Where is sony losing money

In its third-quarter report, Sony said its "strategic price points" for the PS5 were lower than its manufacturing costs. That news might seem troubling for Sony, since the PS5 is often cited as a major catalyst for its long-term growth.

However, I'll explain why investors shouldn't fret over these short-term losses. Companies usually sell their consoles at razor-thin margins to remain competitive, maintain their market share, and attract more developers. But after factoring in marketing costs and other expenses, both companies probably still lost money on each console. Console makers usually offset their hardware losses with software sales. Sony and Microsoft both publish first-party games and distribute them on their own digital download platforms, which allows them to retain the publisher, retailer, and platform operator revenue.

They also retain nearly a third of the revenue from third-party games sold on their digital stores. Therefore, Sony and Microsoft only need each gamer to buy a few games to offset their initial hardware losses. That's why Sony is willing to take a steeper loss on each PS5 Digital Edition -- which it can easily recoup by selling more digital games.

Meanwhile, manufacturing costs for consoles generally decline each year, which makes it easier to lower the price of the original console, launch cheaper versions, or sell more powerful versions at similar prices. It attributed that growth to higher software sales and robust demand for the PS5.

It noted that robust software sales, higher service revenue from PS Plus, and higher profit margins from its PS4 hardware all offset the PS5's launch costs and initial losses. Those strengths should all easily offset Sony's initial hardware losses for the PS5.

Sony also said it has been difficult to meet demand due to ongoing semiconductor shortages and that the company will do everything it can to ship more hardware. This site may earn affiliate commissions from the links on this page.

Terms of use. This newsletter may contain advertising, deals, or affiliate links. That's right, the PS5 is actually loss-making for the company. But given the cost of games and the fact its console is still hard to find in stores the new Xbox isn't much easier to find , not to mention the ongoing pandemic, we don't imagine Sony will be too disappointed with its performance. It's all about the accessories — Despite recording a loss on each of the 4. According to Sony, the deficit incurred from its next-gen console sales is more than made up for with the games and add-on content markets for both the PS4 and PS5, coupled with the discounted sales for the previous generation PlayStation 4 console.

Sony has used this strategy before — This isn't the first time the company has decided to price its consoles around or below the break-even point.