Microsoft Corp.
and
Sony Corp.
have cooled their long-running price war over videogame consoles. But that is because a much bigger contest looms.
The two companies have dueled over price since 2006. That is when Sony launched its PlayStation 3 for $100 more than Microsoft was asking for its Xbox 360, which hit the market the year before. That cost Sony some valuable ground, as the PlayStation 3 ultimately sold a little over half the amount of the previous PlayStation model. Microsoft made the same mistake in the next cycle, initially charging $100 more for the Xbox One than the PlayStation 4 when both made their debut in 2013. The Xbox One likewise is estimated to have sold just a little over half the units of its predecessor—and less than half of what the competing PlayStation 4 has sold to date.
Both companies seem to have tired of this particular fight. The new flagship models of the Xbox Series X and PlayStation 5 coming out this fall will carry the same price for the first time since 2001, when Microsoft’s first Xbox came on the scene to challenge Sony’s game business. The flagship version of each console will cost $499 when they go on sale in early November.
So who wins? Analysts still give an edge to Sony, given the company’s longer history in games, better-known brand and strength in markets such as Europe and Japan. The initial stock of PlayStation 5 units available for preorder sold out fast this week, and Colin Sebastian, an analyst at Robert W. Baird & Co., noted Thursday that the console was already fetching a 50% premium over its sticker price on eBay. Microsoft, which opens preorders next week, will also lack the next version of its popular Halo game, which was delayed into next year.
However, Microsoft may appeal to some bargain hunters with a $299 version of the new Xbox that lacks an optical drive. But that device also carries a slower processor and less system memory than the flagship, while Sony’s $399 “digital edition” of the PlayStation 5 carries the same components as the main version. Still, Wedbush Securities Inc. analyst Michael Pachter notes that $299 for a next-gen console is a “pretty compelling entry point.”
But ultimately, a war over unit sales becomes less important as the game business evolves. Now entering their third decade of competition, both Sony and Microsoft have enormous bases of players with established game libraries—a growing portion of which is digital games run as a service. Such players are less likely to switch over, given their investment. In its last earnings call in July, Microsoft reported that its Xbox Live membership has hit nearly 100 million players. Notably, Xbox Live membership has more than tripled during the lifespan of the Xbox One, even given that console’s relatively poor performance.
The success of Xbox Live reflects Microsoft’s larger corporate goal of driving use of its software and cloud services. The company even sells PlayStation versions of Minecraft—the popular world-building game it spent $2.5 billion on in 2014. Sony, by contrast, is far more dependent on its games business, which made up more than a quarter of the company’s revenue for the trailing 12-month period ended in June, compared with about 8% for Microsoft for the same period.
Microsoft’s overall cloud strategy has garnered the company a market value of more than $1.5 trillion—up nearly fivefold since the start of the most recent console cycle in late 2013 and more than 16 times that of Sony’s. PlayStation may keep winning the console war, but Microsoft will be very hard to catch in the much bigger game.
Write to Dan Gallagher at dan.gallagher@wsj.com
