on third-party software and downloadable expansions. Digital games comprised 16%, no doubt bolstered by a monumental launch for Warner Bros’ Hogwarts Legacy. And the Others category contributed 13%, moving up 176% since last year. This includes Sony’s games on PC, such as The Last of Us Part 1 which launched in March.

As I did during my Microsoft earnings reaction, here’s a quick rundown of where Sony’s latest annual output fits compared to peers. Tencent’s latest was nearly $26 billion, meaning that if we account for extreme exchange rate fluctuations, Sony’s $26.9 billion would be tops. Backing out that effect, Sony occupies the second spot again at $23.82 billion. This is where Microsoft’s Xbox sales sit at $15.43 billion. Activision Blizzard’s 12-month revenue was $8.14 billion, so the combined firm could be $22 billion to $23 billion, accounting for redundancies and sales overlaps. Nintendo previously produced $12.25 billion, yet the company is reporting more recent results next week.

Sony’s management also shared supplemental statistics, which give insight into the number of folks playing regularly on PlayStation, if those users actively sticking around plus how well are services being received.

To keep it simple, I’ll focus on annual figures. Intriguingly, full game software sales across the PlayStation family took a substantial hit during 2022, moving down 13% to 264.2 million. Out of that, 43.5 million were from first-party titles published by Sony itself. That number is down only marginally from last year’s 43.9 million. In fact, Sony claims that dollar sales of first-party software rose 41%, including the impact from Bungie. The bulk of the unit drop was external games.

Digital represented 67% last year, up slightly from the 66% of fiscal 2021. That means more than two-thirds of games purchased for a PlayStation platform are via download. Digital’s slice didn’t dip below 62% during any quarter over the past two years.

It appears that, for now, the refurbished PlayStation Plus service is attracting and retaining users. There were 47.4 million memberships at the end of March, the same exact figure as the prior year and up 1 million sequentially since the holiday season.

Reflecting a similar engagement theme was active users on PlayStation. MAUs, defined as the “estimated total number of unique accounts that played games or used services on the PlayStation Network during the last month of the quarter” rose from 106 million in March 2022 to 108 million now.

Thus, while software sales declined for Sony this fiscal year, just as many people are subscribing to its catalog of older titles on PlayStation Plus and even more people are active on the ecosystem, which contributed to its elevated financial results.

“The number of monthly active users for PlayStation as a whole increased 2.3 million accounts compared to the same month of the previous fiscal year in March,” management said on its conference call.

There’s two sides to Sony’s story last year, and I’ve fully delved into both. To summarize, it was one of the best years gaming has ever seen. Albeit with the caveat of revenue benefiting greatly from a weak local currency and profit facing hits from big costs. There’s macro elements like supply lines being shored up that greatly benefit, and even though people are buying less games, perhaps partially due to inflation pressure, they are playing the games they bought.

One disappointing element of Sony’s announcement was nothing much on PlayStation VR2, which launched in February. For such a major product launch to receive zero airtime is concerning, and reinforces my viewpoint that its launch isn’t moving the needle for PlayStation or virtual reality as a niche.

Looking ahead, Sony has set a rather ambitious target for its gaming division in fiscal 2023. Namely, it expects the best year ever for PlayStation hardware, even with a single system-selling title on the docket for the upcoming 12 months.

“We are planning to release a major title, Marvel’s Spider-Man 2, this fiscal year, and we aim to continue creating new IP, rolling out catalog titles for PC and strengthening live game service development.”

Starting with hardware guidance, executives anticipate shipping a staggering 25 million PlayStation 5’s between April 2023 and March 2024. That would be the single best year of PlayStation console sales in its three decade history. If this happens, lifetime PlayStation 5 sales would reach 63.4 million, thus blowing past PlayStation 4’s 60 million on a launch-aligned basis.

I believe Sony will in fact meet this mark. I’m forecasting 25 to 25.5 million in annual PlayStation 5 shipments. I don’t expect any sort of new enhanced version, despite what “insiders” claim. Sony doesn’t need one right now. Supply has caught up to demand and it will milk the current devices until there are more games available solely on this generation.

Effectively, I’m targeting calendar 2025 for a PlayStation 5 model refresh.

Unlike Sony’s overall guidance expecting lower results in fiscal 2023, the firm is upbeat on the gaming segment. It anticipates 7% higher revenue and 8% better operating profit for PlayStation, to $28.8 billion and $1.99 billion respectively. The former would be another all-time best.

Will it hit these? I’m hesitant, not because of games or hardware, mainly because of exchange rate uncertainty plus cost upside. I’m expecting a more modest rise in the low single-digits, and operating profit to be flat or down slightly.

I’m expecting a great upcoming 12 months for software on PlayStation. Marvel’s Spider-Man 2 is undoubtedly a system seller. Square Enix’s Final Fantasy XVI and Capcom’s Street Fighter 6 will attract audiences. Activision Blizzard will launch Diablo IV to critical and commercial acclaim, and will have some sort of premium Call of Duty to sell. MLB The Show is a quiet success every year. Even Ubisoft will, allegedly, launch some games.

There’s also the transmedia portion and PC sales, incorporating brands like The Last of Us and Twisted Metal, which can provide upside if costs are kept in check. The great unknown is Sony’s live services push because it’s still in the ramp-up phase, where it generates expenses long before revenues and I remain a skeptic on just how many players will obsess over ongoing games exclusive to a single platform. At least Naughty Dog should share more on The Last of Us multiplayer this year.

I’ve come to the end of another fun rundown, within what’s already been a busy season. Next up will be Nintendo next week. Thanks for hanging out. Until then, take care, and be well everyone!

Note: Comparisons are year-over-year unless otherwise noted. Exchange rate is based on reported average conversion: US $1 to ¥135.4.

Sources: Ariana Ruiz/Picture Alliance (Image Credit), Circana, Company Investor Relations Websites, The Guardian.

-Dom

PlayStation Achieves Record Holiday Sales & Profit in 2022 Q3 & Raises PS5 Annual Hardware Target

What a quarter for PlayStation. Talk about bucking the trend!

I’ve been writing recently how this past holiday will be a mixed bag for many consumer technology firms, including gaming hardware manufacturers and software publishers. Sony is both of these things, and management is masterfully navigating the murky waters of our economic environment.

This fact is clearly illustrated when it reported third quarter fiscal 2022 results earlier today in Japan, in which the overall business grew double-digits and the PlayStation business unit achieved record Q3 sales and operating profit. The prior record-holder was this same quarter last year.

Within the report, it showcased growth across all PlayStation product categories. Hardware output more than doubled since last year, as did retail software, and digital content rose substantially. As I’ll show in a later chart.

PlayStation 5 (PS5) hardware had its best quarter to date measured by shipments, by a wide margin. Sony shipped 7.1 million PS5 units between October and December, up a whopping 82% compared to last holiday’s 3.9 million. That brings lifetime PS5 unit sales to 32.1 million. It’s now outsold the Sega Genesis, which peaked at 30.75 million overall.

Not only that, Sony actually increased its annual hardware guidance! While PS5’s better availability is impressive given higher input costs and supply chain disruptions of calendar 2022, it’s worth noting the console is still tracking below PlayStation 4 (PS4) at this same point in the early life cycle.

