Sony Q3 FY3/2024 Financial Results (Oct- Dec 2023) | GN&S sales up by 16% YoY, OI down by 26%; PS5 HW at 8,2m, SW at 89,7m, new forecast + SM2 at 10m

Sony Group Portal - FY2023 Q2 Earnings Announcement

www.sony.com

Q3 sales

Hardware - 8,2M (+15% YoY)
Software - 89,7M (+4% YoY)

Q1-Q3 Cumulative sales

Hardware - 16,4M (+28% YoY)
Software - 213,8M (+9% YoY)

Spider-Man 2 sold through 10m units by February 4th, 2024

New forecast:

Sales are expected to be lower than the November forecast, mainly due to an expected decrease in sales ofhardware resulting from lower unit sales, partially offset by the impact of foreign exchange rates and an expectedincrease in sales of non-first-party titles including add-on content. Operating income and Adjusted OIBDA areexpected to remain unchanged from the November forecast mainly due to the impact of the above-mentionedincrease in sales of non-first-party titles, substantially offset by an expected increase in losses from hardwaremainly due to promotions.

New Hardware forecast is 21M (-16% vs previous forecast), hardware sales expected to be at 4,6M in Q4.

Outlook for the next FY

 

[CaptainCrunch]

That doesn’t really prove anything. Indirect acquisition costs that is not capitalised under investment will impact P&L, but it will be nowhere near cited $3.6b acquisition cost in the financial report.

...I know? I told you it's only part of that $3.6b cost goes into P&L. Like retention bonuses, CEO bonuses, etc.

 

[BTB123]

Yes, but Nintendo absolutely tells us how much of the software revenue % is Nintendo 1st party.

This is not the full revenue of third parties, it's Nintendo's 30% third party royalty that makes up 20% of Nintendo's own revenue.

And you don't know how much digital only games sell on Switch. We know of several of them being million sellers.

 

[AstroB]

just fyi Nintendo and Sony report digital store revenue differently for third party. Nintendo only includes 30% revenue share. Sony includes 100% of third party software through PSN as revenue and the third party revenue to be paid out as a cost. So for the same amount of software revenue from a third party, Sony would show as having 2.5x the revenue

Furthermore, Nintendo reports Net Sales (Sales minus returns, allowances, discounts), while Sony reports Sales. Which makes the fundamental difference between the compared indicators even more significant.
It is indeed a big misconception. Sony Sales and Nintendo Net Sales incomparable on so many levels.

Nintendo:

Sony:

 

[HFbob]

Any reason to take this source (a youtuber?) seriously?

Still waiting for an answer to this question? Saying a random ytuber (does this person have any credibility?) says a Sony handheld is coming is problematic without any credible sources. You've also said Sony only lost 50million on the TLou gaas game (source?) and Helldivers is a billion dollar franchise (source?). Seems like you're just throwing shit at the wall and seeing what sticks.

 

[Danny]

And what of PSVR2? It seems to have already reached its demise.

Iwata's prediction years ago that inflated budget costs would catch up to gaming is coming to fruition (it has for a while actually but now it's at the forefront).

Sony is now essentially forced to either diminish the value of their console by porting games to PC with increasing speed and frequency, attempt risky new strategies like GaaS, and also find ways to discount and make the PS5 more enticing to purchase which will only further eat into profit margins.

PS5 is by no means a failure, but it's going to be a message that Sony needs to severely adjust their business practices moving forward. Their success has been consistent over the years but there is change in the air and they haven't really shown the forward thinking or ingenuity that I feel will be necessary while the industry is in such as state of flux.

Next gen will be interesting. Microsoft has already confirmed that their next system will go all in on power once again, and they can afford it easily. But it seems that Sony being much smaller than Microsoft will have a hard time to keep up with Microsoft next gen, they are already having problem with the PS5 costs.

Would it work for Sony to lose the power race vs the next Xbox? It seems Sony have conditioned their fanbase to only care about power, so releasing a clearly weaker PS6 vs whatever Microsoft is cooking up could spell a huge surge of Xbox market share vs PS6.

 

[CaptainCrunch]

Next gen will be interesting. Microsoft has already confirmed that their next system will go all in on power once again, and they can afford it easily. But it seems that Sony being much smaller than Microsoft will have a hard time to keep up with Microsoft next gen, they are already having problem with the PS5 costs.

Would it work for Sony to lose the power race vs the next Xbox? It seems Sony have conditioned their fanbase to only care about power, so releasing a clearly weaker PS6 vs whatever Microsoft is cooking up could spell a huge surge of Xbox market share vs PS6.

PS5 is weaker than XSX and nobody cares, where did you even get this idea?

 

[Danny]

PS5 is weaker than XSX and nobody cares, where did you even get this idea?

My point is that today even though XSX edges it the two consoles are basically even. But what happens if the next Xbox not just edges it against the PS6 but is noticably more powerful and more capable?

 

[Kowalski]

Would it work for Sony to lose the power race vs the next Xbox? It seems Sony have conditioned their fanbase to only care about power, so releasing a clearly weaker PS6 vs whatever Microsoft is cooking up could spell a huge surge of Xbox market share vs PS6.

How so? Out of five generations of PlayStation, only one generation was their console the most powerful on the market, and even in that one generation, Microsoft released the One X which was far more powerful than the PS4 Pro.

 

[Danny]

How so? Out of five generations of PlayStation, only one generation was their console the most powerful on the market, and even in that one generation, Microsoft released the One X which was far more powerful than the PS4 Pro.

My point is that ever since the power race began the two consoles have been almost equal, the difference in power has been very small. If the difference jumps noticably when the next console releases it would be the first time an Xbox console is a noteable jump from a Playstation console, which could change the market dynamics between the two systems in the US especially.

