In November, Sony followed Nintendo's lead and launched the PS5 exclusively in Japan, selling for significantly less than the recommended price in other parts of the world. Early sales reports suggest that the gambit appears to have been a success, with PS5 shipments in the country quadrupling in its first week of launch. Gamesindustry.biz portal speakWhat does this mean for the rest of the world?
While consumers may be justifiably concerned that Sony's decision could imply the return of region-restricted consoles, the truth is that the reason why Sony and Nintendo are releasing exclusive versions of their platforms specifically for Japan is quite simple. The problem is the economic situation in the country.
The decline in the value of the Japanese yen has caused international prices for things like consumer electronics to rise to unbelievable levels. At the same time, concerns about the affordability of even domestically produced goods amid stagnant wage growth in many sectors have made many people more price sensitive. And for luxury items like PlayStation or Switch, it's a great combination.
National pride also plays a role; Japanese companies clearly do not want their products to become too expensive for the domestic market. But for Nintendo, such a strategy is inevitable: Japan remains an important and huge market for the company's products. But Sony's sales in Japan peaked during the PS2 era and now account for only a small portion of the global market.
Given this context, it is reasonable to ask why the math doesn't add up similarly in other markets. The affordability problem is hardly unique to Japan, and while some countries are handling current economic circumstances better than others, consumers around the world are suffering from price inflation. The yen's depreciation is a characteristic factor for Japan, but it is unlikely to improve in the near future. This means companies like Sony will likely adopt a long-term strategy with cheaper Japanese products.
In theory, consoles are sold on a “razor and blade” model; The devices themselves are sold at a loss, and profits come from game sales. While this model has been tested for durability in recent years, Japan's production of low-cost models is a clear signal that Nintendo and Sony intend to adhere to this policy.
No one has exact numbers, but the PS5 and Switch 2 in Japan are likely being sold at deep discounts compared to production costs. And platform holders, even if their decisions are the result of economic pressure, can be confident that they will still make a profit through a percentage of game sales, subscriptions, and other monetization streams.
So why does something like this only happen in Japan? If the model works there, why can't it be tried in other regions to grow the user base? Significant price cuts may not be justified everywhere, but Japan's latest move raises questions about how companies can justify increasing console prices over the past few years.
One of the reasons why platform owners do not use aggressive pricing policies across the board could be the unstable prices of key console components. A few years ago, cryptocurrency mining caused video card prices to skyrocket; Now is the time for high-speed RAM and SSD chips for AI data centers. As a result, RAM prices doubled, tripled, sometimes even quadrupled within just a few weeks.
For anyone looking to build a new PC right now, this is a headache. But for console makers trying to find competitive prices for millions of units, the headache has turned into a nightmare. Although Sony purchases these components in sufficient quantities to have some influence on prices, even such a large corporation can be subject to long-term price fluctuations.
Avoiding such risks will certainly motivate Sony and other manufacturers to stick to a cautious strategy and not tempt fate again. But the fact remains that consoles are becoming too expensive and over time they are only getting more expensive, not cheaper like before. Previous market dynamics no longer exist. Not only that, the family game genre, the popular casual game on PS2 and Wii, has faded away on consoles and moved to the mobile platform segment.
This situation makes us think about an important question: what is the general role of a platform holder in the gaming industry? A few generations ago, the answer was clear. Holders are important links in the food chain because they are the companies willing to take significant financial risks to create platforms and create new markets. By doing so, they take on the responsibility of developing a niche market for other publishers and developers, which is rewarded through a healthy share of profits from third-party game sales.
Japanese consumers' price sensitivity is relatively high but not unique; it simply serves as a marker for trends that exist in markets around the world. If Nintendo and Sony are willing to commit to developing the Japanese market exclusively at great risk, there's no reason why the same approach couldn't be replicated in other regions.