Partially driving demand for the new console was a suite of AAA games around this time. Third-party hits Call of Duty: Modern Warfare 2 and annualized sports games plus a system-seller like God of War Ragnarök alongside a supplementary title like Gran Turismo 7 significantly bolstered software, as both physical units and digital downloads soared.

“We are seeing steady results from the various measures we have taken in terms of both hardware and software,” management said in prepared remarks. “And we believe that we have created positive momentum to re-accelerate the growth of the game business centered on the expansion of the penetration of PlayStation 5.”

Here’s a deeper dive into the numbers behind this all-time holiday season, then a look at the company’s guidance and my predictions. Including a new chart format for the category mix!

Across the broader corporation, as shown in the above slides, Sony generated 13% more revenue this quarter up to $24 billion. Operating profit however declined 8%, to $3 billion. That second figure was the second best result in company history in local currency, behind only Q3 last year.

Shifting focus to the PlayStation segment alone, which is called Game & Network Services (G&NS) in Sony’s reporting. Sales increased a staggering 53% to $8.8 billion. Operating profit rose a more modest, yet still impressive, 25% to $820 million.

PlayStation exhibited exceptional top-line and profit growth that led to both of these figures being all-time records. Now it’s partially due to foreign exchange movement in a volatile rate environment, yet it’s mainly due to improving underlying fundamentals in its gaming business. Better hardware sales due to supply being there and demand staying strong, plus a big boost from first-party software. Even rising costs related to network business and acquisitions couldn’t hold profit back.

This was an astounding quarter. Looking at product category sales, nearly all of them moved up double-digits in Q3. Quite literally off the chart, as shown in the last one in the above gallery. Hardware was the biggest contributor at 35% of the total, since it more than doubled since last holiday. Add-On Content was the next biggest segment at 21%, even if it “only” increased 5%. Digital software comprised 20% of the PlayStation business, improving its sales 35% year-on-year. Physical Software proved to be the biggest mover from a growth standpoint, more than tripling.

Factoring in this latest record quarter, annualized revenue for G&NS is upwards of $22.84 billion right now. That’s the highest in history, tracking towards a best-ever year of sales. In fact, it’s $3 billion more than it’s ever been. I can’t overplay how well gaming is doing from a revenue standpoint, approaching a ridiculous $23 billion.

Profitability over the last 12-month period is a bit more tempered, as annual operating income totals $2.11 billion at present. It’s certainly recovering from where it was last quarter, trending towards pandemic highs.

Running down a quick comparison to industry peers, Sony is still in second place from a revenue standpoint. Tencent reports in March; for now, its annual sales are around $25.8 billion. PlayStation slots in here at the $22.84 billion. In Microsoft’s report last week, which I covered here, revenue over the last 12 months equaled $15.56 billion. Lastly, Nintendo is at $13 billion, though it has also yet to report and will do so next week. Keep in mind that a combined Microsoft and Activision Blizzard entity could eventually compete with Sony for second place, though I’d estimate it’s not above $20 billion to $21 billion just yet.

Now I’ll dig more into additional info from Sony on unit sales, network results and engagement stats for its gaming vertical.

Full game software sales declined in Q3, from 92.7 million to 86.5 million. That accounts for both internal teams and external publishers, including bellwethers like Call of Duty, Madden NFL and FIFA.

For first-party titles, this is where the real boost occurred. It nearly doubled from 11.3 million last year to 20.8 million. The bulk was, of course, driven by God of War Ragnarök which started at 5.1 million units during its launch week in November and has since reached the 11 million milestone. It’s the fastest-selling platform exclusive in PlayStation history across both of these time periods, a ridiculous result for the sequel to God of War (2018).

Within software, digital downloads compromised 62% of total game sales on PlayStation. That’s the exact same figure as last year, and only down slightly from 63% last quarter. The aforementioned growth of retail sales certainly affected this split.

Sony’s rebranded PlayStation Plus service now has 46.4 million subscribers, down compared to last year’s 48 million. Still, it’s higher than the 45.4 million last quarter thus showing sequential growth.

The other major user stat of Monthly Active Users (MAUs) edged up a million in Q3 to 112 million. It’s also 10 million higher than Q2, since the holiday season tends to attract new users and returning players alike. Sony also cited the transition to current generation hardware as a reason for user acquisition. The percentage of that 112 million that were solely on PS5 moved up to 30%, or roughly 33.6 million individual accounts.

“Engagement metrics of users who transitioned from PS4 to PS5, such as their PS Plus subscription rate, gameplay time, and average spending amount are significantly higher than those when they played on PS4,” executives said. “So we will continue to focus on accelerating the transition of PS4 users to PS5.”

Sony points out that almost 30% of MAUs on PS5 are users that never had a PS4, thus it’s attracting various new players, and payers, to the ecosystem. An essential part of any console business.

Intriguingly, for PlayStation players, total gameplay time declined 3% versus last Q3. Compared to the quarter ending September, it was up 6%. Focusing strictly on the month of December, hours jumped 14% compared to November.

“We believe that user engagement is on a recovery trend due to the penetration of PS5 and the contribution of hit titles,” management said. Based on the way hardware is trending, how high revenue has grown and its excellent title lineup last year, I certainly see that same trend.

It’s hard to overstate how exceptionally PlayStation performed in the months between October and December 2022.

To secure record revenue and profit during this macro environment, when people are facing inflation and returning to other activities, it’s truly the exception within consumer tech and gaming. Quite literally moving the opposite direction of a major peer like Microsoft. Even Apple is facing revenue challenges as it reports 5% decline in sales just this afternoon. Related publishers around the globe are struggling to outpace last year’s results. I’m supremely impressed with the leadership executing on its strategies, namely how it secured enough consoles to satiate pent-up demand.

Moving into the last quarter of its current fiscal year, management provided updated guidance for a variety of numbers. It slightly reduced total sales guidance down 1%, then bumped up operating income by 2 percentage points. These now imply around $81.2 billion in revenue and $8.33 billion in profit for fiscal 2022.

As for PlayStation, management reiterated its annual sales forecast which would be a record of $25.6 billion. It also raised guidance for gaming operating profit by around 7%, now expecting $1.7 billion for the year mainly because of currency movement. I think the top-line figure is fine for PlayStation as a segment, though firmly believe that operating profit forecast will be easily achieved. It feels too conservative given the latest holiday performance.

On the flip side, management is being even more aggressive on its PS5 unit sales outlook for the year. It’s raising the already high forecast by a million units, up to 19 million. Which would bring lifetime shipments to 38.3 million. All I can say is: Wow. Talk about upbeat! Right now, PS5 sales for fiscal 2022 are at 12.8 million thru 3 quarters. Sony needs to ship a massive 6.2 million in the 3 months ending this March in order to accomplish this target.

Now, I thought they were out of their collective mind last quarter. And I remain my usual skeptical self, considering 6.2 million is more than literally any other quarter in the PS5 life cycle other than this past holiday season. Management’s confidence must be rubbing off on me, as I think Sony will get close: I’m bumping my annual forecast to 17.5 million to 18 million.

What else could drive results into March? Well, PlayStation VR2 launches in a few weeks though I’m tepid on its commercial upside. Virtual reality remains a niche market, and the cost to entry is high for a peripheral that requires a pricey base console. I expect 1 million units to ship in the quarter ending March, yet a marginal impact on the bottom line considering it’s also costly to make headsets.