 

[fiendcode]

How so? Out of five generations of PlayStation, only one generation was their console the most powerful on the market, and even in that one generation, Microsoft released the One X which was far more powerful than the PS4 Pro.

PS3 outperformed 360 on paper but in reality they were basically even with certain advantages. Which honestly isn't too different from PS5/XBS (in reverse).

I'd say the only gen one machine appreciably outperformed the other was really PS2 vs OG Xbox. PS4 has a small advantage over One and then that reversed with their midgen upgrades.

 

[Gotdatmoney]

That doesn’t really prove anything. Indirect acquisition costs that is not capitalised under investment will impact P&L, but it will be nowhere near cited $3.6b acquisition cost in the financial report.

I'm not strong with accounting (also haven't looked at the financial statement tbh) so I am asking, where is Sony paying the acquisition costs from? I would assume they didn't just pull it straight from cash (well kind of, they'll book cash through other activities but yeah. And actually thinking about it I haven't looked at the cash reserves so maybe they are just paying jt down more aggressively through cash reserves). So they could have taken on more debt. I don't think they did stock swaps or anything of that nature.

I would think that even if it isn't appearing as a expense item on the income statement (though I would assume that the acquisition costs are going to have an expense component baked into Cost of Sales), it would naturally have to have some hit to the income statement somewhere for the statement of financial position to level out.

But honestly, I'm not sure, I tried to do a basic google search but I feel like I would have to get into the weeds to really understand it. Do you have a simple explanation?

 

[Kowalski]

PS3 outperformed 360 on paper but in reality they were basically even with certain advantages. Which honestly isn't too different from PS5/XBS (in reverse).

I'd say the only gen one machine appreciably outperformed the other was really PS2 vs OG Xbox. PS4 has a small advantage over One and then that reversed with their midgen upgrades.

The Xbox 360 had a GPU that was 50% faster than the PS3, and more RAM.
The only thing that the PS3 had an advantage in was the CPU, and in order to take advantage of it, you had to go through the seven gates of hell!

 

[m051293]

I'm not strong with accounting (also haven't looked at the financial statement tbh) so I am asking, where is Sony paying the acquisition costs from? I would assume they didn't just pull it straight from cash (well kind of, they'll book cash through other activities but yeah. And actually thinking about it I haven't looked at the cash reserves so maybe they are just paying jt down more aggressively through cash reserves). So they could have taken on more debt. I don't think they did stock swaps or anything of that nature.

I would think that even if it isn't appearing as a expense item on the income statement (though I would assume that the acquisition costs are going to have an expense component baked into Cost of Sales), it would naturally have to have some hit to the income statement somewhere for the statement of financial position to level out.

But honestly, I'm not sure, I tried to do a basic google search but I feel like I would have to get into the weeds to really understand it. Do you have a simple explanation?

This is a bit simplified, but basically its a Balance Sheet transaction, not an Income Statement one.

An Acquisition at its core is a swap of assets (Cash + Sony Shares in exchange for Bungie shares). In a vacuum its a net-net transaction so nothing shows up on the Income Statement. In practice, there will be different items case-by-case that make their way to the income statement.

Examples:

-One time items such as banking transaction fees, legal fees, retention bonuses, etc.
-if there is a value difference between price paid and total market value of public shares, they may book the difference as Goodwill on the BS, and then amortize it on the IS over a set period of time.
-Same could go for specific assets/IP that Bungie owns that they acquired, depends on how the acquirer wants to treat it + jurisdictional ruleset

Again that's all an oversimplification, but at its core an Acquisition is a swap of assets, a purchase that yields assets in return, and not an "expense" that hits an income statement.

 

[Avitsky]

I'm not strong with accounting (also haven't looked at the financial statement tbh) so I am asking, where is Sony paying the acquisition costs from? I would assume they didn't just pull it straight from cash (well kind of, they'll book cash through other activities but yeah. And actually thinking about it I haven't looked at the cash reserves so maybe they are just paying jt down more aggressively through cash reserves). So they could have taken on more debt. I don't think they did stock swaps or anything of that nature.

I would think that even if it isn't appearing as a expense item on the income statement (though I would assume that the acquisition costs are going to have an expense component baked into Cost of Sales), it would naturally have to have some hit to the income statement somewhere for the statement of financial position to level out.

But honestly, I'm not sure, I tried to do a basic google search but I feel like I would have to get into the weeds to really understand it. Do you have a simple explanation?

Analyst : Second question is about cash flow. For several years -- years ago, you had ¥4 billion cash flow. But right now, operating cash flow because of many reasons is quite behind the plan compared with the plan. But operating cash flow will be the -- like a driver of where you would make investment. Therefore, would you become slightly hesitant to make less of investment? Or would you want to like reduce inventory? There are other ways to increase cash, right? So do you think allocations of capital as big as previously is going to be possible? There are also financing. There are many different options to manage their cash, right? So currently, can you talk a little more context about how do you see about the use of cash and how much cash that you could generate and invest?



Totoki : Now the other question that you raised was on the cash flow. As you said it rightfully so, we had about ¥4.2 billion in cash flow in financial years ago. This year, the operating cash flow is relatively lower. But working capital has actually have grown quite a bit. If you just cut it off in 3 years, it may look like our operating income is lower, but inventory level can be reduced. We can collect accounts payable and we can get the cash.

So in a big sense there's no major change. And I would say you've -- you can actually understand it like that. And if you look at the rating agencies, we do actually have more opportunity for financial leverage should it need to. If it were required, we can also take that as an option.

