How are Sony and Microsoft responding to stock shortages? »

How are Sony and Microsoft responding to stock shortages?

Supply chain disruptions have been a trending topic for the last few years, especially since the COVID-19 outbreak. Gaming is one industry that has been severely disrupted, although it isn’t often spoken about. Of course, tales of any technology sector’s plight aren’t a pressing topic in the face of rising living costs. But what’s interesting is that the gaming industry was seemingly unshakeable for over a decade. As technology developed throughout the 2010s, so did gaming, leading to the exponential growth of mobile gaming, esports, and video games consoles. This growth continued during the pandemic, as consumers were stuck at home with more leisure time to use their consoles. That said, COVID has also left a negative mark on the industry.

The ongoing console shortage The video game sector as a whole is huge. There are more than 2 billion gamers worldwide, accounting for 26% of the world’s population. Although 2020 was a tumultuous year, it was still a blockbuster year for gamers. The release of Sony’s PlayStation 5 (PS5) and Microsoft’s Xbox Series X in November 2020 marked the latest, sought-after offering from two of the biggest tech companies in the world. Hopeful gamers queued for hours and scoured the internet on launch day to find consoles to purchase. Unfortunately, for many, their efforts were fruitless. Almost two years on from its release date, demand for the PS5 and Xbox Series X consoles still outstrips supply. In an interview with Bloomberg Studio 1.0, Microsoft’s Gaming CEO Phil Spencer projected that this won’t change until 2023. There are a few reasons for the stock shortages, and most of them aren’t exclusive to gaming. Firstly, the global semiconductor shortage has impacted the entire tech industry. Semiconductors, commonly referred to as chips, power most tech products. The surge in demand for electronic goods, paired with constant factory lockdowns and shipment blockages, has squeezed chip supplies. Not to mention the computerisation of everyday goods, including washing machines and smart home devices, has multiplied semiconductor demand. Russia’s invasion of Ukraine has only strained supply chain issues further. Several hardware makers and video game companies halted their operations in Russia following the invasion, which once again hampered manufacturing. In a financial presentation on 25 May 2022, Sony stated that the war in Ukraine has impacted its “logistics and potential parts inventory”. Other political conflicts, such as President Trump’s trade war with China, have also played a part in exacerbating supply pressures. Sony and Microsoft respond to stock issues Both companies have been vocal about the impact of stock shortages on their sales and operations. While the console woes continue, the two gaming heavyweights have found alternative avenues to drive profits. Sony recently announced that it was increasing the price of its PS5 in multiple markets, including the UK and Europe, blaming inflation for its decision. The new PS5 price is set at £479.99 in the UK (for the disc version), up from £449.99. Elsewhere, Microsoft is ramping up its content acquisitions in order to further push its Xbox Game Pass subscription service. What neither company has addressed is the dramatic reduction in official bundles for their latest consoles, which has made the PS5 and Xbox Series X much more expensive to acquire. Based on research conducted by GamingDeals.com, it appears that bundles were first on the chopping block in the face of supply issues. Gaming companies typically offer customers bundles and special edition consoles in the first few years after a new release. A bundle usually retails for the recommended retail price (RRP) of the standalone console. In effect, customers get a game, or two, for free. Interestingly, there’s only been a combined total of three official PS5 and Xbox Series X bundles in the two years since their release. In comparison, the previous generation’s PS4 and Xbox One had a total of 27 bundles in the two years post-launch. Sony recently revealed the PS5 Horizon Forbidden West bundle with a price tag of £499.99. Considering that the disc alone retails for £50, gamers don’t get any real savings. Gaming companies are most likely offering fewer bundles to maximise their profits while inventory remains low. Ultimately, fewer bundles means that customers have to pay full price, or a premium, to get their hands on a console. “These are unprecedented times not just for consoles, but the gaming market as a whole”, says Phil Jones of GamingDeals.com. “While customers are still happy to pay whatever they need to in order to secure the console, the manufacturer will continue taking advantage of them.” It’s clear that the big gaming companies are profiting from shortages. Sony posted a $2.3bn increase in operating income in the first quarter of 2022, despite a 2% sales decline. What does the future of the gaming industry hold? The growing popularity of cloud and mobile gaming will undoubtedly spur the industry forward while hardware issues prevail. Other forms of ‘new age’ gaming, including virtual reality (VR), will also continue to encourage the industry’s development. As far as the prospects for games consoles, President Joe Biden signed the CHIPS And Science Act on 9 August 2022 in an effort to foster growth of the semiconductor sector. Gamers hope that this will eventually alleviate console supply issues. In the meantime, it’s likely that gaming companies will continue to prioritise profits over customers.