There’s also Sony’s transmedia push, which is paying dividends for both gaming and its Pictures division. In particular, the collaboration with HBO on The Last of Us is a smash hit and having broader audience appeal beyond any expectation. It’s attracting massive viewership and driving sales of September’s console release of The Last of Us Part 1, which is also launching on PC before fiscal year-end, and June 2020’s The Last of Us Part 2.

Well, talk about a lot to cover! It’s been a busy season already. Thanks for checking out another recap. Head on over to the latest earnings calendar for more dates to come, and I’ll have a full rundown of Nintendo’s results after the company publishes them next week.

Until then, be safe everyone!

Note: Comparisons are year-over-year unless otherwise noted. Exchange rate is based on reported average conversion: US $1 to ¥141.7.

Sources: Company Investor Relations Websites, HBO Max (Image Credit), USA Today (Image Credit).

-Dom

PlayStation 5 Sales Reach 25 Million as Sony’s Gaming Unit Posts Record Revenue & Declining Profit in Mixed Q2 2022 Report

As the calendar turns to November, the ongoing earnings season across gaming, tech and media keeps on rolling. Those who follow my latest calendar post will know it’s only picking up steam!

Yesterday, Sony announced fiscal 2022 second quarter results. It’s the definition of a mixed bag, akin to receiving both an apple and candy bar while trick-or-treating! (I miss the spooky season already.)

Overall the Japanese consumer tech company saw improved sales and profitability. Within the PlayStation business, revenue rose in the double-digits to its best fiscal Q2 on record. However, operating profit saw a precipitous drop of nearly 50% in what was one of its toughest outcomes in recent memory.

Underlying this dynamic of good top-line growth yet decreasing profitability was favorable impact from exchange rate movement, as the Japanese yen is near its weakest point in decades. It’s also attributed to lower software output from external publishers. Then, for profit, better margins for PlayStation 5 hardware couldn’t offset high expenses from ongoing development and acquisition activity, namely the purchase of Bungie.

Speaking of hardware, PlayStation 5 lifetime unit sales reached 25 million after Sony shipped 3.3 million units in the quarter ending September. That’s the same exact quarterly shipment amount as last year. While it now outpaces Nintendo GameCube’s 21.74 million and the original Xbox at 24 million, it’s still hitting market at a much slower pace than its predecessor. Sony is upbeat on the remainder of this fiscal year at least, reiterating its 18 million shipped target. Which means it must reach 12.3 million in the back half. Read my predictions later in the piece to see if I agree.

As for engagement stats given the rebranding of PlayStation Plus during this quarter, it’s better than it first appears. From a subscriber and active user standpoint, things are looking down as both PlayStation Plus and Monthly Active Users (MAUs) across the network declined. However, Network Services dollar revenue is up double-digits. Which means the rebranding is attracting buyers that are spending more, and shedding those that aren’t interested in paying within the ecosystem. It’s actually been a win for PlayStation, despite a lower subscriber count.

“Production itself has been quite well,” said Sony Chief Financial Officer Hiroki Totoki. “We have the decline of MAUs and the other indices. The second quarter, more people are now going outdoors. And we have yet to get out of the negative cycles. PlayStation 4’s and third-party software sales have been rather sluggish. Catalog and historical titles have been declining. Against that, PlayStation 5 engagement is quite high.”

That said, here’s a deep dive into Sony’s latest numbers.

Sony’s consolidated results for the latest quarter are shown on the first slide above, and the remainder reveal insight into its Game & Network Services (G&NS) business.

Overall sales moved up 16% to $19.91 billion, while operating profit rose 8% to almost $2.5 billion. Both of these figures are best-ever second quarter results, as reported in Japanese yen. Even amidst a global scenario that’s experiencing economic slowdowns and rising inflation, Sony is proving to be resilient so far.

Now onto the PlayStation business. This unit improved quarterly revenue by 12% to a Q2 record $5.2 billion, contributing 26% of the company’s total. Operating income on the other hand was hit hard in the three months ending September, dropping 49% to $305 million.

On the top-line, these gaming results benefited from currency fluctuations even as sales of software not published by PlayStation softened. Profitability was drastically eroded by the aforementioned content sales drop and higher expenses amidst rising costs in general. There was a bit of good news sprinkled, as Sony indicated it’s losing less money on hardware in recent months.

Moving into the product sales split chart will help illustrate these talking points, showcasing what’s driving PlayStation right now. All categories were either flat or up, many of them in the double-digits. Intriguingly, Physical Software saw the biggest gain at 32%. Next up was Network Services, clearly benefiting from PlayStation Plus’ new tiered system (as cumbersome as it might be). Digital Software rose 14% while Hardware moved up 12% on better inventories. Add-On Content was the only source not to grow; though it also didn’t lose any ground, coming in flat for the quarter.

To help provide even more perspective, there are two additional charts showing the last 12 months of sales and profit for PlayStation. Summing up the last four quarters, Sony’s annual gaming revenue is currently nearly $20.3 billion. That’s the second best trailing 12-month revenue in PlayStation history, nearly identical to last year’s figure. On the flip side, the last year of operating income being under $2 billion is the worst in over two-and-a-half years. This clearly shows the challenge for Sony when it comes to gaming, maintaining profitability in a cooling economic situation as it pushes forward with big budget projects.

As I did in my recent article on Microsoft’s latest results, here’s a quick rundown of where PlayStation’s annual sales fit in the industry right now. I’ll mention the same caveat: when converted to United States dollars, the Japanese companies look a bit lighter than usual because of yen weakness. That said, Tencent’s $24 billion from gaming is tops. Sony maintains the second slot with its nearly $20 billion, while Xbox continues in third with $16 billion. Nintendo, which reports next week, was at $13 billion though that will likely move up.

Moving on from the financial side, here’s a closer look at Sony’s supplemental information highlighting even more recent stats for the G&NS division.

Full game software sales across PlayStation platforms totaled 62.5 million in Q2, which is down 18% or almost 14 million units since the same three months in fiscal 2021. This is partly driven by release slate, where last year saw titles like Ratchet & Clank: Rift Apart just before the quarter started then launches for both Ghost of Tsushima Director’s Cut and Deathloop. This year’s flagship was solely The Last of Us Part 1.

First party titles sold nearly a million less units in Q2 this year, at 6.7 million compared to 7.6 million. Even considering third party titles, mainly in the sports genre, content sales proved to be lighter. Digital split within full game software remained relatively constant, at 63% in Q2 versus 62% last year.

“When we compare software sales for this quarter with the same period of the previous fiscal year, we see sales of past library titles declined sharply, while sales of major new titles remained strong,” management said. “Users appear to be playing a smaller number of titles out of a desire to spend less money.”

Then there’s the element of subscription services and player engagement. PlayStation Plus ended September with 45.4 million subscribers, down 1.8 million since last year and 1.9 million compared with last quarter. This was mainly due to user engagement on PlayStation 4 performing worse than the company anticipated.

MAUs across the PlayStation network moved down to 102 million, seeing similar contractions against last year’s 104 million and Q1’s 103 million. Sony pointed out that total gameplay time rose “slightly” compared to the prior quarter, it declined 10%. Why? People have more opportunities to “go outside” now that COVID 19 infections are trending down. Basically, gamers are apparently touching more grass.

