Sony may not have shown up for Gamescom this year, but the company still managed to dominate headlines from the show – although it might have preferred not to.
The announcement that the PS5’s price will be increasing in most global markets was pushed out as a post on the PlayStation blog earlier this week; Sony may have been hoping that news from Gamescom would soften the impact a little, compared with dropping this kind of news in one of the summer’s more empty weeks. I’m not sure it worked; there’s not much anyone wants to talk about this week other than price hikes.
So let’s talk about price hikes – not just Sony’s price hike, but the broader question of the upward pressures on the industry’s pricing, which has been brought into pretty sharp focus by Sony’s decision. There’s plenty of upset going around in consumer circles about the PS5 price increase, along with some gallows humour about how it barely makes a difference to those consumers who can’t find a PS5 to buy in the first place – but this isn’t the first price rise we’ve seen in recent months, and it’s highly unlikely to be the last.
In fact, the scale of the PS5 price hike is markedly lower than the 25% increase in the price of Meta’s Quest 2 headset last month. That 25% bump to the price tag of an already expensive piece of hardware is thankfully likely to remain an outlier, but the general trend of price increases is only getting started, and more modest rises are likely to be seen across the board.
While consumers may decry corporate greed, the reality is that this is being driven by inflation that has dramatically increased costs up and down the supply chain; certainly, there are some companies within those supply chains who are taking advantage of the broader inflationary climate to sneak in some profit margin increases, but it’s generally not the game companies at the consumer-facing end of the chain who are doing so.
The comments from Internet wags about the PS5 price hike being irrelevant to consumers who can’t find a console anyway are largely intended in jest, but there’s a serious undercurrent to them as well
Inflation isn’t the only factor either. The fact that the United States isn’t seeing a PS5 price jump despite inflationary pressures also reveals the extent to which the unsettled currency markets are to blame. The strong dollar is effectively hedging against inflationary pressure for US consumers, while the relative weakness of currencies like the Euro and the Yen pushes additional costs onto consumers in those regions.
Some of those worst-hit consumers are in more marginal markets with currently weak currencies, like Australia and New Zealand, where gaming hardware and software has almost always been more expensive than in more central markets like the USA.
There’s no single factor to blame for the cost rises now being passed on to consumers, and almost all of it has to do with the macro economy, far above the heads of decision makers in gaming hardware and software companies. Inflationary pressures are high in all manner of areas both directly and tangentially related to the games business, and those pressures show little sign of ebbing in the coming months.
The comments from Internet wags about the PS5 price hike being irrelevant to consumers who can’t find a console anyway are largely intended in jest, but there’s a serious undercurrent to them as well. The fact that scalpers are still able to command a price premium for scarce stock of the console means that Sony’s price hike will likely be absorbed by the market without any significant impact on the sales curve for the device, at least at first.
If Sony is lucky, by the time supply starts to consistently meet demand, inflation will have come under control and a price cut will be possible, bringing the console back to its original RRP or even below, and avoiding a situation where the PS5 ends up notably overpriced compared to its closest rival, the Xbox Series X.
Hardware price rises are a big deal for consumers who are in the market for new consoles or other devices, but they also have knock-on effects across the industry
It’s equally likely, however, that the PS5 price hike will by then have been more or less lost within a huge number of similar cost increases across this industry and adjacent industries that ultimately result in higher consumer prices across the board.
Not all price increases will necessarily come in the form of direct price tag mark-ups for existing products. Many consumer electronic companies are taking a slightly more subtle approach, keeping the price of existing products stable while launching new devices or updated versions at higher price points – thus moving their overall pricing structure to a higher level without having to take the unpopular step of actually bumping the price of an existing product.
That option isn’t realistic for Sony, which is unlikely to have revised PS5 hardware on the market for another year or two at least. Similarly, it may not be realistic for Microsoft, whose initial plans to regularly update the Xbox Series hardware with minor revisions and speed bumps seem to have fallen largely by the wayside.
Nintendo, on the other hand, may well have a new Switch revision close enough in the pipeline to shunt off its inflationary price rises onto that new hardware launch, rather than bumping the price of existing models – although of the three console platform holders, Nintendo has in the past been among the least resistant to preserving its margins by bumping local prices in response to currency fluctuations.
Hardware price rises are a big deal for consumers who are in the market for new consoles or other devices, but they also have knock-on effects across the industry. In theory, at least, they reduce the addressable market for the wider industry, especially when they come at a time when household incomes are being squeezed on many other fronts as well.
A more expensive device, be it a console, a smart device, or a graphics card, is correspondingly more likely to drop off the bottom of a budget list for a household that’s recalculating what it can afford. Arguably a bigger impact on the broader industry, however, would come from a software price hike – and there are lots of signals to suggest that price rises for software are likely soon.
This shouldn’t come as a shock, though it will undoubtedly by an unpleasant surprise for many consumers. Software is subject to many of the same inflationary pressures as hardware, along with a steady and ongoing rise in the cost of development as games become more complex and technically demanding.
On the other side of that equation, most game software is actually being sold at a historically low price in real terms – occasional $10 price hikes at the launch of new console generations have not even tracked with inflation in recent decades.
If companies feel that they can’t raise prices to cover inflation, they will instead turn to more aggressive post-sale monetisation strategies
To some degree, upward pressures on software pricing during those decades have been covered by increasing complexity in the structure of pricing rather than by headline price rises; games are now sold at a much wider variety of price points, with season passes and digital special editions becoming standard for higher-end releases, and bolt-on business models like microtransactions helping to bridge some of the revenue gap. In the fast of abrupt inflationary pressure, though, that strategy may not be enough – price rises on the top line are likely, and it would be unsurprising to see them start happening even for this Christmas’ major releases.
There will undoubtedly be anger from consumers over software price rises, even more so than for hardware price hikes (for consumers who already own consoles and advanced graphics cards, after all, hardware price rises mean little), and especially given the pressure on their own budgets at the moment.
This anger will be redoubled in hard-hit markets like Australia and Europe, where price rises have outstripped other parts of the world. The alternative, however, may be even less palatable; if companies feel that they can’t raise prices to cover inflation, they will instead turn to more aggressive post-sale monetisation strategies, likely marking a return for unpopular approaches like day one DLC content.
There’s no good solution here that will make everyone happy – costs are spiking even as consumers’ income is squeezed. The money has to come from somewhere, meaning that the best hope is that whatever unpopular solution companies decide upon, it’s one that minimises the pain and protects the industry’s future growth prospects as much as possible.