Sony This one graph tells the story of Sony's "GAAS Pivot"

[Commissar SFLUFAN]

Look up the word "unsustainable" in the dictionary and you'll find a picture of Sony's operating margin.  

 

This is all the evidence required to see why Sony's "GAAS Pivot" represents practically a "categorical imperative" (apologies to Immanuel Kant) for the company's financial future.

 

What this tells me is that the "prestige" AAA story-driven titles for which Sony has become famous certainly do generate quite a bit of revenue, but there appears to be a hard ~$20 million ceiling to that revenue (because they contain very little if any post-release monetization) and that they cost a helluva lot to make.

 

[crispy4000]

Couldn’t there be more to it than just that?  I think about them selling the PS5 Digital for $400 after the Series S announcement.

[Commissar SFLUFAN]

2 minutes ago, crispy4000 said:

Couldn’t there be more to it than just that?  I think about them selling the PS5 Digital for $400 after the Series S announcement.

 

Sony genuinely does appear to have a long-term cost issue:

 

Quote

 

As of close March 31, 2023, Sony's G&NS operating income as a percentage of net sales had fallen to 6.9%

 

Previous March Closes:
2017:  8.1%
2018: 9.1%
2019: 13.5%
2020: 12.1%
2021: 12.9%
2022: 12.6%

 

In Q1 of the current FY (closing March 2024) G&NS had posted operating income as a percentage of revenue: 6.3%.

 

Their forecast for the current fiscal year is only 6.4%

 

 

[Brian]

They bought a lot of studios and most have yet to release a single game. I assume that is accounting for the low OI margin. It’s a big gamble on their part with little room for error. 

[Keyser_Soze]

The problem is they showed up too late to the party. It seems like we are reaching a saturation point to GAAS games, they really need to have something special to take off and I just don't see it happening.

[Commissar SFLUFAN]

29 minutes ago, Brian said:

They bought a lot of studios and most have yet to release a single game. I assume that is accounting for the low OI margin. It’s a big gamble on their part with little room for error. 

 

Excellent point!

 

The newly-acquired studios are very much in the "all expense/no revenue" phase of the product development cycle.

[SaysWho?]

With double digit profits the last few years, I don't know if March 2023 really tells us much right now in terms of whether this is a blip or a trend.

 

35 minutes ago, Keyser_Soze said:

The problem is they showed up too late to the party. It seems like we are reaching a saturation point to GAAS games, they really need to have something special to take off and I just don't see it happening.

 

They're not late; Gran Turismo is a live service game with a long history and the most recent iteration has been successful. It's more that much of what they tried in the live service arena that was new didn't really take off.

 

Given that they've posted double digit profit margins in recent years and had similar single-digit margins during the highly successful PS4 era, I don't know how much we can glean off of March 2023. Could be a number of factors, like their own acquisitions, future investments (one example being what Brian pointed out), etc.

[Keyser_Soze]

5 minutes ago, SaysWho? said:

 Could be a number of factors, like their own acquisitions, future investments (one example being what Brian pointed out), etc.

 

Those future investments are the 12 or so GAAS projects they have in the pipe from those developers they acquired. I'm saying people are tired of these types of games already. By the time these games are released it's going to have to be something else for it to pay off.

[crispy4000]

56 minutes ago, Keyser_Soze said:

 

Those future investments are the 12 or so GAAS projects they have in the pipe from those developers they acquired. I'm saying people are tired of these types of games already. By the time these games are released it's going to have to be something else for it to pay off.

Who says their GAaS projects are all from newly bought (or formed) devs?

 

Either way, I don’t think it’s a smart move for the console manufacturers to go down this road.  They’ve traditionally been risk adverse in the space to not risk tarnishing their brand, with flops and/or bad practices.   The 3rd party publishes doing it don’t have to sell a console.

 

Plus with these games inevitably on PC sooner, how much does it really benefit their platforms?
 

[Keyser_Soze]

24 minutes ago, crispy4000 said:

Who says their GAaS projects are all from newly bought (or formed) devs?