The last tidbit provided by executives during their prepared remarks is that PlayStation Plus subscriber ratio among PlayStation 5 general is “significantly above” that of PlayStation 4. Which makes sense, it’s a much more digital world now that’s open to paying for subscriptions like this and Xbox Game Pass. Sony’s latest rebranding and alignment of services shows its focus on attracting people to its ecosystem, so they can spend within it.

Thus concludes what I’d classify as one of PlayStation’s most divergent quarters in recent memory, presenting a clear divide between record sales and diminishing profits.

Sales growth is great to see, especially for Hardware and Network Services. I’d still argue that reigning in costs is much more important given today’s recessionary environment. PlayStation 5 availability is better than it’s been since launch and demand is certainly there on the consumer side. Its Sony’s expenditures on big budget projects, including PlayStation VR2 as a new peripheral, and buying of studios like Bungie that impacts the bottom line.

Management’s forward-looking guidance for the second half of fiscal 2022 reflects this same situation. First, it raised total company guidance for both sales and operating profit by 1% and 5% respectively. Then, it expects slightly higher sales from PlayStation however is forecasting 12% lower operating profit. This is much more in-line with my expectations.

As I mentioned above, PlayStation 5’s full year target is still 18 million units. Management claims that both material supply and logistical challenges have eased, thus it actually produced 6.5 million in Q2 and shipped around half of those to retail. I remain skeptical, keeping my previous annual estimate of between 15 and 16 million.

If it happens to meet the 12.3 million PlayStation 5 units required in the back half of fiscal 2022 to get there, lifetime sales would be 37.3 million by March 2023. Still below the 40 million of PlayStation 4 during the same time frame. It sounds like Sony’s target for fiscal year 2023 is 23 million, trying to make up ground on its predecessor. I think it will need more than that.

While Sony doesn’t provide formal guidance on software, I’m quite bullish on the next quarter and into the first calendar portion of 2023. Mainly because of two major new releases, one first-party and the other multi-platform. God of War Ragnarok hits market next week, and will rival or outpace the year’s biggest PlayStation 5 exclusives. As part of this report, Sony shared updated unit sales for God of War (2018): It’s now reached 23 million units, up from just under 20 million a year ago.

Then of course we have Call of Duty: Modern Warfare 2, what I expect to be 2022’s best-selling premium title. Yes, even considering the beast that is Elden Ring. Activision Blizzard’s Call of Duty franchise is on another level, especially its Modern Warfare sub-brand, seeing as this year’s title earned a record opening weekend of $800 million in sales to consumers. Considering PlayStation has a marketing deal in place, it benefits more than any other platform when the military shooter does well. Between that and PlayStation Plus continuing to fill out its offering, I’m upbeat on both software and add-on content sales in the coming quarters.

“We are actively pursuing various measures to further increase user engagement and re-accelerate the growth of our game business from both the hardware and software perspectives,” said Sony’s executives in prepared remarks. “We expect to see the results of these efforts contribute to sales and
profit in earnest from the second half of this fiscal year and next fiscal year.”

Finally, there’s Sony’s announcement today on the timing and cost of PlayStation VR2. The follow-up to its original virtual reality headset back in 2016 will launch on February 22nd at the lofty price of US $549.99 for its base model. This reflects the same sort of revenue and profit considerations as before: It’s a major barrier to entry considering users also need to own a PlayStation 5, which will push up sales, however margins will likely be small considering how much it costs to make each unit. I’m cautious on its commercial prospects initially, and think it will appeal more over time once more people own its corresponding console.

That’s a wrap on Sony’s latest results. What were your reactions? Any surprises? Do you think Sony can hit its financial and hardware targets by March? Drop a note here or social media and check back soon for even more coverage of gaming, tech and media. Be well, and thanks for stopping by!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported average conversion: US $1 to ¥138.2.

Sources: Activision Blizzard, Company Investor Relations Websites, Forbes (Image Credit), Michael Ng (Image Credit), PlayStation Blog.

-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

PlayStation 5 Breaks Nintendo Switch Streak in Record September for U.S. Games Sales

Although it feels like no one can find one these days, PlayStation 5 is most certainly selling. And, like many years past, sports video games are as popular as ever here in America.

That’s according to the latest monthly report from U.S. games industry tracker The NPD Group, which released its September 2021 consumer spending figures earlier today.

Within, the firm revealed last month hit a September best across the entirety of tracked history. Total spending reached nearly $4.4 billion, an increase of 3% and the single best September month on record.

This impressive result was primary driven by continued moment of hardware growth, mobile spending and ongoing subscription sales on services like Xbox Game Pass. These sub-categories were able to balance out declines elsewhere, including within accessories.

Biggest story told by the numbers is within Video Game Hardware: how PlayStation 5 halted a competitor’s historic streak. Sony’s latest generation box was the best-selling console in the U.S. by both dollar sales AND units sold. The latter is the important point. This ends Nintendo Switch’s consecutive streak of leading by unit sales at a whopping 33 months. The last time a console other than Switch was atop the hardware chart by this metric was PlayStation 4’s win back in November 2018!

Which to me is more indicative of supply conditions as Sony continues to output as many PlayStation 5’s as possible. Nintendo has swapped over to its Switch OLED Model production, which launched after this month’s sales report on October 8th. The tricky part going forward is inventories aren’t expected to increase much anytime soon. In recent weeks, semiconductor sector leaders from AMD and Marvell commented that the chip shortage likely won’t ease until back half of 2022 if not later. As a primary component of gaming consoles, this is concerning for those of us that track industry sales.

Back to the report within Video Game Content i.e. the software, mobile and subscription category. While it was flat on the spending side, sports games dominated to take home the top three spots on the overall chart. Entries in Madden NFL, FIFA and NBA 2K scored top marks. This happened alongside record franchise launches for Tales and Life is Strange, all of which contributed to consistent content trends.

Mobile continues to be a major factor of course, contributing over $2 billion in monthly spending yet again. This has happened in eight of the past nine months this year. That’s roughly 45% of overall spending for the entire month of September. Names like Candy Crush Saga and Genshin Impact were among the best performers.

The NPD Group’s Mat Piscatella said the story overall is “unchanged” lately, namely how hardware is performing as well as supply allows it plus mobile and subscriptions are keeping their pace.

Before moving into the actual charts and underlying trends, I want to say I hope everyone is safe and healthy leading into a busy season, namely the colder months here in the Northern hemisphere. Grab a cup of something warm and read on for the hottest details of today’s report.

United States Games Industry Sales (August 29th, 2021 – October 2nd, 2021):

As mentioned before and displayed in the above gallery, it was a record-breaking September for the domestic games industry. Total consumer spend grew 3% to $4.4 billion, the best September month of all time.

This led to the first 9 months of 2021 reaching $42.28 billion, or growth of 12%. Two of the three main meta categories experienced double-digit gains, and the last just a tad below that.

Monthly Content spending was essentially flat in September, stacking up $3.78 billion or around 87% of total spending. Aggregating the year so far, Content is up 10% to $37.11 billion for the first three quarters.

This Content segment result was driven by mobile, hardware and myriad new releases on the software side. Within mobile in particular, average monthly spending in the first 9 months was 28% higher than last year. Genshin Impact in particular celebrated its one year anniversary recently and was the second highest grossing mobile title in September, up a massive 120% compared to August.

There’s a whole lot to cover on the traditional console and PC market side, mainly due to just how many best sellers launched. I’ll try to go rapid fire.

