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Opinion Business Sony “Blew it With the PS5 Digital Edition,” Says Analyst Michael Pachter

vaibhavpisal

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Jun 10, 2019
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He didn't say what they should've done instead.

Stark departure from usual confidently wrong Patcher.
 

pullcounter

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Mar 19, 2015
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Would be really awesome if you could plug in a USB Bluray drive lol (obviously you cant, but it would be neat)
 

KiNeMz

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Aug 6, 2019
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Why is this guy still relevant.


Has anyone seen the BOM?


I want the DE and I can't find it. Based of the poll in GAF they probably produced a safe ratio to make sure they sold. So how much did they really lose?

Fuck swapping discs.
 

Goncas2

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Apr 12, 2020
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Uhmmm... wrong? Sony doesn't just make $6 per digital game, Sony makes $6 *more* per digital game. In fact, Sony will make $21 for a 3rd party game, $70 for a first party game.
A gamer that buys Miles Morales and Cyberpunk at launch, immediately recoups the losses to Sony.
 
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Hunnybun

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I think the digital edition is kind of a bad option. Like the Series S is:
-way smaller
-£200 cheaper
like I can see that being super popular with people who just wanna play Fortnite and Fifa and stuff, and its so small you could just set it under your TV in your room really easy. It's also good as like a nice entry level, if you don't have much money but want a next-gen machine. And a Series S + Game Pass, that's a killer deal.
The PS5 Digital though is:
-barely noticably smaller
-£90 cheaper
At that point why buy the digital? You'd make £90 back by buying physical games so quickly, especially because Sony's digital games system doesn't have like a Game Pass alternative, so you're still going to be shelling out fucking loads for games.

Series X vs PS5 Disc is pretty tight competition, but Series S vs PS5 Digital for me is just a total sweep on Microsoft's part.

Personally I bought the DE cos I tend to play loads of different games at once and I'm too lazy to swap discs. Since I started buying digital games in 2016 I've only bought one physical disc, and that was purely down to the huge price difference on a particular game. And I've bought a couple of dozen games in that time.

With the SSD I'd be even more inclined to swap games frequently. So the reality is that I'm just not gonna be interested in physical games for this thing. Figured in that case I may as well save the £90.

The rise to £70 does concern me, but hopefully the sales will be even more substantial to compensate. I figure they have to be, really.
 

Tekkie

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May 18, 2013
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You're talking about early adopters here, they will buy enough games to cover the costs. By the time the early adopter phase is over, the parts to make the PS5 will probably be under what Sony sells the console for. They had to counter the Series S in some form so I don't think it was bad business.
 

Allandor

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Feb 8, 2018
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On average each PS4 owner gets 10 games during it's life cycle. I've got like 150 games so I'm covering for 15 people.
Only if you paid full price for those 150 games.

Problem is, even PS5 with disc drive seems to be subsidized. And somehow all the costs for the development of the new hardware must be paid, too. So I would guess, that you must even buy more than 10 games.
btw, there is a 10€/$ price difference between PS5 & xbox games. It just seems like sony also upped the license costs for their games. Else at least multiplatform games could cost the same.
 

Hunnybun

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Uhmmm... wrong? Sony doesn't just make $6 per digital game, Sony makes $6 *more* per digital game. In fact, Sony will make $21 for a 3rd party game, $70 for a first party game.
A gamer that buys Miles Morales and Cyberpunk at launch, immediately recoups the losses to Sony.

He's saying that if Sony start out losing $40 more on the machine, but make $6 more per digital sale, then they have to sell 7 games to recoup the loss. Which is all sound.

The bit I think has to be wrong is the gain of $6 per game. It has to be way more than that. You've got the higher on average retail price (could be as much as $10 there I reckon), plus manufacture and shipping, plus retailer cut (I looked that up and the consensus seemed to be about 20%).

So for a $70 game the retailer's cut would be $14. Maybe $2 for making the thing and shipping it? Average higher retail price (I'll be strict and say $4) added on top, and you have extra profit per game of $20.

Now, maybe it's not that high, who knows. But I'm damn sure it's higher than $6.
 

Bojanglez

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Maybe, just maybe they wanted to have an attractive headline RRP to get consumer attention, knowing full well that many users would end up choosing the disc version because they prefer the option or Sony have constrained the supply of the digital edition in order to limit their losses.

I have been saying for ages that PlaysStation and Xbox are basically data analytics companies as much as anything nowadays, they know their market inside out and likely run models with various RRP values and at what point they will be breaking even and the cost of making a small loss on the initial sale.

