If you look back on the history of wins Sony’s PlayStation departmentsee a clear cycle. PlayStation makes the most money when a console is mature. This happens for many reasons. Manufacturing costs are falling, and more consoles in the market mean a bigger audience buying games. Sony Interactive Entertainment The worst years for profit are the transition years from one generation of consoles to another.

Sony’s gaming winnings went into the red for the first year or two of the PlayStation, PS2, PS3 and PS4. For the PS3, it was over a year or two. You can see these patterns in A useful chart from Niko Partners’ senior analyst Daniel Ahmad on Twitter.

Above: Diagram from Daniel Ahmad / @ ZhugeEx on Twitter.

Shouldn’t we expect the same downward trend when Sony launches PlayStation 5 in November? Well no It appears that Sony has broken that cycle. The company’s outlook for the current fiscal year is bringing profits for PlayStation to an all-time high.

And the key to that dynamic has little to do with the PS5 itself. This system is very similar to previous PlayStation consoles. It is a state-of-the-art gaming device that Sony sells at a loss due to high component costs. And it’s not that Sony Stealth launched the PS5 without marketing – there is as much money being spent on advertising and publicity as ever.

While the PS5 is very similar to Sony’s previous hardware, the games and services have fundamentally changed the way the company makes money.

Games and services have broken the cycle of wins and losses

The problem with console transitions for a company like Sony has never been hardware. The problem was to increase the sales momentum on an outbound console and then transfer that to the next-generation successor. But with no cohesive experience like online services, each new console was a reset forcing Sony to create from scratch.

Services like PlayStation Network and PlayStation Plus have changed this. They generate a steady stream of income connecting PS4 to PS5 players. At the same time, live service games are enjoying growing popularity. It’s more common for gamers to spend most of their time on the console, playing a single, consistent game for years. These players tend to spend a lot of money on a game. That commitment is also easier to sustain until the end of a generation, as games like Fortnite and NBA 2K don’t leave players behind when they’re on old hardware.

These services and transactions through PlayStation Network have high margins and are a drag on Sony’s revenues.

PS Plus has 47.4 million subscribers – and each of these members pays either a monthly, quarterly, or annual fee.

“Revenue from PlayStation Plus, PlayStation Now, PSN ad revenue and other PSN services was $ 3.5 billion in 2020.” Ahmad wrote on Twitter. “[That] Without game sales or sales of additional content – only subscription and network income. “

This underscores the importance of these services and why companies like Sony, Microsoft, and even Nintendo are so focused on them. They have the ability to avoid losses during a console transition, and that also makes them key to growth as the new hardware moves into the early years.

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