Madden NFL 22 repeats at the top spot on the overall chart, the same as during its release month of August. Electronic Arts’ annual football entry is now the second best-selling game of 2021 to date, up from fourth in August. It was the top earner on PlayStation and Xbox platform lists alike.

Electronic Arts also published the second-ranked game in FIFA 22, which hit that same spot on PlayStation and Xbox ranks. That’s with only 2 days of sales in this period. This was just below last year’s debut when it nabbed the top spot in October 2020 because of more days included and a bigger gap between its release and Madden at the time.

NBA 2K22 was the sports title rounding out the top three. Take-Two Interactive might have jumped even higher with its annual basketball series if the publisher shared digital sales, so this start is that much more notable because it’s retail alone. This was higher than NBA 2K21’s relative start, where it was #5 in September 2020.

Next up was new launch Tales of Arise at #4. It had the single biggest launch month of any game in the Bandai Namco-produced Tales Japanese RPG series, measured by dollar sales. And it’s yet another example of Eastern games gaining in popularity during simultaneous global releases.

Activision Blizzard, a company still under lawsuits for reported workplace toxicity that its executives fostered thus making a difficult time for women and marginalized employees, saw its Diablo II: Resurrected earn the fifth spot last month. Deathloop, the atypical PlayStation 5 exclusive published by Xbox Game Studios post Microsoft’s ZeniMax deal, came in sixth place. I call that successful for a single platform game (for now) just on PlayStation 5, achieving fourth on PlayStation platforms in September behind only the major third-party sports titles. Then Square Enix’s Life is Strange: True Colors sneaked into the Top 10, yet another commercial success that generated record first month dollar sales within its respective franchise.

Further down the list were new releases Sonic Colors: Ultimate at #13 then Nintendo’s WarioWare: Get it Together! at #15. One major observation is there were no Nintendo-published game within the Top 10, the highest ranked was Mario Kart 8 at eleventh. Definitely impacted by Nintendo only reporting physical sales plus the dearth of new multi-platform titles available across competitors.

It’s time for all them rankings.

Top-Selling Games of September 2021, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Madden NFL 2022
  2. FIFA 22
  3. NBA 2K22*
  4. Tales of Arise
  5. Diablo II: Resurrected
  6. Deathloop
  7. Call of Duty: Black Ops Cold War
  8. Ghost of Tsushima
  9. Marvel’s Spider-Man Miles Morales
  10. Life is Strange: True Colors
  11. Mario Kart 8*
  12. Diablo Prime Evil Collection
  13. Sonic Colors: Ultimate
  14. Minecraft
  15. WarioWare: Get it Together!*
  16. Assassin’s Creed Valhalla
  17. Super Smash Bros. Ultimate*
  18. Animal Crossing: New Horizons*
  19. Call of Duty: Modern Warfare
  20. Mortal Kombat 11

Top-Selling Games, 2021 To Date, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Call of Duty: Black Ops Cold War
  2. Madden NFL 22
  3. MLB The Show 21^
  4. Resident Evil Village
  5. Super Mario 3D World*
  6. Marvel’s Spider-Man Miles Morales
  7. Mario Kart 8*
  8. Minecraft
  9. Monster Hunter Rise
  10. Assassin’s Creed Valhalla

Diving into Hardware numbers for the month, this segment experienced a 49% increase in consumer spending to $412 million. It’s the most significant growth story across the full report, which makes sense this early in the cycle. And I believe it could be even more if the inventory situation was less constrained, as I’m confident there’s ample demand.

Hardware was also up the same 49% during the first three quarters of the year through September, moving almost $3.41 billion in spend.

And well, it happened again. One of my predictions from last month’s piece was wrong. As I mentioned during the intro, PlayStation 5 topped September by both dollar revenue and monthly unit sales. I previously guessed that Nintendo Switch could outpace competitors until the crucial November and December time frames, when anything can happen. Sony was successfully able to produce enough PlayStation 5 boxes to outpace Nintendo, which had an incredible run over the past almost three years. The best predictors are able to admit when they miss, and it won’t be the last time.

While The NPD Group didn’t formally report second place on the console side, I assume it was Nintendo Switch based on current momentum and consistency of output. There’s also no word on Microsoft’s Xbox performance. I know anecdotally it’s extremely difficult to find Xbox Series X, so those higher priced units are selling. I’m unsure on Xbox Series S because I’ve seen more inventories pop up on online retailers in particular, not going out of stock as quickly as other new consoles. I’d love to see the numbers behind it.

Which leads me to a similar story for dedicated readers and social media friends: Supply, market forces and shortages! Until there’s more, it just depends on which manufacturer has more in the market. September was Sony’s time to shine. Let’s see where it goes in the coveted fourth quarter.

Final category to cover is Video Game Accessories, really the only blemish on an otherwise solid report. Spending here declined 12% last month to $171 million. It was $193 million back in September 2020.

Accessories is still growing over the first nine months of 2021, reaching $1.76 billion over that time which is 9% higher than the same period in 2020. Its pace is still positive, even if slowing.

Microsoft again boasted the top accessory with its Xbox Elite Series 2 controller generating the highest dollar sales. Sony’s PlayStation 5 Wireless Controller white iteration maintained its position as the year’s best seller so far.

Not much else to say for this segment other than it’s relatively quiet right now. Upside is there are gains for the year in total.

When taking September’s U.S. games industry report from The NPD Group as a whole, there’s a lot of bright spots within both content and hardware results. PlayStation 5 pushes through the chip shortage to steal Nintendo’s spotlight, even if I believe that will be temporary.

Not only do I expect Nintendo Switch to regain its leading hardware position during October on units, I believe it can win on dollar sales too due to the higher-priced OLED offering.

We’re currently in the midst a busy season of releases, especially for AAA sports franchises, and I expect those to continue on the charts for foreseeable future. FIFA 22 will now have a full month of sales then Madden and NBA 2K will continue momentum during their respective league seasons.

In terms of other recent or upcoming titles, Ubisoft will have a favorable month as Far Cry 6 will chart well then Riders Republic is a wildcard. Nintendo publishes two games in Metroid Dread and Mario Party Superstars. I firmly believe the former will undoubtedly set a series launch record. Just unsure where it will rank within the broader market against multi-platforms, I’d say Top 6 or 7 is realistic.

Back 4 Blood is a question mark. I expect Xbox Game Pass, pent up demand for a Left 4 Dead-like and word-of-mouth can drive a solid start for the title published by Warner Bros Games. Electronic Arts had NHL 2022 launch a few days ago, a sports title more niche than its counterparts. Guardians of the Galaxy from Square Enix will be a curious debut in late October, where I expect brand recognition alone to can land a Top 7 rank even with three days on market.

All in all, it’s a fun time to be following the industry and checking which records will be made or broken each time.

Thanks all for reading. I should have at least an article or two between now and October’s report. Earnings season is starting up after all, so stay tuned for my world famous calendar! I hope you and yours are doing well until next time around.

*Digital Sales Not Included, ^Xbox Digital Sales Not Included

Comparisons are year-over-year unless otherwise noted.

Sources: CNBC, Electronic Arts, Microsoft, The NPD Group, Sony.

-Dom

Review: Deathloop Is Made of Great Parts That Could Be Excellent Next Time Around

“If I’m not dead, then what the bleep am I?”

Well if it’s 2021, then probably caught in a time loop.

