It would sound strange if we come across products getting sold at a lesser price than their cost, that too by some of the world’s biggest companies/manufacturers.
And if there are names of the giants like Sony and Microsoft, who have been selling their consoles at a loss for a long time, it will make no sense at all.
Well, counterintuitive as it may sound, this very strategy is the gateway to these companies’ revenue in the gaming industry.
Gaming consoles have to compete in a very competitive market where the buyers are price sensitive. If the price of the consoles is high, customers would buy the cheaper alternative or might even opt to buy a computer by adding some money and get all the necessary functionalities along with the gaming utility.
Sony's PlayStation and Microsoft's Xbox brands are still fighting for supremacy in the video game console market. The Nintendo Switch, on the other hand, has outsold them both in the last two years, with around 28 million units sold in 2020 and 2021.
The Xbox S, on the other hand, sold three million devices in 2020 and almost nine million in 2021. The PlayStation 4 sold 8.6 million units in 2020 and two million in 2021, while the Playstation 5 sold 4.3 million units in 2020 and 13.5 million in 2021.
Console makers know it’s not the device that would make them money, rather the subscription business.
The Xbox Game Pass lets a user play from a wide variety of Xbox games for USD 24.99 a month, and Sony makes money from the Playstation exclusive games and similar services.
Nintendo has a similar subscription service called ‘Nintendo Online,’ allowing players monthly or yearly subscriptions. Sony is also expected to launch its own subscription service called ‘Sony Spartacus’ very soon.
Developers, publishers, console manufacturers, and distributors are the primary actors in the industry. The developers are in charge of the design and coding of the games, while the publishers are in charge of production and marketing.
Some of Sony and Microsoft's games are also published by them. The expense of creating a game might be quite high. When it comes to the economics of video game publishers, marketing, production and distribution costs, as well as licensing fees, are among the most significant expenses.
The cost of recruiting designers, programmers, and other personnels needed to produce the game is included in development costs.
So, selling consoles at a loss makes sense for these big companies as long as they make more money from their game-subscription services. And only time will tell whether this model will continue to generate revenue for them in this ever-changing gaming world.
