Michael Pachter: Sony Blew it With the PS5 Digital Edition

Michael Pachter: Sony Blew it With the PS5 Digital Edition - News

by William D'Angelo , posted on 02 October 2020 / 5,615 Views

Sony is releasing two versions of its next-generation console, the PlayStation 5. The $499 version includes a digital drive, while the $399 version is an all-digital console. 

Wedbush Securities analyst Michael Pachter speaking in an interview with GamingBolt discussed the two PlayStation 5 consoles. Pachter says Sony is breaking even on the standard PS5, while they are losing around $40 for each PS5 Digital Edition, due to the Digital Edition's lack of a disc drive not saving Sony $100 per console. 

"I think Sony really blew it with that, because as far as we can tell, the cost of making a PlayStation 5 is $450, so they are breaking even on the $500 version, but losing $40 or so on the digital version," said Pachter.

"A disc drive isn’t worth that much. So they’re losing $40, but they gain $6 more per digital game than they would gain otherwise. So you would have to buy a lot of games to cover up the loss, and I just think it’s unlikely many will buy that many games."

Michael Pachter: Sony Blew it With the PS5 Digital Edition

Pachter says Sony "blew it" with the Digital Edition and he thinks Sony will sell and make fewer of the lower-priced console.

"I actually don’t think many consumers will want to save the money, I think most would rather have the disc drive on hand so they have the option to take their game to their friend’s house or trade it in or whatever,” Pachter added. "So I think they blew it with the Digital Edition, but it’s hard to tell early numbers, because it’s all sold out anyway, and we don’t know how many of each they made. But I think over the long run, they’ll sell and make fewer digital editions."

Sony hasn't stated which console they are selling more of at launch, however, some retailers have said they are selling more of the PS5 with a disc drive than the Digital Edition.

The PlayStation 5 and PlayStation 5 Digital Edition will launch on November 12 in North America, Japan, Australia, and New Zealand, and November 19 in Europe and the rest of the world. 

A life-long and avid gamer, William D'Angelo was first introduced to VGChartz in 2007. After years of supporting the site, he was brought on in 2010 as a junior analyst, working his way up to lead analyst in 2012. He has expanded his involvement in the gaming community by producing content on his own YouTube channel and Twitch channel dedicated to gaming Let's Plays and tutorials. You can contact the author at wdangelo@vgchartz.com or on Twitter @TrunksWD.

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Cerebralbore101 (on 01 October 2020)

PS5 digital edition massive success confirmed!

Zkuq (on 01 October 2020)

I tend to dislike comments like this, but this time he's not really making much sense to me, so I can't help agreeing.

  • +3
Astral (on 01 October 2020)

This is the perfect response to Pachter in general. I can think of no reason to take his opinions seriously... with all due respect to his person, of course.

  • +2
ClassicGamingWizzz (on 01 October 2020)

Oh patcher, just shut the fuck up.

Vendrom (on 01 October 2020)

I would agree if the price difference between the 2 was $50. But $100 sound better to the consumer and could potentially prefer the Digital than the Physical version due to the lower price. Furthermore, their financial reports indicate that ~70% of software sales are digital, which means there's a preference towards digital copies. Of course the console distributors have already said that there are fewer Digital than Physical editions on stock, so you can already see how they allocate their resources.

Squall_Leonhart (on 01 October 2020)

Why is Patcher still employed... literally nothing the man 'predicts' actually comes to fruition. He is the human definition of a 'chocolate teapot' :-D

ClassicGamingWizzz (on 02 October 2020)

The dude is filthy rich

  • -1
LivingMetal (on 01 October 2020)

HAHAHAHAHAHA!!! No Comment. :D

JON0 (on 01 October 2020)

A $100 cheaper option, same specs, no disk drive. It'll make some people stop and think. The fact that even the digital edition sold out so quickly speaks for itself. Pachter is completely off with some of these statements. Consumers will always want to save money. His point about taking games to a friends house is a strange one.. You could always just log into your PS account on a friends PS5 and have access to all your games. I hate to admit it, but the future is digital. You see a lot of this with services such as Gamepass. If Sony can make their PS+ Collection more compelling, you can be sure more of these consoles will be sold (in the long run) Tbh, i gave the Xbox SAD a lot of crap when it launched, but that was mainly due to the pricing and lack of incentive to buy the console. Compare it with Series S, you can believe MS are making some of the correct moves. Good price, a WAY better focus on games and their xbox all access is a win. I think both digital consoles are going to surprise people this generation.