Expanding on a mechanic seemingly at peak popularity, Deathloop is the latest time-bending title to be set in a never-ending cycle that resets upon ending. And it’s a seriously good one, even if its punchy gameplay, clever level design and crafty progression aspects mask its fatal flaws such as lack of variety, uneven ability usefulness plus an unsatisfying story arc. Moments of excellence only highlight its potential for greatness, as it doesn’t quite reach the lofty heights it so stylishly attempts to grasp.

I adore so much about Arkane Lyon’s creation, which doesn’t fit neatly into current genre conventions. It’s a first-person action game with shooting, exploration, puzzle, stealth and run-based elements that presents as a sandbox immersive sim then really ends up being more linear and restrictive than it initially promises. Its timeline is out of order, a nifty way for the team to tell a narrative primarily by slowly dispensing information then allowing the player to manipulate outcomes within this overall framework.

The tricky part with a game as ambitious as Deathloop is certain parts feel lesser when compared to superior ones, like a full course meal where the main dish is exquisite yet the appetizer and dessert are unfulfilling.

That mysterious, quick-witted woman is Julianna Blake who acts as the main antagonist. While mercilessly heckling Colt via the radio, her goal is maintaining the loop’s integrity. Which means hunting Colt as he tries to kill seven other fellow Visionaries. She can invade mid-run, controlled by either AI or a person online. This sort of multiplayer is a novel concept where it’s much more fun to be Julianna of course, busting up a run as opposed to losing. Visionaries themselves have key roles in the history and management of Blackreef, and the loop ends only if they are taken out in a single day.

This place is meant to be a utopia for most inhabitants dubbed “Eternalists” as they are experiencing a form of amortality, effectively being unable to die. To Colt, it’s a suffocating trap from which he must be freed. He and Julianna retain knowledge across loops, an important distinction compared to most everyone else who are experiencing the “First Day” indefinitely. 

During a tutorial that’s a contender for longest ever because it takes a couple hours to get one’s bearings, the game spills its general structure and gameplay tips. There are four different areas across Blackreef: Fristad Rock, Karl’s Bay, Updaam and The Complex. Each can be accessed via a menu at four times of day: Morning, Noon, Afternoon or Night. Time doesn’t move forward while at these locations, only in the menu between them. And order doesn’t matter, Colt can wait until a later time of day if needed. It’s a smart way to allow players to take time devouring each map, learning the intricacies without the pressure of a ticking clock. Once nighttime is over, or Colt perishes, the loop resets back to dawn.

Which means there are 16 different combinations, all of which take place on the same base area yet showcase a variety of scenarios. Places look fresh in the early sunrise while everyone is waking up, possibilities supposedly endless to all. By sundown, the worst are battered or blown up. The best are ready for a snazzy masquerade ball or big environmental puzzle. It’s through these mechanisms that Colt influences the world to precisely line up his kills. The player’s main goal is to figure out how to either manipulate characters or leverage their movements across areas to achieve an “ultimate” run where every single one doesn’t survive.

Objectives in Deathloop are organized using a system of leads: One is a set of Visionary storylines, mapping out where each individual starts and the most relevant information learned to bring about their demise. What’s curious about these is they don’t actually end the first time Colt kills a given Visionary. He has to do it the correct way for the lead to “complete”, which means it’s then ready to be a part of his master plan.

For instance, the first big lead during the tutorial phase is Doctor Wenjie Evans at The Complex. She’s actually the one responsible for the loop, her hope was to have an eternity to learn about it and while studying she realizes she comes to the same conclusions each day. Thus realizing she forgets each night. Her major contributions are related to upgrades I’ll discuss later. Her main ability is duplication, pulling in copies of herself from other timelines. While one way to kill her is taking out each of her copies, that might not be the optimal outcome.

The other objective type is a set of Arsenal Leads. These aid in learning how to acquire Slabs, unique powers from most Visionaries, plus select elite level weapons. Slab acquisition happens naturally while targeting the Visionary Leads, then high-level weapons act as a sort of side quest within the guidelines of each run. This is essential in my opinion, especially given the game’s limited arsenal.

There are also menu options for Discoveries and Documents. The former shows action items that build up over time as the player explores. The latter is anything related to character journals or audio logs. Some are essential to move the narrative forward, others reward with bits of lore and help round out what the heck is going on while some explain minor systems. All of this is a lot to take in and was overwhelming for a while.

From this menu navigation to moving around the world and engaging in combat, Arkane has made a core experience where almost everything has such a great feel. Controls are snappy and always responsive. There’s this tangible feedback, partially due to technology in the DualSense controller, that bolsters immersion even in the most basic of interactions. 

Gameplay for the most part is predictable for a first-person game, especially in the Arkane lineage of Dishonored and Prey. There’s walking, traversal, climbing, shooting and grenade tossing. Stealth is viable and I’d argue essential in the first half of the game’s 20 to 30 hours. A “focus” button can mark and examine a certain number of enemies, which is helpful when gauging the layout of a new area. Then there’s hacking of sensors and turrets via the Hackamajig, an on-the-nose gadget which somehow also acts as a radio.

Weapons fall into traditional archetypes: pistols, shotguns, submachine guns and rifles. There really aren’t that many different options. Long range is particularly lacking. And early on, rarity is low. Colt finds a base level gun early to practice target shooting. Every other piece of gear is picked up from defeated enemies. Visionaries and Arsenal Leads having the highest quality. Crappy weapons can even jam, “because they are old” the game argues, which is quite literally the opposite of fun. I wish it was never greenlit. It’s the type of system clearly added to encourage stealth in the early parts, even though the player’s low health and minimal ability suite already does that. Luckily, the best weapons won’t jam which leads me to wonder why have it in the first place.

Each Visionary has a role to play, a distinct personality, individual relationships and most even have fancy powers to steal. These are called Slabs. They offer up core abilities, which will be familiar to fans of Arkane’s earlier works. The first of which is Reprise, a slab intrinsic to Cole’s loadout which can revive him twice. There are five others: The teleporting Shift from Charlie Montague. Aether from Egor Serling offers invisibility. Nexus links foes together so hurting one does the same to everyone else, held by Harriet Morse. Fia Zborowska has Havoc, basically an enrage cheat code. Then there’s Aleksis Dorsey’s Karnesis, a form of telekinesis that can throw enemies around. Julianna can actually use any of these abilities, so she’s another source. Using these takes a regenerating resource called Power.

A nice system around these slabs is upgrading them. The first time a Visionary is killed, Colt earns the base slab. Each time after that, he can collect an upgrade linked to their particular ability. It’s an incentive to finish out portions of a run or to take down Julianna when she invades. For example there are slam and area-of-effect options for Karnesis, while Shift can reach further or hover in mid-air. Very much welcome, especially the latter for rapid traversal.

Enhancing Colt and his gear are items called Trinkets, customization options that have a notable impact. These are pieces “imbued with Blackreef’s temporal anomaly” and can either be made in certain locations or picked up from enemy drops. Character trinkets are general buffs like boosted health, more power, faster movement and the like. Weapon trinkets can improve accuracy, damage, rate of fire or reload speed. Combining these helps beef up Colt to take on a more run-and-gun approach, or spec towards stealth with more silent alternatives.