 

[Marukoban]

I'm not strong with accounting (also haven't looked at the financial statement tbh) so I am asking, where is Sony paying the acquisition costs from? I would assume they didn't just pull it straight from cash (well kind of, they'll book cash through other activities but yeah. And actually thinking about it I haven't looked at the cash reserves so maybe they are just paying jt down more aggressively through cash reserves). So they could have taken on more debt. I don't think they did stock swaps or anything of that nature.

I would think that even if it isn't appearing as a expense item on the income statement (though I would assume that the acquisition costs are going to have an expense component baked into Cost of Sales), it would naturally have to have some hit to the income statement somewhere for the statement of financial position to level out.

But honestly, I'm not sure, I tried to do a basic google search but I feel like I would have to get into the weeds to really understand it. Do you have a simple explanation?

How you book acquisition has nothing to do with how you finance the acquisition.

Basically when you buy a company, let’s say for $1m. This typically means that you buy their shares for $1m inclusive of legal fees.
The accounting journal entry would be
Dr Investment
Cr Liability/Cash/Shares

The credit part can be in various form:
1. Cash
2. Liability (e.g bond)
3. Equity
People can get creative and structure the payment in various forms and combinations.
As you can see, both entries are Balance Sheet items.

How acquisition impact P&L can be because of the following:
1. Indirect cost that you cannot capitalize, hence must be expensed in the same period. For example when you buy company A, you require their CEO to stay for 3 years. His salary for the 3 years can be argued to not be a direct cost of acquisition
2. Impairment of investment. You can acquire a company then few months later find out the company is not worth as much as you thought
3. Loss on acquisition due to difference between Acquisition Price and Fair Value of the company. For Gain, it would generally be recorded as Goodwill.
4. Consolidating a new subsidiary can have positive or negative impact to your P&L

If you’re curious to know more, you can read on IFRS 3 about Business Combinations. I think they even have an explanation pdf with some simple examples somewhere online.

...I know? I told you it's only part of that $3.6b cost goes into P&L. Like retention bonuses, CEO bonuses, etc.

And since people argue Sony’s Operating Margin is significantly impacted by acquisition, there should be number somewhere that says so. But it doesn’t seem like Sony provides the exact impact of acquisition on their P&L.

By default, acquisition has minimal impact on P&L, so I think it’s logical to say that some people here overstated Bungie acquisition impact on Sony Operating Margin.

 

[Person]

I don't know if anyone linked the updated transcript yet.

FY2023 Q3 Earnings Announcement Q&A Summary (sony.com)

Q: [G&NS and I&SS segments] What will be the keys to improving your operating margin?

A: G&S segment: When it comes to PS5, one challenge that sets this console cycle apart from PS4 and previous generations is that we find it difficult to reduce our costs during the course of the cycle. Unlike high-spec PCs, PS consoles enable us to offer an immersive experience for many people in a safe environment with affordable price. To offer that kind of experience, with costs for components like chips and memory on the rise, one key will be that we continue to sell consoles without substantial discounts [during the course of its product life-cycle] by engaging in product planning that ensures affordability for consumers. Another driver will be first-party titles. Strong titles that achieve growth on PS5, PCs and other platforms will widen our margins. We believe that we have opportunities for margin improvement and intend to pursue them aggressively.

 

[Oregano]

I don't know if anyone linked the updated transcript yet.

FY2023 Q3 Earnings Announcement Q&A Summary (sony.com)

I was surprised by the other comment that the bill of materials isn't actually lower for the PS5 Slim.

 

[Bernd Lauert]

I don't know if anyone linked the updated transcript yet.

FY2023 Q3 Earnings Announcement Q&A Summary (sony.com)

To me this reads like next-gen consoles won't be that powerful. Also what does he mean with "other platforms"?

 

[salesguy]

PS3 outperformed 360 on paper but in reality they were basically even with certain advantages. Which honestly isn't too different from PS5/XBS (in reverse).

I'd say the only gen one machine appreciably outperformed the other was really PS2 vs OG Xbox. PS4 has a small advantage over One and then that reversed with their midgen upgrades.

360 literally won almost every single multiplat face off of that gen. like every single one. hundreds, literally, without more than a couple losses in digital foundry, or ign "head2head" as they called their multiplatform compare feature of the day.. 360 version would always run a little better, at a little higher resolution, or at the worst, they might be dead even. of course the (very) few ps3 multiplatform face off wins tended to get focused on. same i remember people making a huge deal out of burnout ps2 having better sparks than Xbox version, despite hundreds of games showing a substantial favor for xbox. i remember the ign reviewer hilary goldstein even claimed ps3 version of gta was "better" in his review without any evidence, it later came out that ps3 gta 5 ran at 1152x640p vs 1280x720 for 360 version. but as stated, this was just the norm.

it is funny i purchased gta 5 at full price day one based on goldstein's breathless 10/10 review of gta 5. even though i knew i wasnt that interested in the game. and ended up probably putting in 30 minutes total playtime lmao. forever one of my worst backlog of shame.

course ps3 did have blu ray which was nice and higher tech.

of course, the advantage was somewhat marginal and not something the avg consumer would probably notice at a glance.

the argument for ps3 was that somehow a few exclusives (that supposedly took advantage of cell, motorstorm, admittedly highly impressive killzone 2, etc) proved it was as or more powerful if fully tapped. but thats always subjective. frankly i'm skeptical.

I dont think theres much real debate TBH. However I do agree with "basically even" depending you dont look too closely. in general 360 was both easier to program (cell was complicated and difficult), and imo probably had a bit more top end power too if we're being truly honest.

 

[Person]

I was surprised by the other comment that the bill of materials isn't actually lower for the PS5 Slim.