They are seeing that all digital is becoming an increasing trend, people like me will buy all my games digitally and they will quickly make their money back off me within probably 3-6 months. I haven't chosen the digital edition to save money, I just like the look of it and have no interest in disc based media, I know a lot of other people are the same.

Finally Sony do not exist in a vacuum, they have to stay competitive with Xbox's Series S, at least enough to turn people's eyes if they are debating the two.
 

RaySoft

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Speaking to GamingBolt in a recent interview, Pachter said that given the cost of making a PS5, combined with the additional money Sony makes per every digital game sold, they are still taking a loss on each PS5 Digital Edition sold. Pachter says that the average consumer won’t buy the number of games that they’ll need to recoup the losses on a PS5 Digital Edition.

“I think Sony really blew it with that, because as far as we can tell, the cost of making a PlayStation 5 is $450, so they are breaking even on the $500 version, but losing $40 or so on the digital version,” he said. “A disc drive isn’t worth that much. So they’re losing $40, but they gain $6 more per digital game than they would gain otherwise. So you would have to buy a lot of games to cover up the loss, and I just think it’s unlikely many will buy that many games.”

The analyst went on to say that most consumers will still end up purchasing the main PS5 SKU with a disc drive in order to have that option, before adding that Sony will likely make and sell fewer digital consoles.

“I actually don’t think many consumers will want to save the money, I think most would rather have the disc drive on hand so they have the option to take their game to their friend’s house or trade it in or whatever,” Pachter said. “So I think they blew it with the Digital Edition, but it’s hard to tell early numbers, because it’s all sold out anyway, and we don’t know how many of each they made. But I think over the long run, they’ll sell and make fewer digital editions.”
I don't see the problem, or his case for that matter. Does he even factor in that throughout the consoles lifecycle, Sony will profit from each unit sold? Costs associated with manufacturing, will drop faster than the customer price for both systems. This is just him trying to feel relevant... again.
 

Clear

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Feb 2, 2009
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A PS5 DE is a doorstop without digital purchases. They take an initial loss for what amounts to a captive audience for the lifetime of the hardware. Seems like a solid plan to me.
 

Hunnybun

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I wonder if people are looking at the pricing from the wrong end of the telescope, as it were.

$499 at break even never seemed like that intuitive a price point to me, given that consoles have traditionally retailed at a $50-100 loss. Why would it be different this time? Especially with the increasingly lucrative digital market having taken off? Platform holder returns are better than ever, so it stands to reason that a higher loss on the hardware would be acceptable.

It looks more like they've come to a rational price point of $399 for the DE, accepting a loss of around $50 on that. Then they've figured they're going to penalise people for continuing to go physical by charging more for the normal edition, and have accrued an extra $80 return on those in order to offset the loss of digital games sales.
 

Rudius

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The difference between the money Sony makes from a digital vs physical copy is probably much more than 6 dollars, specially for first party games. It's not just the cut of the retailers that they get to keep (split with the third party companies), but also the cost associated with production and distribution of discs.

Also, in the digital market you can't buy used games, so the number of copies sold to each digital consumer should, on average, be greater.
 

wd40

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Oct 5, 2020
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Personally I bought the DE cos I tend to play loads of different games at once and I'm too lazy to swap discs. Since I started buying digital games in 2016 I've only bought one physical disc, and that was purely down to the huge price difference on a particular game. And I've bought a couple of dozen games in that time.

With the SSD I'd be even more inclined to swap games frequently. So the reality is that I'm just not gonna be interested in physical games for this thing. Figured in that case I may as well save the £90.

The rise to £70 does concern me, but hopefully the sales will be even more substantial to compensate. I figure they have to be, really.
Yeah if you like digital games I get it, but games are gonnae get pricey on the store. The price hike from $60 to $70 was already bad, but over here games are £50, and they went up 40% price hike up to £70, so I'm really skeptical of digital only machines now, because second-hand is often so much cheaper than the digital version later on down the line.
 

Hunnybun

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Yeah if you like digital games I get it, but games are gonnae get pricey on the store. The price hike from $60 to $70 was already bad, but over here games are £50, and they went up 40% price hike up to £70, so I'm really skeptical of digital only machines now, because second-hand is often so much cheaper than the digital version later on down the line.

I'm in the UK too and I was really shocked by the rise to £70. It's definitely a concern.

Personally I doubt it's sustainable. If they had to aggressively discount games from £50 just to keep them selling, they're surely going to have to do the same at £70.

They're not stupid, there's no point having a high price point and zero sales.
 

wd40

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Oct 5, 2020
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I'm in the UK too and I was really shocked by the rise to £70. It's definitely a concern.

