Sony's PS5 Showcase: What Have We Learned Ahead of the Next Console War?

Sony has finally given PlayStation fans the information they have been waiting for all year by announcing a launch date and price for the upcoming PS5, as well as sharing some tantalising content trailers showcasing the power of next generation graphics. The announcements come just weeks after Microsoft gave onlookers similar details regarding the flagship Xbox Series X and cheaper, All Digital Series S, and now gamers have the full picture ahead of the crucial holiday season buying period. Sony outselling Microsoft in the eighth generation by a ratio of 2:1 means that both companies will no doubt be eager to gain the competitive edge moving into the next generation of their ongoing competition.

Key Facts, Figures & Features

A key selling point highlighted by both vendors ahead of the ninth generation of consoles has been the generational leap in hardware capabilities. Graphical and central processing power are key metrics when it comes to gameplay performance, with Microsoft typically outperforming Sony in this regard. This generation will be no exception, with the Series X boasting 12 TFLOPs, with the PS5 offering just 10.3. Both consoles will however be capable of running games at 120 frames per second (or in 4K at 60 FPS), a milestone which elevates console gaming to the same echelon as PC gaming. Whilst it is a sign of the times including a discless version at launch, it will be interesting to see what each vendor is able to produce in terms of mid-generational releases to stimulate further demand towards the end of this lifecycle.

One key technical difference however will be the relatively underpowered all digital Xbox Series S, with component hardware giving the console a similar performance to the PS4 Pro. Whilst this console will be less appealing to hardcore gaming enthusiasts, reducing the capabilities of the console has enabled Microsoft to drastically reduce the price, which is expected to be a strong strategy for targeting lapsed and casual gamers with greater price elasticity of demand, as well as consumers in emerging regions such as Latin America. Microsoft has interestingly priced the Xbox Series S at the same price point as the Nintendo Switch, and whilst the console is still as powerful as a PlayStation 4 Pro, Microsoft will likely benefit from a consumer perception of a real value for money proposition. As well as the target consumers already discussed, this price point is expected to resonate particularly well with families and gamers not obsessed with playing all the latest games on the most powerful hardware.

Whilst Microsoft’s lower priced console resembles an entry level option, Sony’s strategy in offering a lower priced console appears to have different motivations. Encouraging uptake of the digital only hardware ensures that consumers purchase all their content via the PS Store, as opposed to physical discs via high street or online retailers. What this means is that Sony gains even more control over content distribution, reducing overheads to disc pressers and retailers and enabling the company to take an even larger slice of software revenue. With content attach rates per active console estimated for next generation consoles at between 2-3 full games per year (and DLC revenue on top), software revenue is by far more profitable over the course of a console’s lifecycle than one off hardware sales.

Content sales are a key contributor to the income of these vendors, with a sizeable cut of individual title and DLC revenue going to Microsoft or Sony. With close to $30 billion expected to be spent on console content in 2021 (versus $14 billion on console hardware), ensuring a sizeable userbase of active devices and engaging those consumers to purchase multiple games will be a crucial strategy for hardware vendors. Exclusive content has always been a contested issue in the console wars, with Sony typically dominating with a large portfolio of well-funded first party exclusives. Whilst Microsoft has endeavoured to invest in developing its own portfolio, even announcing the acquisition of Santa Monica based development studio ‘The Initiative’ supposedly working on one of the industry’s first ever AAAA projects, Sony’s recent showcase has really underlined the superiority of its content offering.

Whilst content is amongst gamers’ paramount concerns, the changing way in which consumers access content may help Microsoft to gain a slight edge in the coming years. Already the Xbox Game Pass has proved popular amongst consumers, not only due to its extensive catalogue of content, but also its value for money and accessibility via PC. As the industry speculates on whether this will be the last console generation, Microsoft is well positioned to provide solutions transcending physical hardware.

With equal prices and closely grouped release dates it is expected that dominance in the ninth generation of consoles will be driven by three factors: consumer loyalty and social networks, (despite the potential erosion of these ties by PC integration and cross play titles); performance power and consumer need, particularly brand agnostic casual gamers unmotivated by processing power; and finally, content franchises and exclusivity.

Overall, Sony remains in a strong position in the short term, given the dominance of its content offering. However, long term, Microsoft’s wider service-based strategy and closer integration with the installed base of over 1 billion Windows 10 PC’s is expected to aid Microsoft in fending off competition from potential challengers Google, Amazon and Apple. By the end of this console generation, the gaming landscape will most likely look altogether alien compared to the long running three horse race many gamers have grown accustomed to, with a number of disruptors expected to enter the industry over the next five years, fuelled by developments in infrastructure and cloud gaming. By prioritising short term dominance over long term sustainability, Sony does run the risk of being left behind by Microsoft and the other up and coming gaming ‘Super Aggregators’, as the industry saw happen to Nintendo. Although, there may remain a niche for specialised hardware and exclusive content (as highlighted by the success of the Switch), Microsoft’s development of xCloud and Game Pass suggests plans for much longer-term dominance.

To find out more about our latest publications, including our recently published 'Global Gaming Wrap-Up' Report, please contact Kailash Morjaria at kailash.morjaria@futuresource-hq.com. In the meantime, download our latest infographic here, which covers the gaming industry's share of entertainment wallet.

About the author

Morris Garrard

Morris Garrard is a Market Analyst at Futuresource Consulting, working within the Media & Entertainment team. Morris leads a number of projects within the Video Insights report series, covering the waterfront of video entertainment in multiple international markets. Morris also works on Futuresource’s biannual ‘Living With Digital’ Consumer survey.