The PS5 is being sold at a loss, with Sony bolstering its revenue through subscription services and digital sales. This was confirmed in the recent Sony Q3 FY2020 earnings report, which covered the quarter from October to December 2020. Sony says that the current $499 and $399 price points for the disc and digital versions of the PS5 respectively are lower than the manufacturing costs for both, which means Sony is operating next-gen hardware sales at a loss in order to achieve a more “strategic” and palatable price point.
Sony stopped short of confirming exactly how much it costs to manufacturer each PS5 and what the overall losses are for each physical and/or digital edition sold. The earnings report goes on to detail additional “general and administrative costs” incurred during the launch of the PS5, with some likely being owed to the pandemic.
Sony offset these losses through software sales and subscription services, most notably ongoing PlayStation Plus revenue from new and existing subscribers. The higher profit margins on PS4 hardware also helped to make up for the price difference—with 1.4 million sold during this period—and put Sony at a net positive. The company also notes higher-than-expected sales of peripherals, no doubt aided by PS5 launching alongside a quite of matching peripherals like the DualSense Controller, PS5 Camera, PS5 Remote, DualSense Charging Station, and PS5 Headset.
It’s not uncommon for console hardware to be sold at a loss up front, with companies expecting to make up for it by locking players into the ecosystem with profit margins on software and subscriptions. In the same financial report, it was revealed that Sony sold 4.5 million PS5s between its launch and the end of the year, and is targeting over 7 million sold by March 2021 to close out the 2020 fiscal year. Next-gen console inventory shortages are not expected to resolve before the second half of 2021, with supply constrained by the limits of GPU/CPU manufacturer AMD.