 

Well, if we go back to 2022 when Totoki announced they wanted to bring out 10 live service games (not 12) since that announcement they acquired Haven, Bungie, Savage Games, and Firewalk

 

Bungie: Marathon

Haven: Fairgame$

Firewalk: Concord

 

So of those those devs since that announcement, all are working on some sort of live service game.

 

And we still have TLOU floating out there. (not new but part of the live service initiative)

 

Savage Games is a mobile developer, so we haven't seen what they are making but supposedly they are also working on a live service game too.

[crispy4000]

That doesn't exactly total a dozen, or 10 either.

We're going to see more of their established studios working on GaaS games in some capacity.  TLOU is on ice, but there's likely more in the works.

[Keyser_Soze]

3 minutes ago, crispy4000 said:

That doesn't exactly total a dozen, or 10 either.

 

You're right, but it does total 100% of newly bought devs working on a live service game.

[JPDunks4]

Deviation games was working on a GaaS for PS too, but I think that was also cancelled earlier this year.

 

Guerilla is making that Monster Hunter type GaaS in the Horizon Universe if the leak and rumors are true.

 

I say bring them on I find those more interesting than their regular releases.  TLoU Factions was one of my more anticipated games, hope it's not completely dead.

[Keyser_Soze]

1 hour ago, JPDunks4 said:

Guerilla is making that Monster Hunter type GaaS in the Horizon Universe if the leak and rumors are true.

 

I say bring them on I find those more interesting than their regular releases.

 

True, if they want these ideas to take off they really need to fill a niche. The problem is the longer it takes for the games to come out the sooner that niche is filled. They've got a couple of extraction shooters in the works but it seems like the market is already getting filled with those type of games. The Finals comes to mind and the recently cancelled Hyenas, not to mention COD's extraction thing.

 

I was thinking they could make an Animal Crossing like game but then Disney Dreamlight Valley already beat them to the punch. Monster Hunter is a nice idea but EA already tried that and shut it down, so it's really hard to see these things taking off. If they don't how long will Sony stick with it?

[Brian]

Bloomberg - Are you a robot?

T.CO

Quote

NEW: Bungie laid off an undisclosed number of staff today, part of ongoing job cuts across PlayStation. The company recently delayed the upcoming Destiny 2 expansion The Final Shape to June 2024 and the new game Marathon to 2025, sources tell Bloomberg

Game development is hard even for established studios like Bungie. I was always surprised that Sony bought so many newly formed studios. Without any backlog or established IP, it must be a difficult situation to keep showing the execs loss upon loss as you try to get these new studios up and running. 

[Commissar SFLUFAN]

1 hour ago, Brian said:

Bloomberg - Are you a robot?

T.CO

Game development is hard even for established studios like Bungie. I was always surprised that Sony bought so many newly formed studios. Without any backlog or established IP, it must be a difficult situation to keep showing the execs loss upon loss as you try to get these new studios up and running. 

 

The Bungie situation was the impetus for this thread, especially since the studio's acquisition by Sony essentially represented the linchpin of its GAAS initiative. 

[JPDunks4]

Definitely doesnt help when you look at other studios known for good single player experiences that were forced to do GaaS by their Publishers, they haven't turned out great.

 

Bioware and Athem

Crystal Dynamics and Avengers

Bethesda and Fallout 76 (Maybe turned around a bit but still took a hit)

Arkane's Redfall seemed to be misguided from the start being built as a GaaS

 

Pretty sure im missing another big one I can't think of

 

[Spawn_of_Apathy]

I wonder how much a year Sony spends on buying time or outright 3rd party exclusives. 
 

also if that’s their margins Incan understand now why they claimed they couldn’t survive without COD. The loss of that 30% per unit sold could nearly tank them. So funny they want to throw shade at MS for GamePass being unsustainable and their financials look like that?? lol 
 

what's worse for them is the live service bubble is kind of deflating now. Except for a few titles gamers have no tolerance for it. Sony went and spent $3.6B on Bungie for live service gaming and none of it is coming to fruition for them. I would be that Destiny is one of, if not the most expensive live service game to maintain just because of its constant PvE output schedule and routine patches. 