I completely missed that, that is indeed very surprising. I thought that was the point of the slim.

 

[Gotdatmoney]

This is a bit simplified, but basically its a Balance Sheet transaction, not an Income Statement one.

An Acquisition at its core is a swap of assets (Cash + Sony Shares in exchange for Bungie shares). In a vacuum its a net-net transaction so nothing shows up on the Income Statement. In practice, there will be different items case-by-case that make their way to the income statement.

Examples:

-One time items such as banking transaction fees, legal fees, retention bonuses, etc.
-if there is a value difference between price paid and total market value of public shares, they may book the difference as Goodwill on the BS, and then amortize it on the IS over a set period of time.
-Same could go for specific assets/IP that Bungie owns that they acquired, depends on how the acquirer wants to treat it + jurisdictional ruleset

Again that's all an oversimplification, but at its core an Acquisition is a swap of assets, a purchase that yields assets in return, and not an "expense" that hits an income statement.

Analyst : Second question is about cash flow. For several years -- years ago, you had ¥4 billion cash flow. But right now, operating cash flow because of many reasons is quite behind the plan compared with the plan. But operating cash flow will be the -- like a driver of where you would make investment. Therefore, would you become slightly hesitant to make less of investment? Or would you want to like reduce inventory? There are other ways to increase cash, right? So do you think allocations of capital as big as previously is going to be possible? There are also financing. There are many different options to manage their cash, right? So currently, can you talk a little more context about how do you see about the use of cash and how much cash that you could generate and invest?



Totoki : Now the other question that you raised was on the cash flow. As you said it rightfully so, we had about ¥4.2 billion in cash flow in financial years ago. This year, the operating cash flow is relatively lower. But working capital has actually have grown quite a bit. If you just cut it off in 3 years, it may look like our operating income is lower, but inventory level can be reduced. We can collect accounts payable and we can get the cash.

So in a big sense there's no major change. And I would say you've -- you can actually understand it like that. And if you look at the rating agencies, we do actually have more opportunity for financial leverage should it need to. If it were required, we can also take that as an option.

How you book acquisition has nothing to do with how you finance the acquisition.

Basically when you buy a company, let’s say for $1m. This typically means that you buy their shares for $1m inclusive of legal fees.
The accounting journal entry would be
Dr Investment
Cr Liability/Cash/Shares

The credit part can be in various form:
1. Cash
2. Liability (e.g bond)
3. Equity
People can get creative and structure the payment in various forms and combinations.
As you can see, both entries are Balance Sheet items.

How acquisition impact P&L can be because of the following:
1. Indirect cost that you cannot capitalize, hence must be expensed in the same period. For example when you buy company A, you require their CEO to stay for 3 years. His salary for the 3 years can be argued to not be a direct cost of acquisition
2. Impairment of investment. You can acquire a company then few months later find out the company is not worth as much as you thought
3. Loss on acquisition due to difference between Acquisition Price and Fair Value of the company. For Gain, it would generally be recorded as Goodwill.
4. Consolidating a new subsidiary can have positive or negative impact to your P&L

If you’re curious to know more, you can read on IFRS 3 about Business Combinations. I think they even have an explanation pdf with some simple examples somewhere online.

Thank you all for the explanations. Definitely helps for understanding

 

[derby_440]

How you book acquisition has nothing to do with how you finance the acquisition.

Basically when you buy a company, let’s say for $1m. This typically means that you buy their shares for $1m inclusive of legal fees.
The accounting journal entry would be
Dr Investment
Cr Liability/Cash/Shares

The credit part can be in various form:
1. Cash
2. Liability (e.g bond)
3. Equity
People can get creative and structure the payment in various forms and combinations.
As you can see, both entries are Balance Sheet items.

How acquisition impact P&L can be because of the following:
1. Indirect cost that you cannot capitalize, hence must be expensed in the same period. For example when you buy company A, you require their CEO to stay for 3 years. His salary for the 3 years can be argued to not be a direct cost of acquisition
2. Impairment of investment. You can acquire a company then few months later find out the company is not worth as much as you thought
3. Loss on acquisition due to difference between Acquisition Price and Fair Value of the company. For Gain, it would generally be recorded as Goodwill.
4. Consolidating a new subsidiary can have positive or negative impact to your P&L

If you’re curious to know more, you can read on IFRS 3 about Business Combinations. I think they even have an explanation pdf with some simple examples somewhere online.

And since people argue Sony’s Operating Margin is significantly impacted by acquisition, there should be number somewhere that says so. But it doesn’t seem like Sony provides the exact impact of acquisition on their P&L.

By default, acquisition has minimal impact on P&L, so I think it’s logical to say that some people here overstated Bungie acquisition impact on Sony Operating Margin.

"In addition, our FY2023 and FY2024 financials will include costs associated with past acquisitions. The decline in these costs is expected to boost our profits going forward. Taking all these factors into consideration, we intend to work to achieve a new profit record in the PS5 generation."

What are margin without acquisitions costs? I bet is closer to late PS4 era before they started investment in GAAS and other studios.

Sony was sleepwalking in early to mid PS4 era because XB one/Wii U failed. But by end of the decade things changed drastically. Now MS own Bethesta and ABK along with dozen other studios. Switch 2 is looking set increase 3rd party share. Steam is more popular then ever.

So investments in GAAS and other studios like Insomniac was necessary.

 

[Simar]

I was surprised by the other comment that the bill of materials isn't actually lower for the PS5 Slim.

I completely missed that, that is indeed very surprising. I thought that was the point of the slim.