So, how does the player retain things other than knowledge across runs? A mechanic called Infusion, originally discovered by the aforementioned Dr. Wenjie. Using Residuum, a resource collected from items throughout the world or by killing bosses, the player can carry over weapons, slabs and trinkets from one run to the next. Anything in one’s current inventory can also be sacrificed for a select amount of Residuum, which means duplicates or unused items can be useful. Especially because Residuum itself can’t be carried over at the end of a night and is lost upon death, so it’s essential to hang onto it and allocate towards becoming more powerful.

Regrettably the rules of Infusion are confusing. Presentation in the menu is messy. It takes a while to understand what carries over and why, resulting in missed infusions or precious lost items. The best approach is to infuse anything and everything because there’s a risk of dying and losing everything that isn’t locked in. There’s filtering options which can help a bit, it’s still not the most intuitive upgrading path.

The ultimate problem here, and it’s one of my major gripes with Deathloop, is the limitation of its loadout system. Having three weapon slots is perfectly fine. That works. It’s the slab and character trinket options that hurt. Colt can only have two slabs equipped at once. Shift alone is almost an essential power, therefore always taking up a slot and making it so that there’s one spot for four other slabs. If Colt can have all these slabs at once, why can’t he use them? I mean Blackreef is this special temporal location where time is clearly special. Isn’t there a lore workaround that would allow him to alternate between more than two slabs?

Similarly character trinkets are limited to four. Double jump is classified as a trinket rather than an inherent skill. So it’s really three slots as far as I’m concerned. Double-jump is a ridiculous video game thing that most characters have by default. Colt should too. I assume Arkane wanted to streamline these systems so as to not confuse players, since their prior games had a ton of different skills. So then let us pay Residuum to unlock additional slots as we get to know the game. It could focus attention during the early portion then add to character growth later on, and by the end both Colt and the player would understand how to leverage them together.

The tricky part with a game as ambitious and feature-packed as Deathloop is certain parts feel lesser when compared to superior ones, like a full course meal where the main dish is exquisite yet the appetizer and dessert are unfulfilling.

Setting up these loadout setups and character systems is well and good. I’m surprised to report that the best moments happen when it all goes to crap. Which is often in Deathloop. At least for me. It’s the exact opposite of something like Dishonored in that regard, where I never had any success with combat. Shooting hits hard here, and it’s the most enjoyable and effective strategy other than the first few times through each level. Assuming the player has powered up. Downside is stealth is much more of a slog than arousing the sort of tense dread that’s key for such sequences. I just didn’t feel as compelled to take my time when the alternative felt that much better.

Tying into the location mechanic mentioned earlier, a most genius move from the development team is its take on progression. The player chooses where and when to start a given go, whether it’s for key information gathering, targeting a Visionary’s unique power or focusing on an individual weapon lead. It’s the type of rewarding feedback loop that makes a player feel smart and more enabled, both from a knowledge standpoint plus actual in-game capabilities. Colt as a character is growing as he’s remembering why the heck he’s on Blackreef.

There’s also progression baked into levels. Certain collectibles talk about the player’s prior actions. Enemy placement also changes based on time of day. Some denizens are drunk and easy to kill. Others have geared up so they are much stronger. Visionaries can move around and be manipulated. The most glaring instance here is a big party thrown by Visionary Aleksis Dorsey taking place at his mansion in Updaam. It’s really the biggest singular event during the loop. Depending on what Colt does during earlier phases of the day, major characters will attend the event which makes it easier to take them out in succession.

Contributing to a sense of place and aesthetic, Blackreef has its own distinct look plus history to discover. Aesthetic does a ton of heavy lifting in Deathloop. Style is uber slick, a 60’s jazz-spy vibe complete with war-torn trappings, scientific experiments, pop art decor, a soundtrack full of piano chords with blaring horns and even animated sequences straight out of a noir cartoon thriller. This is totally enhanced by ongoing banter between Colt, his inner voice and Julianna’s constant poking fun.

The famed Arkane level design and environmental expertise is solid in this sort of setting. Cold War era industrial buildings allow for labyrinthian corridors and subterranean passageways. The Complex is Blackreef’s research center, where Dr. Wenjie and Egor Serling conduct unconventional tests in sterile laboratories plus outdoor satellite arrays. Fristad Rock houses an intricate upscale dance club and mysterious underground bunker. All locations have various locked doors and un-powered levers, clearly indicating the need for further information. What’s cool is most access codes are randomized, meaning they change for different players and even across loops. It’s a crafty way to change things up.

Updaam houses a handful of its most stellar areas, mainly because that’s where gamemaker and Visionary Charlie Montague operates plus Aleksis hosts the aforementioned mansion party. Montague has built these live-action games scattered throughout different maps which he calls “Charlie Challenges.” The Moxie is a set of laser and pressure plate challenge rooms. Condition Detachment is the name of his space invader type of game, which houses his personal lair and one of the main areas where he’s vulnerable. There’s also Charlie’s robot called 2-Bit, made from half of his brain and one of the few sentient beings that remembers things across loops. It’s crucial to explore these areas.

This is all to say one of the things Deathloop does best is make Blackreef as memorable for its character as its practicality, namely in offering alternate route options for Colt. It’s a bizarre place where intriguing scientific questions are asked and not many answers are needed by most.

The run-based nature here and neat side activities lends itself well to quick sessions as much as marathons. Someone can play strictly for the purpose of gathering information. Others are used to take out Visionaries. Even get in on some invading. Within the industrial shore town of Karl’s Bay, there’s an unconventional way to make trinkets. An amatuer science team sets up a failed experiment to harness Blackreef’s temporal power. There’s a machine that exposes the area to “visitors” from other timelines, which Colt has to kill quickly in order to collect enough Residuum. There’s plenty of individual tasks to complete, even if some aren’t necessarily as rewarding.

Speaking of rewarding optional content, I have to give a special shout out to Heritage Gun. It’s a top-level Arsenal lead reward from arguably the best side event in the game which spans an entire map. While technically a shotgun, it has a slug round mode with incredible range. Fans of The Chaperone in Destiny will agree.

I mentioned the feedback and general feel before. A major component is sound design in Deathloop. It’s straight up mean. Pure. Colt’s boots crunch across the hard cement. Julianna’s radio chatter emanates from the DualSense controller speaker. Announcements from Visionaries blare through the streets. And the kill sound when using a weapon is up there with the best shooters of all time, crunchy and violent. It’s especially satisfying when using a rifle.

Tying in with the audio design is how voice acting, dialogue and writing is top-notch. Especially the two main characters. It’s amazing to see black leading characters and actors in a triple-A game of this caliber, both of which are exceptional performances. Jason E. Kelley plays Colt and Ozioma Akagha features as Julianna, each getting the best out of the other. It helps that their writing is savvy, and I looked forward to hearing their quick antagonizing at the start of each sequence.

Unfortunately, the distinction within Deathloop for its most fatal of flaws is rigidity of effective play styles and lack of variety hidden beneath the veil. Weapon archetypes are restricted to just the handful I mentioned before. And there’s at most a couple within a given type. Especially long-range. Other than a sniper hidden behind an Arsenal Lead, there’s a single rifle to find. Some of its best top-end gear is locked behind the Deluxe Edition.

The decisions around loadout options are most restrictive and unfortunate. Certain powers feel essential, like Shift allowing teleporting and quick movement especially vertically. Others are flat out inferior or hyper-specific for more hardcore fans. Like Nexus, the one that can tether enemies together, is fiddly and unreliable.

