Industry analyst Damian Thong of Macquarie Capital Securities was cited by The Wall Street Journal as having “said he expected Sony to release its next-generation Playstation by the second half of 2018.” This is the same analyst who predicted the existence of the PS4 Pro and Slim, long before they were announced.
This should draw serious concerns from gamers and developers alike. The future of gaming console generations and the way games are released will be determined by how the next generation chooses to reveal itself. Will they be iterative, biennial upgrades as some have speculated? Or will we reset to regular 5 year releases, as before? Sony isn’t just betting on intangible market forces: Playstation is the dominant force that will likely determine this new cycle, and the future of gaming that comes with it.
To understand Sony’s motivation moving forward and what the effects of their actions will look like, we must examine their recent history and Playstation’s role within the company and the market at large.
The Japanese electronics company was once a visionary gadget factory that delivered wonky and wonderful designs for televisions, home theater and audio. The Sony Walkman, Bravia televisions and even the VAIO computers were part of a long-lost identity.
In 2015, The Verge reported something the industry had long suspected: Most of Sony was dying.
Their report, paired with CEO Kaz Hirai’s spartan predictions to investors, brought light to Sony’s rough last few years. The audio and video division had been spun off, as had the entire televisions business. Sony Pictures had been devastated by a North Korean hack, forcing their flagship Winter film ‘The Interview’ to evacuate its theatrical release in favor of a rushed, unprofitable online release. This blow came just months after The Amazing Spiderman 2 went wildly overbudget before bombing at the box office. The end result was the firing of chief Amy Pascal and a slew of email detailing the company’s flailing efforts to sustain its IPs. The remaining Sony divisions had an even worse outlook: slow, but certain death. In fact, The Verge report further revealed that of its diverse and acclaimed array of products, only two managed to turn a profit: iPhone camera manufacturing and the Playstation 4.
Launched in 2013, the Playstation 4 broke away from its competition, outpacing and lapping Microsoft’s Xbox One. A strong lineup of exclusive games and premium marketing delivered an explosive few years that buoyed the company through what seems to be its darkest hours. It was in this formative year that Sony became the “Playstation” company. This was by no means the result suddenly turning sentiment among investors. Kaz Hirai was made CEO of the international behemoth in 2012, before the Playstation 4 even launched. This was the culmination of a lifelong career at the company: joining CBS/Sony Music Entertainment Japan in 1984 in marketing before shifting to Sony Computer Entertainment America in 1995. Just two weeks after the launch of the Playstation 3, Hirai was made President of Sony Computer Entertainment.
Sony’s newfound focus on Playstation has come with great reward. Shipments recently hit 60 million globally, as their profits near company highs, unrivalled in 20 years. The gaming market hasn’t just been kind to Sony, their focus and impeccable execution pushed them to consistent dominance of this recent cycle. Sony emerged from the worst crisis in the company’s history, riding on the back of the Playtation 4, facing the future of electronics and entertainment with an assured gaze.
This confidence is contingent on the following question: Will Playstation continue its dominance into the next console cycle? This is a difficult question to answer, as the market is in a peculiar place, going in a direction that only Sony and Microsoft can dictate for it. You see, Microsoft’s large mistake with the Xbox One was determining that the market called for entertainment and gaming to merge into a single platform. They ultimately failed, pushing the market into Sony’s hands, but their maneuver is the result of a calculus that Sony will soon be forced to make twice. Not only does CEO Kaz Hirai have to answer “What is the next generation,” but also “When is the next generation?”
The 8th console generation landed at an odd time. Traditionally, consoles aim for a five year cycle that matches consumer electronics spending. The 7th generation not only began early, with upstart Microsoft releasing the second iteration of the Xbox in 2005, but also extended late due to the 2007 recession. The anticipated 2010/2011 launch of new consoles was forcibly delayed as consumer spending plummeted.
This can be demonstrated by the release of Grand Theft Auto V in 2013—the largest launch of any game of the generation, in history, and while we’re at it, of any entertainment product in history. The San Fiero and Los Venturas portions of the game were forced to be cut after it became clear that next generation consoles wouldn’t launch until the tale end of 2013. To maintain that content, they would have to launch the game with consoles, or shortly after they were released. This would have devastated games sales as gamers slowly upgraded to the new systems. Instead, they opted to bridge the two generations, which proved even more profitable. The 5 year cycle was irrevocably broken that year, and we have yet to see what will replace it.
The current generation consoles—represented by the Xbox One and Playstation 4—are extremely underpowered. Their tech was intended for a 2011 launch at the latest, meaning most AAA titles run between 900 and 1080p at 30fps, missing the 1080p 60fps industry standard that most games are developed to hit. Add the sudden rise of Virtual Reality, and these console fall further behind.
In response, Microsoft and Sony both did something unprecedented. They released iterative changes. The Xbox Scorpio and Playstation 4 Pro were halfway points that satisfied the external entertainment market demands for 4K content while keeping the 8th generation alive. This prompted fear that future consoles will be iterative, like smartphone releases.
In truth, none of us know what the future of gaming console releases will look like. Some speculated that the 8th generation would be the last, but PS4 sales have made that unlikely. Sony is additionally unlikely benefit from an iterative model. Consoles would slowly become PCs, periodically updating software, and getting improved hardware. This is a scenario where Microsoft would dominate. PC gamers surpasses console gamers in numbers, and PC gaming is more profitable by a staggering margin.
To marry the two would shift the power to Xbox, a platform that is already blurring the lines between PC and console as it is. A hardware diverse playerbase on Playstation hurts Sony as the thread holding them together would be PSN (the Playstation Network), the PS4’s Achille’s Heel. Xbox Live has been the premiere console gaming service, and remains hitherto unrivaled in quality. Keep in mind, I have yet to mention Steam, the $3.5b mythic service from Valve that Microsoft stares at ruefully while molding Windows Stores out of clay. Shifting to iterative updates complicates Sony’s path to success.
Sony Playstation has a vested interest in keeping a regular cycle of releases, whether they be over 5, 8 or any number of years. By releasing a next-gen Playstation in 2018, Sony can successful plant a beachhead into the future market, carrying the PS4’s success into the next decade.
Or so they hope.
This is an extremely dangerous move for Sony. If they succeed, they shape the market forever. If they fail, and the iterative model proves more appealing to consumers, Playstation will meet the fate of the Xbox One, but in an exponentially more devastating fashion.
Sony isn't just shaping the next console generation, if the PlayStation 5 launches in 2018, Sony stands to gain or lose everything.
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