Probably because the PS5 already had two revisions before the Slim and the insides got smaller/improved.
The Slim basically adjusted the case to better fit the insides (and made the disc drive a module).

 

[awng782]

To me this reads like next-gen consoles won't be that powerful. Also what does he mean with "other platforms"?

"Other platforms" definitely refers to mobile, possibly also Xbox and Switch?

 

[Person]

"Other platforms" definitely refers to mobile, possibly also Xbox and Switch?

Mobile being "other platforms" is unlikely to be what they're talking about, if their aim is to improve margins. Sony executives are not fools, and even if they were not to a great degree. There is no market for AAA packaged software on mobile.

 

[Jin+Jang]

I don't know if anyone linked the updated transcript yet.

FY2023 Q3 Earnings Announcement Q&A Summary (sony.com)

Mobile being "other platforms" is unlikely to be what they're talking about, if their aim is to improve margins. Sony executives are not fools, and even if they were not to a great degree. There is no market for AAA packaged software on mobile.

To me this reads like next-gen consoles won't be that powerful. Also what does he mean with "other platforms"?

"Other platforms" definitely refers to mobile, possibly also Xbox and Switch?

Never was Xbox and Nintendo under "other platforms"

This just confirms it

Sony wants its PlayStation exclusives to come to PC earlier

Sony may soon launch PC versions of first-party PlayStation games earlier than expected. Company president Hiroki Totoki suggested he wants PlayStation to go “aggressive on improving our margin performance,” with “multi-platform” games playing a significant role.

www.engadget.com

Company president Hiroki Totoki suggested in a post-earnings call Q&A session Wednesday (via VGC) that he wants PlayStation to go “aggressive on improving our margin performance,” with “multi-platform” games playing a significant role. He clarified in the talk that, by multi-platform, he meant on PlayStation and PC — not Xbox or Switch.

 

[Person]

This just confirms it

Sony wants its PlayStation exclusives to come to PC earlier

Sony may soon launch PC versions of first-party PlayStation games earlier than expected. Company president Hiroki Totoki suggested he wants PlayStation to go “aggressive on improving our margin performance,” with “multi-platform” games playing a significant role.

www.engadget.com

I looked at the transcript and can't find any language that supports this sentence: "He clarified in the talk that, by multi-platform, he meant on PlayStation and PC — not Xbox or Switch." Can anyone else find it?

 

[Jin+Jang]

I looked at the transcript and can't find any language that supports this sentence: "He clarified in the talk that, by multi-platform, he meant on PlayStation and PC — not Xbox or Switch." Can anyone else find it?

You don't need a transcript, you literally have 2 slides above. Sony is already investing and expanding into a mobile an cloud. Engadget article just confirms it.

 

[Godzilla]

My point is that today even though XSX edges it the two consoles are basically even. But what happens if the next Xbox not just edges it against the PS6 but is noticably more powerful and more capable?

Xbox issue is the brand, not the console power, it'll sell badly and PS will run all over it.

 

[Evilms]

Never was Xbox and Nintendo under "other platforms"

This just confirms it

Sony wants its PlayStation exclusives to come to PC earlier

Sony may soon launch PC versions of first-party PlayStation games earlier than expected. Company president Hiroki Totoki suggested he wants PlayStation to go “aggressive on improving our margin performance,” with “multi-platform” games playing a significant role.

www.engadget.com

This is from business segment meeting.

https://www.sony.com/en/SonyInfo/IR/library/presen/irday/pdf/2021/GNS_E.pdf

https://www.sony.com/en/SonyInfo/IR/library/presen/irday/pdf/2022/GNS_E.pdf

https://www.sony.com/en/SonyInfo/IR/library/presen/business_segment_meeting/pdf/2023/GNS.pdf

 

[MegaXZero]

Never was Xbox and Nintendo under "other platforms"

This just confirms it

Sony wants its PlayStation exclusives to come to PC earlier

Sony may soon launch PC versions of first-party PlayStation games earlier than expected. Company president Hiroki Totoki suggested he wants PlayStation to go “aggressive on improving our margin performance,” with “multi-platform” games playing a significant role.

www.engadget.com

That Engadget article is sourcing vgc for the clarification, but this is the vgc’s language.

Totoki then addressed the topic of first-party games, and made it clear that he feels releasing them “multi-platform” (which he seemingly clarified as meaning PC) continues to be the way forward.

This is true, but there’s a synergy to it, so if you have strong first-party content – not only on our console but also other platforms, like computers – a first-party [game] can be grown with multi-platform, and that can help operating profit to improve, so that’s another one we want to proactively work on.

So no, Engadget doesn’t seem to confirm anything, and seems to just be telephoning it. Granted these transcripts clearly don’t always have everything stated. But either way the transcript put out by Sony just says “other platforms”. So that’s the message they want out there.

 

[Jin+Jang]

This is from business segment meeting.

https://www.sony.com/en/SonyInfo/IR/library/presen/irday/pdf/2021/GNS_E.pdf

https://www.sony.com/en/SonyInfo/IR/library/presen/irday/pdf/2022/GNS_E.pdf

https://www.sony.com/en/SonyInfo/IR/library/presen/business_segment_meeting/pdf/2023/GNS.pdf

That Engadget article is sourcing vgc for the clarification, but this is the vgc’s language.


So no, Engadget doesn’t seem to confirm anything, and seems to just be telephoning it. Granted these transcripts clearly don’t always have everything stated. But either way the transcript put out by Sony just says “other platforms”. So that’s the message they want out there.