Dallinor (on 01 October 2020)

$6 difference? I would have thought it was higher than that.

Jumpin (on 01 October 2020)

My guess is he's talking about third party fees; which, I guess, would be justified as higher on digital software since Sony has to deal with all the digital infrastructure. For first party published software, I'd imagine the gains would be significantly higher than 6 extra USD since the 15 USD retail cut would all go to Sony, as well as shipping, handling, and manufacturing expenses. Either way, it sounds like Pachter is fudging numbers to fit his conclusion.

  • 0
Giggity_goo (on 02 October 2020)

I'm sure thats on physical copies its 30% on digital

  • 0
ArchangelMadzz (on 01 October 2020)

This guy is so off the mark. It's about getting some money away from the used games market and toward them. As well as the obvious psn profit gain.

JRPGfan (on 02 October 2020)

Great Success confirmed :)

GoldenHand80 (on 02 October 2020)

Going through the comments can be quite amusing and entertaining

danohdanoh (on 02 October 2020)

Even assuming his dubious figures are accurate, he doesn't think an average gamer will by 7 games during the life of the console? Is this guy paid to be a professional troll?

Giggity_goo (on 02 October 2020)

i think they will be fine Sony takes 30% of all digital game sales and 100% on exclusives because don't have to give retailers a cut

Airaku (on 01 October 2020)

How the hell does this guy get paid for making predictions when we don't and make far more accurate predictions? Sony didn't blow anything. There is a market for both, and this is a larger market for the disc based version and Sony will probably produce and sell more of the $499 version of the console. There's a very large market base for the digital edition and I know people who plan to get it. Personally I'm forking over for the full console! If I'm buying a console, I'm buying the full damn console.

mutantsushi (on 02 October 2020)

Predictions is not what he is paid for. Just look at his words, talking about taking disc to friends house. That is not market analysis, he doesn't even discuss implications for valuation of Sony/MS. He makes no effort to discuss indirect impact on 2nd hand disc market and rechanneling that demand to online sales (or new discs). He is merely using job title as symbol of authority to peddle shallow marketing points to console consumers, most of whom aren't even familiar with actual market research reports, it's all a PR stunt. If there isn't a law against this, why wouldn't international corporations try to manipulate opinion like this? Random Pakistani clickbaiters and "gaming media" play along of course.

  • 0
NextGen_Gamer (on 01 October 2020)

Someone needs to remind Pachter that because it's digital only sales, Sony gets a MUCH bigger cut of each game sale. PS Store (along with Nintendo eShop and Xbox Store) are all 70/30 split - 70% to the publisher, 30% to the platform owner. A $70 game then gives Sony $21 BY ITSELF. TWO GAME SALES MAKES UP THAT $40!!! How many games would a consumer buy over 7 year lifespan?!

Dgc1808 (on 02 October 2020)

He does actually address that In the article. He states that they make $6 more on digital sales vs physical.

  • +1
NextGen_Gamer (on 05 October 2020)

@Dgc108 - That would mean, if he is basing this off the $70 price, that retail games must split their platform/publisher money between $50 - the other $20 being at the actual manufacturing costs, shipping and retailer cuts (Walmart, GameStop, etc.).

  • 0
Dante9 (on 02 October 2020)

Firstly, taking a loss on consoles has been a thing for many generations for now. The money is made from games, not the hardware. Secondly, as time goes by, the manufacturing costs will go down. Thirdly, digital sales will more than make up for any initial losses, because Sony gets to bypass the retailer. Pachter must know all of this, he cannot be this clueless so he must be getting paid by the competition to say this.

danohdanoh (on 02 October 2020)

Even assuming his dubious figures are accurate, he doesn't think an average gamer will by 7 games during the life of the console? Is this guy paid to be a professional troll?

