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Sony’s Playstation 5 pricing threatens fresh blow to video game retailers

A cheaper 'Digital Edition' console will increasingly Sony's position as the point-of-sale for Playstation games - which is yet more bad news for the likes of GAME.

Frasers Group PLC - Sony’s Playstation 5 pricing threatens fresh blow to video game retailers

The pricing of Sony’s Playstation 5 threatens a fresh blow to retailers such as Frasers Group PLC (LON:FRAS).

A cheaper ‘Digital Edition’ of the next-gen console, set for a November launch, will be priced at £360.

This version of the PS5 console will be entirely the same as the £449 priced ‘top-end’ Playstation 5 machine except it will not have a disc-drive, a piece of kit that would cost Sony between US$20 to US$30 apiece.

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Customers with the digital edition console will access downloaded games only. That should significantly boost Sony’s in-platform revenues.

Essentially, a haircut of around US$80 to US$70 per unit will not only allow Sony to pitch at the same price point as Microsoft’s lower spec new Xbox Series S console (the premium Series X is priced at £449), but, it will also see Sony’s online marketplace exclusively capture the point of sale.

Direct game downloads from Sony’s Playstation Store reportedly accounted for around 60% of all sales in the twelve months to June 30, though one would expect that the global pandemic lockdown was responsible for skewing consumer behaviour.

For a period of months’ it would’ve been the safest and perhaps only way to buy games. Sony will be hopeful that this has helped drive adoption for download-only sales.

It remains to be seen quite how the shifting marketplace impacts the balance of power between games platforms and game-makers, though perhaps EPIC’s recent row with Apple over Fortnite transactions indicates there may potential for friction.

Nonetheless, broadly speaking, greater emphasis towards digital sales is an obvious win-win for both Sony and its third-party game publishers.

Digital distribution obviously cuts out vast amounts of game publisher’s manufacturing and supply-chain costs. At the same time, cutting out the retail middlemen gives Sony a much bigger slice of the revenue from game sales, presently it receives around 50% more from a digital sale compared a physical sale.

It is perhaps easy to predict high demand for the cheaper digital console given the economic backdrop for retail this year.

Beyond 2020, with even fewer physical sales, retailers are likely to become even further removed from the video games business.

GAME was acquired by Mike Ashley’s Frasers Group in July 2019, after multiple stints of administration and restructuring. At the time of its acquisition, Frasers (then called Sports Direct) detailed that GAME made a £7.4mln loss on £782.3mln revenue for the 2018 financial year.

Not dislike the preceding demise of HMV and Blockbuster Video, retailers like GAME have long been worn down by the changing tides of online consumer trends.

Such is the changing times, contemporary video game stores feel more like shrines to pop culture merchandising, than a place to buy games.

Brick and mortar video game stores have had to contend with many foes, as its market share has been wiped out compared to levels seen in their late nineties and early millennium heyday.

They’ve lost ground because of the Tesco-led supermarket incursion into entertainment, the unstoppable rise of Amazon, and the contentious ‘trade-in / resale’ market.

As Sony seeks to skip retail altogether, the likes of GAME will need to fallback further into a tee-shirt, toys and collectible business – or it will go the way of HMV, Blockbuster and Woolworths.

Quick facts: Frasers Group PLC

Price: 405.4998 GBX

LSE:FRAS
Market: LSE
Market Cap: £2.11 billion
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