[Spawn_of_Apathy]

5 minutes ago, JPDunks4 said:

Definitely doesnt help when you look at other studios known for good single player experiences that were forced to do GaaS by their Publishers, they haven't turned out great.

 

Bioware and Athem

Crystal Dynamics and Avengers

Bethesda and Fallout 76 (Maybe turned around a bit but still took a hit)

Arkane's Redfall seemed to be misguided from the start being built as a GaaS

 

Pretty sure im missing another big one I can't think of

 

Gotham Nights. 
Ghost Recon breakpoint made Ubisoft reevaluate everything. 
Suicide Squad got massive blowback

[JPDunks4]

2 minutes ago, Spawn_of_Apathy said:

Gotham Nights. 
Ghost Recon breakpoint made Ubisoft reevaluate everything. 
Suicide Squad got massive blowback

 

oh ya Rocksteady with Suicide Squad's initial previews looked rather bad and a waste of a great studio's potential was the one I was thinking of. 

[Keyser_Soze]

9 minutes ago, JPDunks4 said:

Definitely doesnt help when you look at other studios known for good single player experiences that were forced to do GaaS by their Publishers, they haven't turned out great.

 

Bioware and Athem

Crystal Dynamics and Avengers

Bethesda and Fallout 76 (Maybe turned around a bit but still took a hit)

Arkane's Redfall seemed to be misguided from the start being built as a GaaS

 

Pretty sure im missing another big one I can't think of

 

 

One people forget because it never took off was Bleeding Edge from Ninja Theory

[Keyser_Soze]

Oh yeah

 

 

Flopped too. Anyone remember this came out June of this year!

[JPDunks4]

1 minute ago, Keyser_Soze said:

 

One people forget because it never took off was Bleeding Edge from Ninja Theory

 

I don't really consider that because it was a little side project by Ninja Theory that they wanted to try.  By all accounts it wasn't Microsoft forcing them to make a GaaS and putting the entire studio on it.  From most reports at the time it was like a small team of 10 or so people working on that.

 

Grounded could almost be seen in the same way, thought it has no MTX , and has been rather successful.  A small side passion project for Obsidian that MS let them explore.

[TheLeon]

1 hour ago, Keyser_Soze said:

Oh yeah

 

 

Flopped too. Anyone remember this came out June of this year!

Come on now. You can’t just photoshop a poster and trick us into thinking that’s a real game.

[TwinIon]

Those numbers didn't feel right to me, so I at least looked up Sony's  and Microsoft's and the graph is very wrong.

 

Here is Sony's most recent quarterly report.

 

It looks to me like that Sony number is the Consolidated total, not the Games & Network Services segment. Sony's G&NS Segment generated 771,880 million yen (~$5B as of today) in revenue [F-8], and had an operating income of 49,160 million yen (~$324k) [F-9].

 

That actually works out to a slightly worse margin of only 6.4%.

 

I'm not really sure what the current Xbox numbers are, but I'm sure the graph is wrong again. Here is MS's Q1 2023 page. The "More Personal Computing" segment made $13B in revenue, but that includes Windows licensing, Search, and MS's devices division (Surface, etc). That whole division had an operating income of $4.2B, for a healthy margin of 31.6%, but they don't untangle those numbers anymore, and my bet is that Xbox has a lower margin than Windows.

 

These were the only tidbits I could find on Xbox specifically:
 

Quote

 

Gaming revenue increased $309 million or 9% driven by growth in Xbox content and services. Xbox content and services revenue increased 13% driven by growth in first-party content and Xbox Game Pass. Xbox hardware revenue decreased 7% driven by lower volume of consoles sold, offset in part by higher price of consoles sold.

 

Xbox content and services revenue increased 13% (up 12% in constant currency)

 

 

The graph lists the FTC vs MSFT case as a source, and they got the numbers wrong even from that. Here's a link to that disclosure, which lists the $13B in revenue as Q1-3, as in three total quarters of revenue, not just Q1. Also, that was for 2022, not 2023. At least the margin number is correct.

 

That same link does bring up that Sony runs their gaming at a lower margin than MS does, even with double the install base, so we can base conversations on those margin differences, but the absolute numbers are way off.