Yes, as it is said in those slides, other platforms are Mobile, cloud, and Sony is already heavily investing in that. Interpreting that as Xbox or Nintendo is disingenuous IMO. As i saw on other forums, people think that Sony will follow MS. That won't happen. Sony isn't in the same position with console like MS with Xbox

 

[Oregano]

Yes, as it is said in those slides, other platforms are Mobile, cloud, and Sony is already heavily investing in that. Interpreting that as Xbox or Nintendo is disingenuous IMO. As i saw on other forums, people think that Sony will follow MS. That won't happen. Sony isn't in the same position with console like MS with Xbox

One of Sony's biggest upcoming games is Marathon by Bungie, which is going to available on Xbox. This statement could easily account for that(and MLB on both Xbox/Switch).

 

[salesguy]

Xbox issue is the brand, not the console power, it'll sell badly and PS will run all over it.

you can tell this isn't true by the freak-out that would happen if ps6 was much less powerful than next Xbox.

the same freakout kind of happened with ps5, i was there. at one point it looked dire, PS5 with 36 CU vs XSX with 52 CU, and the message board worry was at a high level, with a lot of denial over leaked ps5 soc specifications. to their credit sony rescued the situation with aplomb via aggressive clocking and at only 36 cu, ps5 is perceived as on the level with xsx (even has run quite a few mult plats better!)

I think a couple similar inflection points happened in history. When Mark Rein at Epic convinced MS to up 360 RAM from 256MB to 512. And when Sony repaid the favor with increasing PS4 from 4GB RAM to 8GB also at the very last second. Both moves are hard to understate as to how monumental an effect they had. a 256 mb 360 and 4gb ps4 would have performed significantly worse imo, as the perception in both cases would not have been good. Given similar GPU, a 512 MB PS3 would have had a clear perception as just all around better than a 256MB 360, and we saw how that perception doomed Dreamcast vs PS2. While the 4GB PS4 case would have been more interesting and tenable for Sony, as it clearly had a more powerful GPU flat out, 8GB for Xbox One vs 4GB PS4 would have possibly done a tremendous amount to make the tech winner unclear, instead of clearly PS4 in all areas as it turned out to be, where consumers had no confusion.

the thing the PS5 upclocking I think cost them was quite a large system, to contain all the cooling. it's hard to overstate how large the original ps5 was. when sony missed their 25m target, part of me wonders if the system was simply smaller it might be more mass market. a large system is expensive and difficult to ship and store in large quantiles as well. that said, going back to ps3 sony systems have been very large (i guess ps4 was medium?), and it doesnt seem to have hindered them vs xbox. xsx is also smaller, though i wouldn't call it small, and hasnt sold gangbusters. xbox one was huge just to note that. core consoles also tend to be heavy and theres not much way around that.

Regardless if you have to chose between size and power it's not any choice at all. There's really no close second to the importance of power in the core market.

I personally also think MS heavily fubared any advantage in power messaging they might have had with the Series S SKU.

 

[Jin+Jang]

One of Sony's biggest upcoming games is Marathon by Bungie, which is going to available on Xbox. This statement could easily account for that(and MLB on both Xbox/Switch).

As it was said before Bungie acquisition that Bungie games will remain multiplatform, yes. We all know MLB situation "take it or leave it" thing. It hat nothing to do with Totoki statement

 

[Oregano]

As it was said before Bungie acquisition that Bungie games will remain multiplatform, yes. We all know MLB situation "take it or leave it" thing. It hat nothing to do with Totoki statement

The question from an investor was about improving their margin and Totoki mentioned strong releases across PS5, PC and other platforms. Marathon especially has everything to do with Totoki's statement.

 

[MegaXZero]

Yes, as it is said in those slides, other platforms are Mobile, cloud, and Sony is already heavily investing in that. Interpreting that as Xbox or Nintendo is disingenuous IMO. As i saw on other forums, people think that Sony will follow MS. That won't happen. Sony isn't in the same position with console like MS with Xbox

They certainly aren't in the same position, but thinning profits, expensive consoles, expanding budgets, and a limited user base puts pressure on them. Those slides also are part of the Jim Ryan era, before they had Totoki assume control due to the aforementioned issues. They aren't going to be putting games on xbox or switch tomorrow (although other parts of Sony have no issue making exclusives for other consoles), but day 1 PC will definitely grow closer to reality. They either have to figure out a way to get budgets under control or these issues will keep happening, especially since mobile and console gaming really don't mesh well.

 

[enpleinjour]

They certainly aren't in the same position, but thinning profits, expensive consoles, expanding budgets, and a limited user base puts pressure on them. Those slides also are part of the Jim Ryan era, before they had Totoki assume control due to the aforementioned issues. They aren't going to be putting games on xbox or switch tomorrow (although other parts of Sony have no issue making exclusives for other consoles), but day 1 PC will definitely grow closer to reality. They either have to figure out a way to get budgets under control or these issues will keep happening, especially since mobile and console gaming really don't mesh well.

I don't see much changing since then. Playstation profits are still close to all time highs (COVID period being anomalous is the same for much of the industry), 2nd largest in the industry and they maintain to be on track with forecasted profits.

The problem isn't being profitable or sustainable, PS's AAA exclusives are extremely profitable as the leak showed us:

Its more like costs are going up a lot quicker, reducing that big profitability and Totoki cares a lot about maintaining margins.

Personally, the PS norm for the big hitters being $200M seems more than fine, profits will still be $300M+ with how those IPs are selling, but if it moves to $300M then I can understand the questioning of priorities. Was the $100M extra really necessary for that title etc?

 

[Evilnemesis8]

The problem isn't being profitable or sustainable, PS's AAA exclusives are extremely profitable as the leak showed us:

Its more like costs are going up a lot quicker, reducing that big profitability and Totoki cares a lot about maintaining margins.