KingJames (on 01 October 2020)

In Canada you'd pay around 560$ with tax for the Digital edition, and $700 for the regular. Telling me they gonna lose too much off the digital edition or no one will buy it? Dumbass statement. I'm getting a Digital edition around launch if I can find one.

kazuyamishima (on 01 October 2020)

If Sony Blew it with the digital edition, I don't know what's the description with Xbox Series S since aside of USA, it seems that there are plenty of stock available to get it on 2020.

Mystro-Sama (on 01 October 2020)

Imagine getting paid to talk shit.

Random_Matt (on 01 October 2020)

Nope, digital sold out miles quicker.

mutantsushi (on 01 October 2020)

This guy can't manage the level of analysis of high school student, but maybe it's PR targetted at grade school students? 1) I can't see how they can only be "losing" or subsidising the all digital model by only $40, the disc drive is not worth $60. 2) The idea people buying PS5 in launch year will not buy 6.5 games (to break even on subsidy by his reckoning) is insane. Look at overall attach rates, and consider launch year customers are playing for 3-4 years longer than average, and are already less price sensitive by fact they purchased console at full price in launch year. The length of "generation" will almost certainly last more than 6.5 years, so he believes launch year games don't buy ONE game per year? What industry does he think he is analyzing? 3) While his general approach on number of games (at higher profit margin) needed to break even on subsidy is valid enough (unlike some posters here who only look at total profit per game e.g. $21, ignoring a good chunk of that could be had anyways by disc sales without subsidising), he misses huge factor: 4) Digital sales destroy the used game disc market (although it will still exist in reduced form from disc based model). 2nd hand game disc market involves ZERO money going to Sony or 3rd party publishers. So when that market is gone (or radically reduced), the potential customers will have to buy either via Sony digital store (discounted from launch prices, but Sony still gets cut) or new disc sales (which Sony also gets cut from). Further, Sony will have INSIGHT on these sales which they wouldn't on 2nd hard market, which itself is valuable marketting data... Although possibly Gamestop et al could sell their data to Sony currently? 5) I think it's fair assessment to say that destroying used game market will make subscription services more attractive, and merely the fact of pure digital console already make the idea of subscription service more comfortable, since you already are downloading everything from Sony servers... Whereas the disc ownership model has fundamental distinction.

AFattyGamer (on 01 October 2020)

I've heard of this guy Pachter a lot but he has a track record for being wrong ... A lot. Sony PS5 digital and physical are still breaking pre order records for Sony. Not sure where he's talking about this failure.

PortisheadBiscuit (on 01 October 2020)

He is so terrible

siebensus4 (on 01 October 2020)

Actually 450 $ and 550 $ were the prices I would have expected. I still think Sony has cut 50 $ on both consoles due to Microsoft's 499 $ price tag.

crissindahouse (on 01 October 2020)

Too bad he doesn't even see the bigger picture. Much less used games on the market, digital copies are still sold for full price months after release while they are cheap at retail after a while and so on...it obviously also helps to sell more consoles in the first years because as earlier someone will buy a PS5 as more he will pay for PS+ over the generation. As an analyst he should know that it's not as simple as "6 bucks per game and nothing more I have to think about"

non-gravity (on 01 October 2020)

Personally I bought a PS4 two years into its lifecycle and never once bought a physical game. I do think some of the digital prices for games are ridiculous, but I see the same on Steam. Two year old games at 70 euro full price. Unless its the new Skyrim I wait for a sale. I do buy all my games on Switch physically though, and buy all Nintendo games at full price.

Comments below voting threshold

Sogreblute (on 01 October 2020)

I HIGHLY doubt Sony is breaking even on the PS5 Disc. I think they're taking a loss on it, and a really big loss on the Digital PS5. Looking at the specs of the system along with other costs included with controller, cables, shipping, retailer cut, packaging, etc. I believe the PS5 was supposed to be $600, but Microsoft's price of the Series X changed that.

Slownenberg (on 01 October 2020)

I think where they failed is not that they are losing money on the digital edition (it's normal for Sony and Microsoft to launch systems at a loss), but because the game sizes are so big now that any serious gamer is going to run out of space on the digital edition within a year or two. That edition only makes sense for people who only but a couple games a year, but then again $400 is extremely steep for anyone who only buys a couple games a year.