Personally I doubt it's sustainable. If they had to aggressively discount games from £50 just to keep them selling, they're surely going to have to do the same at £70.

They're not stupid, there's no point having a high price point and zero sales.

Thats true, it'll have to come down at some point, but I feel the price will be way more fixed on digital
 
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That $6 figure makes zero sense. In Europe I can buy new physical games for at least 20€ cheaper than Sony's digital store. The physical game even includes the store's cut!
 
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chonga

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"So they’re losing $40, but they gain $6 more per digital game than they would gain otherwise. So you would have to buy a lot of games to cover up the loss, and I just think it’s unlikely many will buy that many games.”

Does an "average consumer" only buy 5 games across the whole generation? And how did he calculate the effect of not being able to buy used games at all for this SKU, exactly?
You have to look at it not in terms of games sold per console but rather games being sold digitally that would otherwise be purchased physically.

That is where the extra revenue comes from and that's where you hope to make up for the subsidised price.

For that you're going to have to know a rough idea of how many people you hope to convert to the digital console and what their current digital/physical split is like but we can only make guesses at those figures.

We know that overall the split is currently about 50/50, but I would wager that people buying digital consoles are already heavily skewed towards digital. I don't think you are going to see many 50/50 purchasers moving over.

And so if you consider people who might buy a digital console already buy say 70 or 80% of their games digitally you are only going to be converting, based on current tie ratios, about 4 or 5 game sales to digital. That isn't enough to bridge the price difference between the two consoles, meaning that you've subsidised a console for no reason. In other words you would have gained more revenue from that user if the digital edition didn't exist and they purchased the disc version and still bought 20-30% of their games physically.

There are other factors at play, but from a pure revenue from games sold perspective that's what you need to be looking at.
 

Roufianos

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Honestly, 90% of posts on this forum are more insightful than whatever that shit was meant to mean.
 

Gediminas

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how they blew it? they basically made xbox de DOA. and with all console sold out, they going to get back those losses in no time.

and i do agree, patcher is wrong 99% of the time, unless he is stating most obvious things.
 

Pedro Motta

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May 19, 2020
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Only if you paid full price for those 150 games.

Problem is, even PS5 with disc drive seems to be subsidized. And somehow all the costs for the development of the new hardware must be paid, too. So I would guess, that you must even buy more than 10 games.
btw, there is a 10€/$ price difference between PS5 & xbox games. It just seems like sony also upped the license costs for their games. Else at least multiplatform games could cost the same.

Wow, you're so worried about other people's business practices. They make way more money than you so don't worry.
 

chonga

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That figure of $6 more profit on a digital sale HAS to be wrong, I don't believe it.

I'd say the average digital RETAIL price is at least $6 higher than in a store, and that's BEFORE you account for the retailer's cut and the costs of making the physical units and getting them to market.

You're probably looking at double $6 as extra profit with everything factored in.
When you look at various breakdowns of where your money goes on physical game sales (and yes I know the price is going up...) you get estimates of about $7-10 going to the platform holder.

We know the typically digital stores take a 30% cut. So for a full price title that would be $18. So that's $8-11 extra.

However, keep in mind that not all digital sales are funded by funds that were bought at face value. Which sounds confusing, but what I mean by that is if you purchase a $100 PSN card from Amazon then Amazon is taking a cut on that. Sony adds $100 to your balance but it doesn't get $100 from Amazon. Hence the likes of CDkeys etc can sell you funds for below their face value.

In addition the digital delivery is a cost bestowed upon the platform holder (servers, bandwidth etc) whereas in a physical setting that cost is carried by the publisher.

With that in mind you can now see how a $6 figure isn't that crazy.
 

DeafTourette

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Is this dude EVER right? I'm pretty sure he was wrong on the Nintendo Switch predictions, too.
 

Zimmy68

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How can someone make weak, low hanging fruit proclamation and not back it up with a, "here is what they should have done..."
Is the next article going to be Prachter thinks Xbox Series X blew it with the square shape, and that is all I will say about it.
 

chonga

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Only if you paid full price for those 150 games.

Problem is, even PS5 with disc drive seems to be subsidized. And somehow all the costs for the development of the new hardware must be paid, too. So I would guess, that you must even buy more than 10 games.
btw, there is a 10€/$ price difference between PS5 & xbox games. It just seems like sony also upped the license costs for their games. Else at least multiplatform games could cost the same.
A $10 difference between PS5 and Xbox Series games? Where? Show us where these differences in MSRP for multiplat titles exist.
 

