11/30/2015

PS4 Hits 30 Million, Xbox… Not So Much

Sony Computer Entertainment Inc. announced that its flagship entertainment center, the PlayStation 4, has sold more than 30.2 million units. The console launched in November of 2013 and has been the leader of the ‘Console War’ since its inception. Sony is estimated to have sold almost twice as many units as the next best competitor, Microsoft’s Xbox One.

There are many reasons why the PS4 has outsold the One. Many consumers made their choice to go with Sony the moment the two competitors announced their price models. Microsoft started their retail price at $499 which included the Kinect, an additional piece of hardware that can sense motion. This made many consumers angry because they felt like the Kinect was an additional item that they were paying for that they didn’t want or need. Sony priced their console $399. This difference immediately won those consumers that were on the fence.

 Nearly two years later Sony has continued to put the pressure on Microsoft buy procuring 30 day exclusivity rights on major game titles such as Call of Duty, Destiny, and Star Wars: Battlefront. The 30 day exclusivity means that PS4 owners will get downloadable content, or DLC, 3 days before the other consoles. By securing exclusivity on these popular titles, Sony is winning over consumers that used to be Xbox loyal. The professional Call of Duty players have made the switch to the PlayStation 4 after the announcement of the Call of Duty World League that will be operated by the game’s developer Activision.

Sony keeps making decisions that increase their grip on the console market. They seem to know what the consumer wants and when to play their cards. When asked if the Xbox could catch up, Phil Spencer, the head of Microsoft’s console division said  “I don’t know… You know the length of the generation — Sony has a huge lead, and they have a good product.” It seems like Xbox needs to make a move and soon if it wants to stop the bleeding that the PS4 has caused.

8 comments:

Dr. Tufte said...

Brigham Kindell: 94/100 (you wrote "buy" instead of "by").

Hmmm. Not too much ManEc here.

Let's see: XBox One is bundled with more hardware, and buyers don't seem to like the bundle that much. The PS4 is bundled with early availability of some games, and consumers seem to like that.

You know what's screaming out to me though? Microsoft is earning $1.39 per share, and Sony is losing $0.93 per share.

What I try to do here is not tell you guys that you're right or wrong, but steer you towards making better decisions in the future. So what Brigham cited first is ... a press release from Sony. Why would they be touting their sales instead of their earnings? Perhaps because earnings is what they're really supposed to produce, and they're not doing it very well. The second site is a gaming industry source, that has a legitimate reason to be focused on which platform is more or less popular. But that doesn't tell us much about whether Microsoft or Sony is doing a good job. Perhaps Microsoft's goal isn't market share, but rather profits. That would explain a lot.

So, it's OK for Brigham not to have spotted this (or for the rest of you), but I've done my job if I can convince you to stretch a little further the next time around.

Brigham Kindell said...

Dr. Tufte I really didn't think of it that way. I guess i was more focused on the number of units that Sony has put out. I wish each of the companies console divisions had their own stocks separate from their other divisions so we could really tell who is ahead.

Dave Tufte said...

Brigham: 50/50

You're fine (as long as I didn't come across as a jerk). A thread like this is why blogging works for online classes :-)

I maintain that a lot of people are encouraging you to focus on units shipped to divert your attention away from the profits that aren't being earned.†

As to Brigham's suggestion that it would be nice if the companies involved broke out their divisions so that we could better understand their finances ... well ... a lot of people couldn't agree more. That's actually a topic that gets covered in corporate finance classes (I'm not sure if it's included in our FIN 6200 or not).

A caveat to this is that since profit data is available for the parent company but not its divisions, while sales data may be available for divisions, we can always justify looking at the sales data because it's all we have.

† Most of you are familiar with Carly Fiorina as a Republican candidate, but aren't old enough to remember how she worked at Lucent (the performance that got her the CEO job at Hewlett-Packard). It was a textbook case of focusing on sales at the expense of profit (and it fooled investors too). Here's a quote I just copied out of her Wikipedia page: "According to Fortune magazine, Lucent increased sales by lending money to their own customers, writing that 'In a neat bit of accounting magic, money from the loans began to appear on Lucent’s income statement as new revenue while the dicey debt got stashed on its balance sheet as an allegedly solid asset'. There wasn't anything illegal about this at the time, although it has long been recognized as a dicey practice, but the general feeling in the business press at the time was that she had responded to incentives that were focused too much on sales.

Hank Hill said...

The comments from this posting made me think of Google's recent structural change where Google became a subsidiary to Alphabet. In the case of Google, many investors were getting frustrated with the variety of different projects Google was undertaking; many of these projects were not profitable and many were extremely profitable, i.e., online advertising was and is very profitable. Since Alphabet transformed into a holding company for several of Google's former divisions, Google became more transparent. Investors can more easily identify where the company is profitable, where it isn't, and what improvements can be made. It also allows for swifter agility and increased management within each company.

So in regards to Sony and Microsoft, I agree with the comments. Although Sony may have more units sold, it doesn't make them more profitable. It is also possible that Sony may be doing better than Microsoft in the console gaming division of their business but struggling in other areas. I am not familiar with Sony's organizational structure, but maybe their investors would benefit from Sony dividing into smaller businesses just as Google has done.

Dr. Tufte said...

Hank Hill: 50/50 ("swifter agility" ???, I guess there's nothing technically wrong with that, but I'm tempted to take off for repetitiveness).

Thanks for this comment. Really. I was aware of the Google/Alphabet thing, but I had not read up on it enough to be aware of the underlying motivation. So, did Google spin off some divisions, and then create a holding company containing the rump Google and those other divisions? Are there tracking stocks for each of them.

FWIW: the classic textbook example of this needing to be done is the GM of 10-20 years ago. Of course, we all know that GM's car business has been moribund for a long time. There was a period of several years there where its Hughes division was valued more highly than the entirety of GM. You read that correctly: I'm saying GM was valued at (say) 2, Hughes at 3, making all the rest of GM worth -1. And what did Hughes own that was so valuable? DirectTV.

Hank Hill said...

Lol, sorry about the "swifter agility", I think I meant to use one or the other. But yes, Alphabet is now the holding group to Google. The Google business now consists of the former company's core competencies like Google Search, Google Maps,Google Ads, YouTube, Android, and Google Apps. Some of the other subsidiaries to Alphabet are Google Fiber,Calico, Nest, Google Ventures, and Google Capital. They still remain under one stock, GOOG/GOOGL.

Hank Hill said...

Lol, sorry about the "swifter agility", I think I meant to use one or the other. But yes, Alphabet is now the holding group to Google. The Google business now consists of the former company's core competencies like Google Search, Google Maps,Google Ads, YouTube, Android, and Google Apps. Some of the other subsidiaries to Alphabet are Google Fiber,Calico, Nest, Google Ventures, and Google Capital. They still remain under one stock, GOOG/GOOGL.

Dave Tufte said...

Of course. But that's why the alumni advisory boards of business schools across the country want us to have more writing assignments.