I was hoping Arkane kept with its tradition of giving players more credit in our understanding of how abilities can synergize. I know Deathloop leans into action elements more than its predecessors. The beauty of an immersive sim or sandbox game is still flexibility of choice. Limiting the use of various hard-earned powers feels like an unnecessary constraint. Hand the player tools then let them decide, rather than forcing them to pick.

Elsewhere there’s superfluous features that didn’t jive with so many other smart decisions. There’s a sort of cosmetic outfit system for Colt and Julianna, which doesn’t mean much when everything is first person. These are mostly earned by protecting the loop as Julianna, which I guess is some incentive to play as her. Then there’s dual wielding weapons, a setup that’s against the very framework of having a weapon in one hand then a power or hacking device in the other. The only time I used it was with one of the special weapons that transforms from dual pistols to a submachine gun, because there’s a damage boost associated with doing so.

In terms of opposition to Colt’s bloodbath, most enemies are flat-out dumb. The main challenge comes from overwhelming numbers rather than savvy tactics. Difficulty levels in this context would be very much welcome. It’s so easy to trick or lose Eternalists. At least it can be hilarious!

For the most part, Deathloop avoids the deathtrap of most time loop games: Repetition. That is until the endgame, when there’s little else to figure out or discover. When the targets are all lined up. There’s really only one way to finish the game properly. So it comes down to execution. It’s demoralizing to be invaded or make one mistake busting that final run. Losing time towards the finale is what hurts most, not materials or upgrades because the player is swimming in them by that point.

Arkane shows its more level-based roots here in guiding toward the optimal run, less akin to moving chess pieces on a board and more like finally seeing the solution in a board game with a predefined path. No matter what one has done before, conforming to the “right way” is the only option. Which is why I consider Deathloop to be ultimately a linear narrative jumbled up to make it seem otherwise, which is excellent during the discovery phase then traditional once the picture clears up.

I will say its final gauntlet of ripping through the Visionaries was admittedly intense the first time I did it. Like a boss rush. It was amplified because Julianna showed up at night during the last push. I wonder if the game’s programmed to do that. If so, kudos to the team for ramping up that adrenaline. Subsequent tries are much less so, because the player already knows what to do. It’s the problem of knowing a solution before being able to finish a puzzle, leading to an anticlimactic situation.

Quality of life features and various options are a mixed bag. The tutorial menu is exceptional. All of the game’s mechanics and systems are organized in a single spot, which is convenient. Heads-up display has a ton of flexibility. There’s not much in the way of dedicated accessibility options beyond text size. No colorblind considerations or detailed controller mapping. There’s no actual map or waypoint system, which could be helpful even considering all the hand-holding it does documenting everything the player finds. Plus there’s no photo mode, for those that might be curious.

Visual options on console are more varied. All of them have dynamic 4K scaling. One mode favors resolution, a second is where performance prioritizes a steady 60 frames-per-second then a raytracing mode. Naturally I played in performance mode, which was flawless. I have read about certain challenges on PC, which Arkane is addressing.

Sad to report I did experience certain technical issues on PlayStation 5. The game hard-crashed twice, causing me to lose progress since it saves only at the start of a given area. I had one instance where the menu overlay froze and wouldn’t leave the user interface, making the game unplayable without restarting. The most weird of all was on the controller side, losing control of the character, dropping inputs and not being responsive. I’ve never had that happen with any other PlayStation 5 game since its launch. I even updated the game pad to the latest software, it continued to happen occasionally.

Ultimately Deathloop feels like the foundation of an incredible game most notably in its structure, systems and level design. Its style is impeccable, which only carries it so far.

Here’s the toughest part of Deathloop. Maybe this is personal, though I bet I’m not the only one. It can be tiring playing a game where you have to be “on” all the time. When everything is out to kill you. It would be ideal if there were ways to guard against being seen. If cosmetics actually acted as disguises or deception came into play. Maybe more eavesdropping and investigation. Learning information by pretending to be an Eternalist. Using a mask to mingle at Alex’s party then isolate a target. The “sneak around until caught then murder anything that moves” mentality is much more basic than comparable assassin simulators like Hitman. It can feel just as badass to execute a clinical misdirection, and it’s often more efficient.

To act within the constraints of Deathloop takes a lot of experimentation, patience and time. One early tool-tip pops up to say “don’t just shoot everything.” Once Colt is powered up, it’s quite literally a feasible option, if not the best path, to do exactly that. Why slow and steady when there’s a much more effective strategy? There can be fun in experimentation I guess, though is that a good enough motivator for most players? Not those like me.

Up until this point, I haven’t included much about its narrative. It’s tricky to avoid spoilers in the context of a time loop game, and honestly the story isn’t anywhere near a highlight. There’s random tidbits of history and lore told via collectibles. Julianna drip-feeds certain points of Colt’s past during dialogue. I think the story itself is less important than the manner in which it’s told here. There’s also the ending, of which there are multiple versions, all of which are disappointing and ambiguous. I’m alright with open-ended conclusions. This just isn’t a partially good one of those.

Ultimately Deathloop feels like the foundation of an incredible game most notably in its structure, systems and level design. Its style is impeccable, which only carries it so far. It’s truly a more constrained, even linear experience disguised as something with more options and possibilities. Story is jumbled by its nature then even when it’s mapped out, it’s mostly middling.

It claims to offer a lot, then limits how the player uses its tools. This makes it tricky to describe Deathloop at its core. First person action? Puzzle murder sim? Run-based shooter? Semi-sandbox stealth? If this were a test, the only answer would be “it wants to be all of the above which means it ends up being something else.”

Some of these make it amazing. It’s a heck of a lot of fun in the heat of battle, hip-firing shotguns and clearing baddies on the way to a boss room. Then slows to a snooze, walking the same looking rooms for crumpled papers or recorded logs. There’s rewarding side content, then optional exploration that just isn’t worthwhile except for the most diehard of lore fanatics.

It’s a conundrum. In some ways more ambitious than predecessors in Arkane’s heritage, yet the result is just as focused. Jumbling the timeline is a clever presentation style. Like a murderous Memento or even more bloody Pulp Fiction. The journey of getting there is where true genius is revealed, because the final revelation is much more pedestrian than it could have been.

It’s presented as having freedom and creativity mixed within a loop concept. It ends up being closer to a linear shooter campaign with a handful of powers and select hacking capabilities all jumbled up a la Source Code, where the goal is to figure out how to execute the right outcome rather than an outcome of one’s choosing. There’s fun in getting there, it’s a fantastic game. There’s just a handful of elements that miss the mark, enough not to dub it a masterpiece.

Title: Deathloop

Release Date: September 14th, 2021

Developer: Arkane Lyon

Publisher: Bethesda Softworks

Platforms: PlayStation 5 (Timed Console Exclusive), PC.

Recommendation: It’s an odd one from a platform standpoint, the rare PlayStation 5 console exclusive published by a company now owned by Microsoft. Deathloop itself is up there with Arkane’s prior releases, especially better on the action side. Definitely a must-play for PS5 and PC owners specifically those that prefer shooters as opposed to pure stealth games. Don’t expect it to say much thematically or in the way of a riveting narrative. It’s purely a fun time figuring out puzzles, select side content and blasting through maps full of enemy fodder. Worth it!

Sources: Bethesda Softworks.

-Dom