RoadHazard

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I think the digital edition is kind of a bad option. Like the Series S is:
-way smaller
-£200 cheaper
like I can see that being super popular with people who just wanna play Fortnite and Fifa and stuff, and its so small you could just set it under your TV in your room really easy. It's also good as like a nice entry level, if you don't have much money but want a next-gen machine. And a Series S + Game Pass, that's a killer deal.
The PS5 Digital though is:
-barely noticably smaller
-£90 cheaper
At that point why buy the digital? You'd make £90 back by buying physical games so quickly, especially because Sony's digital games system doesn't have like a Game Pass alternative, so you're still going to be shelling out fucking loads for games.

Series X vs PS5 Disc is pretty tight competition, but Series S vs PS5 Digital for me is just a total sweep on Microsoft's part.

Or:

For just $100 more you can get a no-compromise next-gen console instead of a nerfed 1080p machine.

To me the PS5 DE is so obviously a better value than the XSS.
 
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Birdo

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A reminder that this guy was famous for being constantly wrong about everything when he was on Gametrailers.

He's wrong about this too.
 

Bo_Hazem

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Speaking to GamingBolt in a recent interview, Pachter said that given the cost of making a PS5, combined with the additional money Sony makes per every digital game sold, they are still taking a loss on each PS5 Digital Edition sold. Pachter says that the average consumer won’t buy the number of games that they’ll need to recoup the losses on a PS5 Digital Edition.

“I think Sony really blew it with that, because as far as we can tell, the cost of making a PlayStation 5 is $450, so they are breaking even on the $500 version, but losing $40 or so on the digital version,” he said. “A disc drive isn’t worth that much. So they’re losing $40, but they gain $6 more per digital game than they would gain otherwise. So you would have to buy a lot of games to cover up the loss, and I just think it’s unlikely many will buy that many games.”

The analyst went on to say that most consumers will still end up purchasing the main PS5 SKU with a disc drive in order to have that option, before adding that Sony will likely make and sell fewer digital consoles.

“I actually don’t think many consumers will want to save the money, I think most would rather have the disc drive on hand so they have the option to take their game to their friend’s house or trade it in or whatever,” Pachter said. “So I think they blew it with the Digital Edition, but it’s hard to tell early numbers, because it’s all sold out anyway, and we don’t know how many of each they made. But I think over the long run, they’ll sell and make fewer digital editions.”

And it's sold out... Which console isn't?
 

RayHell

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Jan 11, 2020
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Good thing Sony never hired this guy as a consultant.

He doesn't consider DE owner will never buy used games, rent a game or borrow a game. Even Sony doesn't have real data history on digital only owner spending. It's a guestimate for now.

500$ only console could turn out to be a lost because some people could have switch to XSX were Sony only make 9.50$ per console (Blu-ray license).

Also have an edge on global sales attract more studios. Adding value to the ecosystem and increasing sales.
 

7DeadleeScenes

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They blew it because they are selling it for a loss? I'm not following the logic of his argument
Meaning that a digital version was not needed. Most would buy the disc version anyways and the demand for the ps5 is there. So having a digital version does not make sense. Thats how i see it.
 

theddub

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I also thought that Sony would be taking too big a loss on the ps5.

Now that Patcher is saying the same, I don't believe that anymore.
 
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Darklor01

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Jan 28, 2012
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Pachter should refrain from drinking before he writes. If Sony earns more on direct digital sales than disc, the gap between a higher priced console with discs and a lower priced one pure digital isn't as large as he makes it out to be. Then, there's the point everyone is mentioning that he doesn't seem to think over the course of the generation the average user will buy enough games to make up for the loss? On a $399.99 (U.S.) console? HAHAHAHA. FFS. He's really desperate for clicks and attn.
 

CAB_Life

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The DE exists for a ”starting at $399 tag” and nothing more. Whether Sony can eat that cost or not is an irrelevant mental circlejerk, since they’ve obviously decided that they can and will. DEs seem to be in shorter supply, too, so they’ll have better margins from the better supplied and more bought model anyhow.
 

Hudo

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Did he include that every (new) buyer of a PS5 DE will inevitably be locked into Sony's ecosystem and therefore are basically long-term spenders?
 

Tmack

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PS5DE is shipping in smaller quantities. Probably to control losses. Probably due to reduced demand.

Hard to tell if the former or later.

In countries where the PS5 didn`t outsold imediately, the Digital Edition sold out much sooner than the regular ps5.
 

iHaunter

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Kinda true though. When I preordered my PS5 only the digital version was available. The disc drive was already sold out.
It literally sold out 5 minutes later. His entire argument defeats itself.