Personally, the PS norm for the big hitters being $200M seems more than fine, profits will still be $300M+ with how those IPs are selling, but if it moves to $300M then I can understand the questioning of priorities. Was the $100M extra really necessary for that title etc?

That extra $100M is probably almost all because of the substantial increases in salaries due to the competition from 2018-2021~ with VC money coming in and COVID especially in the type of markets like California where veteran talent could walk with their CV to other studio an easily get a raise.

Btw, where does this image come from? GoT really swimming in profit based on this.

 

[storres]

That extra $100M is probably almost all because of the substantial increases in salaries due to the competition from 2018-2021~ with VC money coming in and COVID especially in the type of markets like California where veteran talent could walk with their CV to other studio an easily get a raise.

Btw, where does this image come from? GoT really swimming in profit based on this.

GoT has been one of the game sto not received steep discounts.

 

[MegaXZero]

The problem isn't being profitable or sustainable, PS's AAA exclusives are extremely profitable as the leak showed us:

It's clearly sustainability, something acknowledged by everyone from Sony execs, to the industry, to the devs in the leak. Their budgets keep increasing and that will reduce profits unless they can sell the games to more players and/or switch to different revenue models.

Its more like costs are going up a lot quicker, reducing that big profitability and Totoki cares a lot about maintaining margins.

Personally, the PS norm for the big hitters being $200M seems more than fine, profits will still be $300M+ with how those IPs are selling, but if it moves to $300M then I can understand the questioning of priorities. Was the $100M extra really necessary for that title etc?

Ballooning costs are going to be tied to sustainability. And no this isn't being sad they can't have 90% profit margins. Their margins are far too thin and there is a clear danger in that if costs continue to expand and anything unforeseen happens with their games in dev. Consoles are also clearly getting more expensive for how high end SIE wants them, which also threatens their current model. It becomes harder to sell consoles since they are further and further being unable to offer lower priced versions of the consoles without taking a financial hit. Given their brand is high end games that demand these crazy budgets, they can only go up in console cost at this point looking to the future.

 

[My Tulpa]

Based on what? Whenever we hear from digital only publishers Switch tends to be in their top two platforms?

Give me an example of what you are talking about.

It doesn't, it's Nintendo's revenue. These aren't the full platform revenues.

Source that explains this to be the case?

 

[fiendcode]

Give me an example of what you are talking about.

In-depth: Yacht Club gets transparent with sales numbers

The developer, not the place for mooring your vessels.

www.gamedeveloper.com

The team notes: “Our first week sales were just under 20,000 units, and our first month sales were just over 30,000… Where Shovel Knight had about 40% units sold on Nintendo platforms after a month, Pocket Dungeon had a staggering 70%!”

Source that explains this to be the case?

https://www.nintendo.co.jp/ir/pdf/2023/annual2303e.pdf

Page 61 (8) (i) end of 1st paragraph

The Company generally recognizes revenue in the full amount of this consideration. However, in cases such as downloadable software from software publishers, the Company recognizes revenue equal to the amount of sales commission that the Company group will receive.

 

[Terrell]

What is especially frightening is that SIE has such low profit margins in spite of enacting policies to milk (monetize) their consumer base the most they could: increases in the monthly/annual fees, increase of the base price of HW for then relying just on "temporary" price drops to spur demand, Slim model more expensive than OG, Slim stand sold separately for 30 bucks (lol), heavy emphasis on accessories with high margins like PSP(ortal) though with some misses (looking at you PSVR2), opening up to publish first-party games on non-PlayStation platform(s) like PC.
Revenue is expected to hit record level for the year and yet profit margins sucks.

What I find fascinating is that Sony's profits hasn't changes for years despite selling more consoles and there are more games on the market and more Playstation exclusive games out there. Yet their profits don't change much.

The sad part is that I don't think this an overreaction. Recent numbers suggest that Playstation and their entire business model is a far cry from they had hoped it would be and it doesn't look like a problem that will be remedied anytime in the foreseeable future.

I see some have rightly pointed out that OI margin is a key factor in why things are happening as they are, and I pointed out as much back in late December:

That is not an acceptable conversion of revenue to profit. This is why Jim Ryan is "retiring" and Sony Group is sending in the big guns from Japan to be interim head of SIE. Their spending clearly outweighing their profitability is a problem, one that is getting worse instead of better.

The OI margin being less than 15% for half a decade at least is a concerning statistic, and now even the investor set are coming to a similar conclusion when looking at missed FY targets and giving further scrutiny to OI margin now that it's falling even lower than it was already. Stagnant OI while revenue climbs is bad, shrinking OI margin is worse.
The efficiency of their spending to generate profit looks like it's in the toilet, and that doesn't all come down to increased development costs, as most other businesses in this industry regularly see higher OI margins (no small number of Japanese publishers in particular like Capcom and Koei Tecmo have OI margins in the 40-50% ratio, pointing to an extremely efficient re-investment of their profits in projects that generate a large return).

Welp, the traditional console model is doomed. Selling yourself on ever improving graphics and production values was always gonna hit a wall and this is it. Multiplatform PC releases can delay the inevitable a bit more, but weve reached the peak of how much can a game reasonably cost before it stops making sense to make it.

Nintendo is truly the best at this. Other publishers arent confident they can sell themselves on gameplay like them. Focusing on making games that are fun and people want was the better long term solution, who wouldve thunk?

