After the PS5 price hike, will Xbox and Switch also raise prices?
Sony made the unexpected announcement on Thursday that it would raise prices for the PlayStation 5, effective immediately, in Europe, the UK, Canada, Australia, China and other markets around the world. In total, the PS5 is getting around 10% more expensive in around 45 markets outside of the US, which aren’t experiencing any price adjustments. In light of the PS5’s price hike, should we expect Nintendo and Microsoft, who are facing similar pricing pressures, to raise their prices as well?
Starting with Sony’s PS5 price hike, the decision shocked some, but it wasn’t entirely unexpected. In late July, as part of Sony’s latest earnings briefing, the company did not rule out a price hike for the PS5, leading some to speculate that it would only be a matter of time before Sony does not increase prices. Adding credence to the speculation is the fact that Sony also raised prices for headphones, speakers and cameras earlier this year (in Japan, at least).
Console prices historically drop over time as component prices fall and logistical factors are streamlined. Things are different in 2022, however, due to supply chain issues, component costs, and shipping issues. Piers Harding-Rolls of Ampere Analysis said in a note that inflation and general component price increases in the supply chain, as well as distribution costs that remain high, have all contributed to the increase in PS5 price.
Sony could absorb these costs or pass them on to the consumer. He chose the latter. “Sony has now had to pass on some of these cost increases to try to maintain its hardware profitability targets,” Harding-Rolls said.
The selling price of the PS5 is not increasing in the United States, which is the world’s largest market for consoles, due to the continued strength of the US dollar, Harding-Rolls said.
PlayStation boss Jim Ryan said the PS5 price increase was a “necessity given the current global economic environment and its impact on SIE’s business”. Raising the price of the PlayStation console, instead of lowering it, is not uncharted territory for Sony. Some may recall that in 2014, Sony raised the price of the PS4 in Canada by CA$50 due to “the changing market environment”.
As for other companies, Meta has announced that they are increasing the price of the Meta Quest 2 by $100 due to similar component and shipping issues.
For its part, Nintendo’s management has made it clear Won’t do raise the price of the Switch, which has sold over 100 million units since its release in 2017. To help mitigate costs, however, Nintendo is reducing the package size of the Switch. “Our competition is the variety of entertainment in the world, and we always think about pricing based on the value of the fun we provide,” said Nintendo President Shuntaro Furukawa.
As for Microsoft, the company has confirmed this Won’t do raise Xbox prices following Sony’s announcement. Harding-Rolls, the Ampere Analysis analyst, said he thinks Microsoft will likely leverage the PS5 price increase to highlight the value of the Xbox Series S. The console costs $300, which has always been cheaper than the PS5, but the gap is now even bigger in markets outside of the US.
Microsoft could also do more to publicize its other “value” focused offerings in the wake of the PS5 price hike. That could include pushing its all-you-can-eat game subscription program, Game Pass, and Xbox All-Access, which is a subsidized smartphone-like plan that lets you get an Xbox for $0 up front, then pay over time (assuming you pass a credit check).
We reached out to Microsoft to ask about possible price increases for Xbox. Matthew Kanterman of Ball Metaverse Research suggested on Twitter that Game Pass allows Microsoft to ride out the storm of component issues and shipping issues in a way that Sony might not be able to.
“If only [Sony] had a compelling subscription offer that allowed for a high degree of user monetization after the device was sold so that they didn’t have to dynamically adjust hardware prices in the face of volatility in currencies, commodities, shipping and labor…” he said of Sony’s decision to raise prices for the PS5.
The PS5 price hike may have only a “minimal” impact on sales, according to Harding-Rolls. Part of the reason is that the PS5 remains very limited in terms of supply, NPD analyst Mat Piscatella mentioned.
“Supply is still limited, so I won’t see any potential impact on demand for some time,” he said. “But theoretically, at some point markets won’t be constrained anymore. Then things will get interesting.”
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