I don't think it's doomed, but 2 of the 3 dedicated gaming platforms are going to need to massively re-orient their business and temper consumer expectation for the first time in... I wanna say 2 and a half decades? And despite thinking to the contrary, I don't even believe that's impossible.
In fact, it may be necessary either way. PC GPU pricing means that most customers are not clamouring for the newest and greatest technology right now, and with consoles not having to keep a similar break-neck pace, between that and the brick wall that improving CPU/GPU performance by leaps is about to hit due to the costs associated with smaller processors, future hardware iterations may be more about efficiency improvements than pure output of triangles, which is something the industry really needs right now anyways.

I dont disagree with the general idea, but big cutting edge games have a way higher hit-to-bomb ratio than AA games. As much as they are part of the problem, graphics and "size" sell games. What would Horizon be if it wasnt big or good looking?

Modern publishers are going to struggle selling AA games a lot. They already do.

Only because certain segments of the industry have not attempted any other way to sell them. Maybe it's time they try curbing their ambitions, even if only slightly.

 

[My Tulpa]

I appreciate the sources!

In-depth: Yacht Club gets transparent with sales numbers

The developer, not the place for mooring your vessels.

www.gamedeveloper.com

“The team notes: “Our first week sales were just under 20,000 units, and our first month sales were just over 30,000… Where Shovel Knight had about 40% units sold on Nintendo platforms after a month, Pocket Dungeon had a staggering 70%!”

Shovel Knight: Treasure Trove had a retail release. So all its revenue is represented in Nintendo software revenue. Only games that didn’t have a physical retail release (digital only) aren’t counted in Nintendo revenue

Pocket Dungeon that article specifically says that (as of article date) its sales across ALL platforms was over $500k but had not made back its budget yet ($1 million)

So even if 70% of its sales were on Switch, at best we are looking at around $500k of revenue. Which I call negligible in the grand scheme of things when looking at Nintendo 1st party revenue vs 3rd.

https://www.nintendo.co.jp/ir/pdf/2023/annual2303e.pdf

Page 61 (8) (i) end of 1st paragraph

“The Company generally recognizes revenue in the full amount of this consideration. However, in cases such as downloadable software from software publishers, the Company recognizes revenue equal to the amount of sales commission that the Company group will receive.”

The way I read it, “The Company generally recognizes revenue in the full amount of this consideration.” is specifically saying in most cases, Nintendo counts the full 100% of revenue for all software. Except for certain cases, like involving digital downloads from a publisher.

Nothing suggests that every sell of every 3rd party game, both retail and digital, across all cases Nintendo only counts 30% of the expected eventual revenue.

Any help with this?

 

[Kenka]

I appreciate the sources!



Shovel Knight: Treasure Trove had a retail release. So all its revenue is represented in Nintendo software revenue. Only games that didn’t have a physical retail release (digital only) aren’t counted in Nintendo revenue

Pocket Dungeon that article specifically says that (as of article date) its sales across ALL platforms was over $500k but had not made back its budget yet ($1 million)

So even if 70% of its sales were on Switch, at best we are looking at around $500k of revenue. Which I call negligible in the grand scheme of things when looking at Nintendo 1st party revenue vs 3rd.





The way I read it, “The Company generally recognizes revenue in the full amount of this consideration.” is specifically saying in most cases, Nintendo counts the full 100% of revenue for all software. Except for certain cases, like involving digital downloads from a publisher.

Nothing suggests that every sell of every 3rd party game, both retail and digital, across all cases Nintendo only counts 30% of the expected eventual revenue.

Any help with this?

Just a correction: digital-only titles are counted in Nintendo's revenue. They aren't counted in the number of titles sold.

 

[MegaXZero]

The way I read it, “The Company generally recognizes revenue in the full amount of this consideration.” is specifically saying in most cases, Nintendo counts the full 100% of revenue for all software. Except for certain cases involving digital downloads from a publisher.

Nothing suggests that every sell of every 3rd party game both retail and digital across all cases Nintendo only counts 30% of the expected eventual revenue.

Nintendo is explaining that despite the Eshop being run by them, and thus Nintendo is selling third party games and software there to consumers, Nintendo only counts their cut of the software sale. For third parties it’s whatever they arranged it to be, usually 30%. Retail wise, Nintendo sells Nintendo first party games to retailers, not third party games so they can’t get the full cut from those either.

TLDR: if it’s third party, Nintendo only counts their cut for revenue.

A more digestible explanation from Nintendo IR:

Note: When calculating digital sales, sales of Nintendo software are recognized as gross sales, while sales of software released by other software publishers are recognized as net sales. For software released by other publishers, the sales commissions that Nintendo receives based on contracts with the software publishers or other parties are recognized as revenue.

Page 13

 

[Evilms]

Last novembver

Kenichiro Yoshida : "... why PlayStation will remain our core product, we will expand our gaming experiences to PC, Mobile and Cloud".

 

[Celine]

The OI margin being less than 15% for half a decade at least is a concerning statistic,[...]

Last time the PlayStation division had OI margin above 15% was 1999.

R&D expenses had aconstant rise year over year since around 2017 but especially spiked up sharply in the previous FY:

 

[Terrell]

Last time the PlayStation division had OI margin above 15% was 1999.

R&D expenses had aconstant rise year over year since around 2017 but especially spiked up sharply in the previous FY:

Thank you for digging deeper, I only went back 5 years for the hard numbers myself (because recent history is most relevant anyways).

I was aware of how PS has been driving revenue but had less-than-stellar success with OI margin for a large chunk of its existence as a product category in their financials, even without the numbers. Part of the negative press around PS3 was that Sony did not have enough profit in the prior 2 cycles to offset the PS3 losses. But it does indicate that PS4 was doing better and showing an uptick in OI margin to at least back to PS2 levels, but that just completely levelled off across the past 5 years despite massive recorded revenue growth, and the way SIE books digital revenue does not fully or adequately account for that disparity.